When Benzinga posted
about T-Mobile announcing plans to get rid of contracts while
still making smartphones affordable, the news was seen by many as
Everything is big in the cell phone business and when you're
number four behind goliaths like Verizon (NYSE:
), AT&T (NYSE:
), and Sprint (NYSE:
), disrupting the market is a tall order.
But there's evidence that the goliaths are watching closely.
Following the announcement, Verizon CEO Lowell McAdam was asked
about the T-Mobile plan. He said that developing a program like
that would be "
McAdam went on to say that he was happy to see a new idea put
in front of customers and that he would be watching customer
reaction to the plan closely. McAdam said, "We can react quickly
to consumers' shifting needs."
The T-Mobile plan is contract free, but for those who can't
pay the full price of the phone, an extra $20 is added to their
monthly bill. They're contractually obligated to pay the $20 for
AT&T CEO Randall Stephenson said
that the company is exploring the idea of handset financing where
the customer would pay the cost of the phone over a few months.
After that, they would be free to cancel service at any time.
The three larger carriers already offer a no contract option
but customers have to pay the retail price for the phone upfront.
This is not a program that companies promote as aggressively as
they do contract-based offerings.
To the surprise of customers, cell phone companies may be
willing to embrace the no contract model because contracts are a
lose-lose. Not only is there a growing distaste towards cell
phone contracts in the eyes of the end user, but by subsidizing
the phone, the company is taking an earnings hit.
) iPhone is believed to have a substantial impact on a carrier's
earnings especially during quarters when a new phone is brought
So far, the T-Mobile plan hasn't seen the outsized customer
response that the company had hoped. There could be a few reasons
for that. First, for those who might be interested in jumping
ship and heading to T-Mobile, those customers will have to wait
for their contracts to run out or pay the early termination fee.
This may be why Verizon will watch closely and "quickly
For those that do the math, it isn't the $1,000 savings that
T-Mobile has said when it's compared to what most customers would
get at AT&T, the savings is still an impressive $580 but some
industry watchers say that not even $580 is enough to pull
customers from a carrier they trust (although may not like) to
one they hardly know.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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