Midday Report: New T-Mobile Phone Contract Could Save You Money

Produced by Drew Trachtenberg

If you hate being trapped in your mobile phone contract, T-Mobile has a new option for you. The carrier is ditching the traditional model that locks customers in for two years.

It could save you big bucks. But here's the catch: you have to do the math, because it's not a one-size-fits-all plan.

The other big part of what T-Mobile is rolling out is that it will no longer subsidize the cost of the phone itself.

When you go to Verizon Wireless (VZ) or AT&T (T), a new smartphone generally costs $200 or less. That's because they subsidize the upfront cost, and then tack it on to your bill each month. But you may end up paying that fee long after you've paid the cost of the phone.

Customers inspect mobile communication devices inside a T-Mobile store Akos Stiller/Bloomberg
Akos Stiller/Bloomberg

T-Mobile will let you pay the full cost of the phone upfront, in exchange for a lower monthly usage charge, or finance it for about 20-dollars a month until the cost of the phone is paid off. At that point, your monthly bill would go down.
T-Mobile's basic plan costs 50-dollars a month. For that you get unlimited talk and text messaging, but only 500 megabytes of data downloads. For an extra 10 bucks, you get 2-1/2 gigabytes of data. And for 70 dollars, you get unlimited data usage.

On the less expensive plans, you can go over the limits without paying a penalty, but the speed of downloads will be slowed down to a snail's pace.

So how does the cost compare to its bigger rivals?

Verizon Wireless charges $90 dollars for one gigabyte of data, and $110 for 4 gigabytes. AT&T charges $95 and $110 for comparable plans. And Sprint-Nextel (S) offers a service, called Boost, that costs $55-60 dollars a month.

All of these numbers are for individual plans. Verizon and AT&T offer family plans to share data, but T-Mobile does not.

Some analysts say T-Mobile's new initiative is a bold move, and that the company needs to do something to separate itself from the market leaders. The company has lost customers since its deal to be acquired by AT&T was blocked by regulators.

The bottom line: T-Mobile's plan will save you some money, especially if you already own your phone, or if you keep your phone for more than two years. But figuring out the exact savings can be confusing, because you're not always comparing apples to apples.