The Great T-Mobile iPhone Experiment

T-Mobile has finally got its hands on the iPhone, and should be launching the device early in 2013. That’s the great news and is clearly a “good thing” for the carrier as it attempts to protect and increase its subscriber base. The bad news, of course, is the timing of the launch with two key issues reducing the impact of the deal, at least near-term.

First, T-Mobile will be missing the all-important Q4 growth period, when historically carriers see the greatest overall net additions. Indeed, AT&T is already predicting a record-breaking quarter for sales, having sold 6.4 million smartphones in the first two months. As such, the promise of the iPhone next year will do little to help T-Mobile right now. The second timing issue has more to do with the lifecycle of consumer behavior when it comes to iPhone purchases: once the New Year comes around, discussions and rumors of what the next iPhone will look like, and when it will be launched inevitably lead to many consumers holding back on a near-term purchase. As such, while adding the iPhone is most definitely a positive for T-Mobile, the success period for the launch must be judged over a six to 12 month period, rather than the more immediate jolt that we’ve all come to expect.

Beyond the timing, what T-Mobile appears to be planning to do is break the traditional mold for smartphone (or at least iPhone) sales and not subsidize the device. Consumers have come to expect that the consumer/wireless relationship revolves around relatively cheap devices (sub $200) and relatively high monthly charges (although the consumer typically doesn’t realize that the monthly price is “high”). The logic behind this is that the initial purchase of the device is subsidized and, without the consumer really thinking about it, they pay the remaining balance on the device though the monthly service charges over the next two years of contract.

By offering the iPhone with the T-Mobile “Value” plans, consumers would save $20 per month on the service charges (before taxes, etc.). So over a two year period, this equates to $480. Depending on how close to the “full price” T-Mobile will charge for an iPhone, this will be a savings to consumers, while also allowing them to be free of any contract restrictions. T-Mobile is not alone in its plans to offer contract-free iPhones. Virgin Mobile launched the device with its prepaid plans, offering a very aggressive plan price of just $55 for an unlimited plan. But while cheaper, the Virgin network cannot match the speeds of the T-Mobile HSPA+ network.

Fundamentally, the T-Mobile move has the potential to change the landscape for smartphones, if it proves to be successful. Once consumers understand the benefits of a subsidy-less model and the related monthly savings, we will see increased interest in paying more for the device upfront, and less per month. Subsidies, though, will take a major hit. This, in turn has the potential to have a major impact on retailer distribution for devices. Currently, the carriers have almost complete control over the array of available devices as the carriers are the ones offering the subsidies. Some retailers have previously tried to sell alternative devices, but without the subsidy, these failed to gain traction. But if consumers begin to embrace the new model, Big Box retailers will have more opportunity to offer their own ranges of devices, and provide a more differentiated service from that of the carriers.

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