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T-Mobile's "radical" changes double-down on flat-rate data plan

In a profane, foul-mouthed, ad-libbed presentation, T-Mobile CEO John Legere Tuesday trumpeted his company's previously announced "unlimited" data plans, scrapped its cellular contracts, launched its belated LTE network, and revealed that T-Mobile, finally, would offer the iPhone.

He said the announcements marked the end of T-Mobile's membership in the "carrier club."

Striking the tone of a junior high school pep rally without adult supervision, Legere mocked, taunted and attacked not only his rivals, especially AT&T, and the cellular industry's "stupid" practices and conventions, but also the press and bloggers covering the event in New York City.

When Legere was named to the CEO post just last September, it was widely noted then that he lacked "wireless industry" experience, a fact he reminded the by-now captive assembly of reporters. It caused him to question himself, he said. "[I said to myself] 'Holy s*** I don't have wireless experience,'" he said. "What the hell does this mean?"

[WHO HAS THE MOST 4G COVERAGE? A deceptively simple question with no simple answer]

It meant that he was an outsider, and that's a good thing. "The worst fear of the wireless industry is that someone from the outside would come in and look at their industry," he said.

He came, he saw, he cursed. He saw the industry through the eyes of its customers, he assured this audience. "I'm a customer, just like you," he said. "Here's my experience."

That experience was defined by:

+ "Unbelievably high prices for phones...Please stop the bulls****. It's crazy."

+ "Complicated rate plans...These contracts are so complicated, they make no sense. It's on purpose: they don't want you to see...."

+ "Contracts...no one wants to have them. When you sign it, you're locked into that rate plan and that phone. Carriers are really nice to you once every 23 months [when you first sign and then are up for renewal]." In between, "you call [customer] care and it's terrible."

Legere's "solution" to all this pain and suffering is, in effect, nothing more and nothing less than a price war, laid bare by the "revolutionary" step to discard contracts and multiple rate plans.

Here's what Mr. "I'm a customer just like you" announced.

* Lower prices for phones

But not really. Essentially, T-Mobile seems to be offering lower down payments, spreading the balance over 24 equal payments (in other words, a two-year contract to pay for the phone), and a discount off the full price it charges to customers.

For example, to get the iPhone 5 on T-Mobile, and assuming your credit rating is good enough, you make a down payment of $99, and then pay $20 a month for 24 months. The company hasn't said whether that monthly payment includes interest on financing. That total is $579.

Legere didn't explain whether this price applies to all three iPhone 5 models. Currently, on Apple's website, full prices for an unlocked iPhone 5 are $649 for the 16GB model, $749 for 32GB, and $849 for 64GB. For the lowest priced model, T-Mobile in effect offers a $70 discount on the phone's price. (The carrier will also offer iPhone 4 and 4S.)

Legere said T-Mobile had worked out a deal with Apple, but didn't elaborate on what that means. Apple could be selling the iPhone to T-Mobile at a lower price, as an act of charity. Apple isn't known for acts of charity. By convincing customers to pay most of the actual price for the phone, T-Mobile offers "savings" by, simply, offering a discount. If the price that Apple charges the carrier is unchanged, then T-Mobile is making up the difference, but still paying less than its rivals who stick with the traditional subsidies. With a subsidy, customers pay the carrier much less for the phone, accept the two-year contract with early-cancellation penalties, and the carrier pays Apple hundreds of dollars for each phone.

If the same T-Mobile pricing applies to all three models, its value rises dramatically: for the 64GB phone, your total discount would amount to $270, over 30%, and everyone would buy it because there would be no difference in what the consumer finally pays for 16G-, 32G- or 64-GB models.

Legere trumpeted the fact that buying an iPhone at T-Mobile would save $1,060 over two years compared to the same device on rival AT&T. But those savings are found almost entirely in the cheaper rate plans, not cheaper phone prices.

The price contract remains an "obligation." In response to a reporter's questions, T-Mobile executives said a customer can leave T-Mobile after a month and take the iPhone with them. But the customer still has to pay off the balance due on the phone; and T-Mobile won't unlock the phone until the balance is paid.

Legere said the company will introduce other changes to make upgrades to new phones "really simple." One change will be offering a "fair-market" trade-in credit for the existing phone, to offset the price of the new phone.

* Cheaper, and simpler, rate plans

According to Legere, T-Mobile's new Simple Choice Plan is simple. Here's the breakdown:

You start with a base rate for one line of $50 per month for "unlimited talk, text and Web with 500MB [Megabytes] of 4G data." In other words, there is a limit: 500 MB on data. Pay another $10 per month, and the data limit rises to 2GB. To get completely unlimited data, you choose the $70 per month option. Whichever one you choose, you can add a second line to that package for another $20 per month; and each additional line after that is another $10 per month.

