Cell Phone Subsidies: R.I.P.?


T-Mobile USA CEO John Legere stopped cold any more speculation about his company getting the iPhone when he confirmed T-Mobile had indeed made a deal with Apple to offer the iPhone next year.

But the real blockbuster was Legere letting loose this bit of industry-moving news at T-Mobile's parent company Deutsche Telekom's Capital Markets Day in Bonn: Customers should forget about getting any more subsidized handsets from the U.S.'s fourth-largest carrier. Either pay full price up front, make regular payments for the phone, or bring your unlocked device.

What would a T-Mobile subscriber get in return for paying the full retail price of $649 for an unlocked 16 GB Phone 5? A no-contract, unlimited talk, text, and data plan for $70 a month. That's the same plan at AT&T offers costing $120 per month, according to T-Mobile.

But, there are caveats subscribers should understand if they decide to bring their own phones to T-Mobile's network.

First, only unlocked GSM iPhones will work. That leaves out those older model iPhones bought from Verizon and Sprint Nextel -- the iPhone 5, however, would work.

And second, if that GSM phone is a 3G phone that does not support the 1700Mhz band, it will only operate at 2G (EDGE) speeds on the T-Mobile network, just like the very first iPhone.

No contract, really?
But one aspect of the T-Mobile no-contract, unsubsidized plan looks a lot like a long-term contract plan. Legere's twist on the no-contract concept is to sell an iPhone to a customer for only $99, but then to add on $15 to $20 to the monthly bill for 20 months. Obviously, some form of a contract would be involved here.

The part of such a scheme that just might be brilliant is the customer being locked in for a long period of time without the carrier footing the subsidy bill. Apple gets its price, the customer can afford an expensive phone, the carrier has a locked-in customer, and all without undercutting the operating margin with a subsidy!

If T-Mobile's angle works, and it just may when it can finally offer true 3G and 4G LTE speeds to entice more customers, it may be something that the other carriers will try to emulate. The handset subsidy problem affects all carriers.

Apple's iPhone is always the elephant in the room when it comes to the outsize influence it has over smartphone subsidies. Despite that, however, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The article Cell Phone Subsidies: R.I.P.? originally appeared on Fool.com.

Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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