Is T-Mobile Running a Scam?

No. 4 domestic carrier T-Mobile is making a big push, rebranding itself as the "Un-Carrier" and deriding its larger rivals for their subsidizing ways. The company finally got its magenta hands on Apple's iPhone, filling the biggest historical gap in its device portfolio.

CEO John Legere is full of fighting words. Not only was his presentation last month laced with expletives, but he also added:

These bold moves serve notice that T-Mobile is canceling its membership in the out-of-touch wireless club. This is an industry filled with ridiculously confusing contracts, limits on how much data you can use or when you can upgrade, and monthly bills that make little sense. As America's Un-Carrier, we are changing all of that and bringing common sense to wireless.

At the same time, T-Mobile's new plans simply replace confusion with even more possible confusion. Are T-Mobile's new initiatives a scam?


Still tied down
Washington State Attorney General Bob Ferguson thinks so. He calls T-Mobile's new campaign "deceptive" and wants to prevent Washingtonians from getting "duped." Ferguson doesn't believe that T-Mobile has been properly disclosing the full limitations of its new plans and warns that customers are still being effectively tethered to a two-year commitment in an underhanded way.

T-Mobile has been focusing on pitching its service plans as having "no annual contract," which is true. However, for consumers who are buying a phone on the new two-year installment plans (i.e., the vast majority of consumers), they're still effectively locked in during the term.

Not only has T-Mobile not killed smartphone subsidies entirely, which is evidenced by its iPhone pricing, but devices still being paid off through installments are locked to T-Mobile's network. The only way to have T-Mobile graciously unlock a device is to pay it off in full -- which can easily cost more than early termination fees that other carriers impose.

For example, Verizon Wireless charges a $350 early termination fee for smartphones (which declines $10 per month satisfied). Theoretically, a consumer could buy a subsidized iPhone for $200, immediately cancel service, and pay the fee for a total device cost of $550. That's less than the $650 retail price that Apple charges, as well as the $580 total required to pay off a T-Mobile iPhone. Interestingly enough, Verizon launched its own installment plans shortly after T-Mobile.

Assuming that most consumers want to avoid such a hefty upfront payment, a safe assumption, T-Mobile consumers are still locked in to a "two-year sentence" -- just of a different nature.

T-Mobile has cooperated with the state and agreed to "adequately disclose" the terms to customers, while offering a grace period that covers the past month allowing purchasers to back out.

On top of that, even though T-Mobile is billing its plans as offering "unlimited" data, the fine print shows that only 500 MB of "high-speed data" is included. After hitting that cap, data speeds will be throttled to embarrassingly slow 2G speeds. Want more or unlimited "high-speed data"? That'll cost extra, closing the pricing gap with the larger rivals.

Good luck what that brave new world, T-Mobile.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. 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 Is T-Mobile Running a Scam? originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Income Investing

Grow your nest-egg.

View Course »

Add a Comment

*0 / 3000 Character Maximum

2 Comments

Filter by:
ga7smi

what do you expect?

April 28 2013 at 3:28 AM Report abuse rate up rate down Reply
thedude

Dumb article bashing Tmobile. When I tried to cancel my ATT contract, I have to return the smart phone and pay the termination fee. That is paying ATT $350 and return the phone to ATT. Tmobile allows you to keep your phone after you have paid for it.

April 27 2013 at 10:45 PM Report abuse rate up rate down Reply