"There are no caps or overages," according to T-Mobile.

But there are some wrinkles. Tethering for example is "included" in the $50 and $60 monthly rate plans; but not in the $70 unlimited plan. When you get to the unlimited plan, tethering apparently becomes....limited: 500MB per month. Yet, according to the press release, "T-Mobile Smartphone Mobile HotSpot for on-the-go tethering Internet access. Through Simple Choice, T-Mobile offers an additional 500MB of 4G data for tethering, enabling customers to tether from their iPads, Macs and other devices." That wording suggests the 500MB limit applies to all data plans.

Neither Legere nor Chief Marketing Officer Michael Sievert seemed able or perhaps willing to offer a coherent explanation of this arrangement. "Take those questions and ask our competitors what [tethering] would cost with them," suggested Legere.

T-Mobile promises there will be no additional charges if you use more than your 500MB or 2GB data limit. Instead, "Once the rate plan allotment of high-speed data has been consumed, customers will experience reduced Web speeds without overage charges for the remainder of the billing cycle." No one from T-Mobile explained, and no one from the press asked, what "reduced Web speeds" would mean in practice.

Sievert says the company will focus on "fair use." That apparently means if you are using 50GB of data a month, your data speed will not be "throttled" unless T-Mobile determines your use is "inhibiting fair network access by other customers," he said. Legere promised that any time T-Mobile applies this fair use constraint on a customer, it will publicly post an explanation of why it did so.

T-Mobile customers with an acceptable credit rating can get monthly bills, and possibly special phone offers or benefits; customers lacking good credit will pay upfront. Legere said T-Mobile is eliminating the distinction between pre-paid and post-paid subscribers.

* "Better" networks

T-Mobile announced the first seven cities switched on for its new LTE network, which is intended to be the still-higher speed LTE-Advanced: Baltimore; Houston; Kansas City; Las Vegas; Phoenix; San Jose; and Washington, D.C. Legere said testing in New York City, due to be live in a few months, shows LTE download speeds of 16Mbps.

Legere promised that 100 million people will be covered by the initial LTE offering by mid-2013, and 200 million by the end of this year.

In addition, your LTE phone - including Apple's specially tweaked iPhone 5 - will fall back to T-Mobile's HSPA+ 42 (Mbyte) "4G" network when LTE isn't available (or to somewhat slower HSPA+ versions where the 42MB variant isn't available). Legere rightly touted this network as being as fast or faster than his rivals' networks, including rival LTE cell sites, in many locations.

Legere predicted the carrier's acquisition of MetroPCS will be approved by regulators. When that happens, T-Mobile will move to merge the existing MetroPCS LTE network with its own unfolding LTE deployment, and reorganize the MetroPCS 1900 MHz CDMA spectrum for T-Mobile's HSPA+ network. Among other benefits, T-Mobile says it will be able to offer 2 x 20 MHz of LTE in many areas, supporting dense, high-capacity, high-speed LTE-Advanced networks.

Fierce Wireless used data from Mosaik Solutions to map out the spectrum holdings of T-Mobile/MetroPCS.  

"We've got more spectrum than we know what to do with," Legere boasted.

Whether any of this changes the fundamental dynamics and economics of the wireless industry is debatable.

Spectrum acquisitions are always valuable; LTE offers much more efficient use of available spectrum; LTE-Advanced will let T-Mobile and other carriers combine, or "aggregate," separate spectrum chunks. T-Mobile seems to be betting that having "enough" spectrum will let it continue to offer "unlimited" use of a still-limited resource.

Legere claims that smartphone prices are "unbelievably high." That hasn't stopped millions and millions of U.S. consumers - shielded by carrier subsidies from the real price of smartphones -- from buying the iPhone, or other high-end smartphones. T-Mobile isn't offering smartphones at lower prices: it's offering modest discounts off the full price, at least in the case of iPhone 5. The "savings" he touts are almost entirely due to cheaper rate plans.

Legere didn't talk about how T-Mobile will sustain a flat-rate, "all you can eat" data model. In that sense, T-Mobile's "revolutionary" initiative is in fact reactionary: insisting that the status quo is still viable.

Legere is right that "no one" likes, let alone reads, cellular contracts. But one of the biggest flashpoint for consumer dissatisfaction, or more accurately rage, has been the persistently lousy customer service. In JD Power's recent "2013 Wireless Customer Care Ratings," for the Big Four "full service" mobile carriers, T-Mobile ranked dead last.

Legere didn't talk about what he's doing to improve that.

John Cox covers wireless networking and mobile computing for Network World.

Twitter: http://twitter.com/johnwcoxnww

Email: john_cox@nww.com

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