Rather than tempt you in the door with low monthly bills, they induce you to switch by offering a discounted price for the latest and greatest phones, with the iPhone being the biggest prize of all. The customer walks out thrilled with the deal he got on his phone. Only later, when his ridiculous, complicated, and obscenely high bill comes, does he realize he has been fleeced.
This game’s been working great for Verizon and AT&T, but much less so for T-Mobile. The subsidiary of Germany’s Deutsche Telekom has failed to achieve the scale to compete with the big two, and its corporate masters decided they didn’t want to make a risky investment by growing the company. Plan A to sell T-Mobile to AT&T was blocked by the Justice Department and the FCC, who
wanted to preserve competition in the marketplace.
Now T-Mobile’s gearing up to try to compete by changing the game. They’ve finally secured a deal to put the iPhone on their network. They have made the radical and perhaps brilliant decision to
sell it and other smartphones without subsidy. That’ll make the devices a lot more expensive. Consumers will be surprised to learn that the $199 iPhone 5 actually retails for $649. AT&T and Verizon essentially pay Apple the full price, sell it to you for the low price, and make it up by charging you more every month.
But that subsidy is quite costly for customers. If you buy a subsidized iPhone 5 from AT&T, the cheapest plan available costs $85 per month and only comes with 1 GB of data, a minimum of $2,040 over the two years of the contract. A basic T-Mobile unlimited voice plan with 2 GB of data costs $59.99 per month, $1,440 over the two years. In order to get that $450 iPhone discount, you would end up paying $600 more to AT&T over the life of the contract, and get less data.