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T-Mobile's moves catch Verizon and AT&T's eyes, but is contract-free really free?

Verizon and AT&T are keeping an eye on T-Mobile's move to ditch subsidies and contracts, but a commitment by any other name is binding

T-Mobile isn't the only carrier contemplating a subsidy-free future. Verizon will keep a close eye on consumer response to T-Mobile's initiative to drop contracts and phone subsidies, and if it picks up, the country's largest carrier might even adopt the model--but that doesn't mean it will necessarily be easier to switch carriers or get a cheaper deal.

Speaking at an event in New York on Thursday, Verizon CEO Lowell McAdam said "We can react quickly to consumers' shifting needs," and that he's "happy when I see something different tried," CNet reported.

AT&T hasn't ruled out the idea either. Earlier this year, CFO John Stephens said "[ditching phone subsidies is] something we've looked at on several occasions. I kind of like the idea. It will be something we're going to watching, how it is received in the market place," according to a Seeking Alpha earnings call transcript.

T-Mobile is the fourth largest U.S. carrier after Verizon, AT&T and Sprint. Last month, the company announced it would place less focus on typical two-year phone contracts in favor of no-contract plans and an option to pay a down payment on a new phone, then pay the rest of the balance off in small monthly installments over a two year period.

Carriers such as Verizon have been offering low-cost, no-contract cellular plans in addition to traditional two-year plans with subsidized phones for a while now, but those cheaper no-contract plans have typically required you to BYOD or pay the full cost of a new phone up front.

Jared Newman crunched the numbers for TechHive and found that you'll pay $2030 over two years ($60 per month for 2GB of data and unlimited talk and text, plus $110 for the phone up-front, plus $20 per month for two years to pay off the hardware) for a Galaxy S III under T-Mobile's new scheme, while comparable plans from AT&T and Verizon would cost $2240 and $2600, respectively.

Cellular caveats

While Verizon and AT&T's willingness to follow in T-Mobile's subsidy-free footsteps sounds wonderful at first blush--and it is, in terms of lower costs and increased plan flexibility--there are some chilling caveats that lessen the luster a bit.

First, is it really fair to call these schemes no-contract? Paying $110 for a phone up-front and splitting the rest of the hardware costs over two years is still a form of commitment, even if it's not for your plan, but rather for your handset. As we pointed out in the wake of T-Mobile's announcement, if you decide to leave the carrier soon after signing up, the remaining hardware cost could far exceed the usual $300 early termination fee traditional plans impose.

And does the ability to walk away from your carrier's plans equal cellular freedom in any case? Not quite. T-Mobile won't unlock your phone for use on other carrier networks until the hardware for is paid in full. And once you do that, you may find your options sorely limited in any case; different networks are built atop different technology, so your T-Mobile phone won't play nice on Sprint or Verizon's networks, for example.

If T-Mobile's so-called contract-free alternative catches up with customers, it's indeed likely that Verizon and AT&T would shell out their own versions of the deal to remain price competitive. Unless you buy your phone up-front, however, you'll find your choices under these "contract-free" plans to be just as limited as before.


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