Earlier this year, T-Mobile USA decided to shake things up. Up until now, it had become standard practice in the United States cell phone market to sell a device at a subsidized price and then lock the customer down to a two-year contract. With the new T-Mobile uncarrier plan, the conventional 24-month contract is discarded and customers can theoretically leave at any time.
Remember that buying a smartphone is quite different from shopping for a new tablet in that you have to concern yourself with not only the purchase price of the device, but also what your monthly bill will be. Yes, there are monthly data plans for tablets too, but the monthly plan is much more of a necessity for smartphones in particular. So, does this cell phone approach really work out in your favor? Is T-Mobile actually cheaper than its competitors?
A T-Mobile Uncarrier Primer
Before we can do a real comparison, we must first explore the concepts behind the T-Mobile uncarrier approach. First, while you don’t have to sign a traditional two-year contract with T-Mobile anymore, you’re in a sense locked down for 24 months unless you pay off your balance.
When you buy a new cell phone the more conventional way, your device is typically subsidized by the carrier. For example, while the iPhone 5 will only cost you $199.99 with AT&T on contract, the outright price is closer to $600. With the new T-Mobile setup, things are a little different. You don’t get a subsidized device anymore, per se, because you put a down payment and then you pay back the price of the phone in monthly installments. Thankfully, no interest is charged. In both cases, you then pay for your monthly plan as usual.
Buying an iPhone 5 with T-Mobile
Yes, there are many different smartphones and cell phones offered by T-Mobile, but I thought I’d use one of the most popular for the purposes of this comparison: the iPhone 5. More specifically, we’ll look at the basic 16GB model.
The cheapest and most basic plan available starts with unlimited talk and text for $50.00 per month. This also includes 500MB of high-speed data for $0.00 per month, which drops to slower 2G speeds after you reach that cap. Your up-front down payment for the iPhone is $99.99 and your 24 monthly installments are $20.00 each. The $35 activation fee is currently being waived.
Taking all of this into account, you will be spending a total of $1779.99 before taxes over the course of 24 months for the iPhone 5 plus the two years of service.
Buying an iPhone 5 with AT&T
I’m using AT&T as an example of a competitor to T-Mobile. This is just for illustrative purposes and you could go through the same kinds of calculations with Verizon, Sprint, or whoever else. Again, to make things fair, we’ll also look at the 16GB iPhone 5 over the course of a two-year term.
I wasn’t able to find an identical individual plan with AT&T, but I was able to notch down the service a little. The Nation 450 w/ Rollover Minutes (450 minutes, plus evenings and weekends) is $39.99 per month. The smallest DataPlus package (300MB) is $20.00 per month and Messaging Unlimited is an additional $20.00. The iPhone 5 on a two-year contract is $199.99, plus an activation fee of $36.
When we all of that out for the 24 month period, you will be spending a total of $2155.75 before taxes. In other words, you’ll be spending $375.76 (plus taxes) more with AT&T than you would with T-Mobile during that period and your AT&T plan would actually provide you with fewer minutes and less data.
Changing the Wireless Industry?
There’s no sense in using all sorts of expense tracker apps if you can’t figure out how to reduce your spending and balance your budget. This is why, when it comes to large buying decisions, you really should work out all the numbers so that you know exactly how much you are spending.
To be fair, there are many other factors to consider when buying a smartphone or choosing a wireless provider. You have to think about the quality of customer service you receive, the reliability and breadth of coverage you’ll get, and the range of handsets from which you can choose. Based on these pure calculations alone, though, it looks like you would end up ahead choosing T-Mobile’s uncarrier plan approach. Now we have to wonder if the other major carriers will make the switch too.
Image credit: Brett Jordan / Flickr