Quick. Glance at the graphic accompanying this post, grabbed off of T-Mobile's website. How much does the iPhone 5 cost? It's not $99.99; the correct answer is $579.99. But I don't blame you for your first response; you'd need a magnifying glass to read the fine print under the large-type $99.99 that indicates the T-Mobile iPhone 5's actual retail price.
In a carrier caveat emptor world, this price tag tomfoolery would normally be greeted by a cynical so-what-else-is-new shrug of the shoulders. Except, this problematic price labeling is coming from T-Mobile, whose CEO John Legere two weeks ago proclaimed to have canceled his company's membership in the carrier club as part of a rant against business-as-usual in the mobile phone business. The reality of T-Mobile's fine-print pricing approach belies this whole "we're different" attitude and disguises the value carrier's actual deals.
T-Mobile's proclaimed "un-leashed" mobile revolution eliminates the standard two-year service contract you have to sign with AT&T, Sprint, and Verizon to get the iPhone 5 (or any phone) for a fraction of its actual price. Your two-year service commitment allows the carrier to subsidize your hardware cost. With T-Mobile, there's no service commitment of any kind. You can post-pay like normal for your Simple Choice voice/data/text service plan, or pre-pay as you would with any pre-paid plan from any carrier. For the phone itself, you either shell out the whole $579.99 up front, or $100 followed by $20/month for 24 months. Most cost-conscious consumers will obviously opt for the latter. In other words, you're simply trading a two-year service plan for a two-year hardware plan.
The more you pay, the more it's worth
If you actually run the numbers, however, T-Mobile's Simple Choice service plans present a clearly better deal, even when you factor in the additional full-price hardware costs, than anything the other three majors offer of close to equal value.
For instance, the cheapest of T-Mobile's three Simple Choice plans (unlimited voice/text and 250 MB of data) is $50 a month. Tack on the $580 cost for the phone (iPhone 5 is just one smartphone T-Mobile sells for $100 down/$20 month) adds another $24 per month over the length of the deal, bringing your total two-year outlay to $1,780, or $74 a month over 24 months.
AT&T's cheapest monthly post-paid smartphone deal is $40 for 450 minutes of voice, $20 for 300 MB of data and $20 for unlimited messaging, plus the $200 for a subsidized iPhone 5, for a total of $2,120 over two years, or $88.33/month, which works out to be $14 per month more than T-Mobile.
At the unlimited end of the scale, the T-Mobile advantage becomes more obvious, especially since AT&T doesn't offer an unlimited data plan. T-Mobile's unlimited voice/text/data deal is $70 per month. Add in the $580 for the iPhone 5 to reach a total two-year cost of $2,260, or $94 and change a month. AT&T's closest match to this T-Mobile unlimited offer is $70/month for unlimited voice, $20 per month for unlimited text and $50/month for 5 GB, plus $200 for a subsidized iPhone 5. That comes to $3,560 over two years, or $148 and change a month. That's a whopping $54 more a month than T-Mobile.
The Bottom Line
T-Mobile's new pricing strategy is all about lack of contracts, which is great, even though getting the phone you want locks you into a contract anyway, assuming you can't afford to spend $580 on that iPhone all at once. The difference, however, is that unlike other major carriers, T-Mobile really is decoupling hardware from service, which will save you a significant amount of money in the long run. We'd be happier if T-Mobile didn't try to disguise the hardware cost, and instead just emphasized the advantages of its new system, and obviously, there are still a lot of plans and vagaries to consider. But the bottom line is, T-Mobile need not resort to price tag trickery to prove it's value differential compared to its carrier competitors.