T-Mobile drops contract plans to compete with smaller carriers

T-mobile is having a big event today and the word is, they’re going announce they’re ditching two-year contracts. Consumers will have to pay for the phone upfront or enter a payment plan.

Right now, Verizon, AT&T, Sprint and T-Mobile are the "big guys" when it comes to mobile carriers. These big four subsidize about half the cost of a phone if you sign a two year contract.

But in recent years, a second camp of smaller carriers like MetroPCS and Virgin Mobile have entered the fray. And this has left T-Mobile in a pickle, according to Weston Henderek, a wireless analyst at Current Analysis.

"People who say I want the best network will go to Verizon and pay the premium," says Henderek. And people who are looking just on price will go to the cheaper little guys.

Struggling to compete, T-Mobile is aiming to become the big fish in the little pond. It will ditch contracts like the little guys, but T-mobile will offer a much bigger network.

"What's interesting about this is that T-Mobile has all the infrastructure, it's got all of the support in place and it's just making prepaid look more attractive," says Jessica Dolcourt, senior editor at CNET.

But Ramon Llamas, an analyst at IDC, predicts that T-Mobile’s makeover won’t be an easy one.

"Trying to tell end users, 'instead of paying $199, you know, we’re going to replace that with all the cost up front,' that is a big educational step," says Llamas.

Llamas says the T-Mobile experiment is one that the big carriers will likely be watching.

 

About the author

Queena Kim covers technology for Marketplace. She lives in the Bay Area.

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