Earlier this month T-Mobile USA launched new plans which included unlimited data and no contract all for 70USD the catch was that you could not get a subsidised phone with the plan. T-Mobile will completely ditch the subsidised handset model later on this year. In other words you’ll be paying full price for any device you buy on T-Mobile USA. Now we have these plans over here already in Ireland (sim only plans) but for Americans this is all very new. The question I pose is, will sim only plans become de rigour or will we continue to see contract plans being the norm?

Subsidised phones are how most of us get our hands on the latest devices. For a low cost amount, or even for free, we get the designer phone on the condition we sign up to a (by now) standard 2 year contract. The idea being that over the course of the next 2 years the network gets back the cost of the device and then some through your indebted servitude. For a very long time in Ireland we only ever heard of 12 month contracts from the networks but that has all changed. Slowly but surely, following the launch of the iPhone in 2008, the 12 month plans crept up and up from 12 to 18 then to 24 month plans. In America this is the norm with most people being on 2 year contracts and some even on 3 year contracts. But I feel a change coming with T-Mobile’s move.

Way back when I got my first bill pay phone (in 1997 and it was a Siemens S4 if you’re asking) networks used to buy phones from device manufacturers and then sell them on to their customers. There was some buzz as the latest devices were released but not the real hullabaloo there is now. With the successful launch of the iPhone, networks were dragged into trying to gain exclusivity and paying big bucks to manufacturers to get hold of devices first and maintain that exclusivity for as long as possible (so as to make back the money they forked out for that exclusivity). The networks became like us, slaves customers to the device manufactures. As particular devices got more and more expensive so did the contracts for the networks. When Sprint USA released their quarterly results it showed they were going to pay Apple $15.5 Billion over four years for the iPhone and they would have to sell so many to recoup that cost that they are not only refusing to carry some other manufacturers full touch screen device but they are also pushing the iPhone in their stores aggressively.

Carriers make their money from their customers using their devices on their network. The margins on device sales are negligible at best. T-Mobile seems to be taking the view now that it’s better to try to drive down costs and entice in new customers by offering better deals on plans (where they have control over costs and can make money) rather than paying out fortunes to companies like Apple. Cut out the middle man so to speak. In some ways it could work. Most people probably upgrade every 2-3 years anyway so they will bring their devices with them to these type of deals from T-Mobile. We see it over here in Ireland with great deals on sim only plans from most of the networks. There does seem to be an increase in the marketing of these types of sim only plans too. I myself haven’t been in a contract since 2008. I loathe the idea of being trapped in a contract for 2 years and much prefer to make the large initial outlay on a device and opt for a very cheap plan to go with it. Invariably this type of deal over the course of 2 years can work out cheaper. Plus I have the flexibility to move during that time if another network offers a better deal.

We’re not going to all wake up one day and see that subsidised phones are a thing of the past but with costs ever climbing for the networks (4g licences and infrastructure investment) while at the same time average monthly revenues dropping (in 2006 it was 48 euro per customer per month and now it’s 29 euro per customer per month. Source Comstat.ie) they may begin to question the real value of paying big to get into bed with the likes of Apple. Especially if T-Mobile can show the tactic works.