T-Mobile has announced a radical departure from traditional cell phone purchases; it will end the subsidy program.  This has a lot of people wondering how that will affect the fourth largest service provider with their sales.

T-Mobile Announces End of Subsidies

A Better Deal

Subsidies allow customers to purchase a new cell phone at a reduced rate as long as they are willing to sign up for a two-year plan.  However, service providers have to still pay the full price to manufacturers and include the difference in the service plan to get their cost back.

With this new plan, customers would pay full price for a phone and get their monthly plan cheaper.  To offset the price increase for the phone, T-Mobile plans to offer a payment plan to their customers.  They would pay a low down payment and then make monthly payments until the phone is paid off.

The savings would add up the longer that a customer keeps their phone.  However, they would not be locked in to a plan that would not allow them to upgrade to a new phone until after the two years were up.  With no subsidy, customers could upgrade anytime they want to.

Benefits to Both Customer and Provider

T-Mobile stands to gain from this change because they will not be locked in to negotiating with the manufacturer for every phone they get.

Customers will also benefit with a lower monthly plan even if they purchase a new phone.  TIME did their own calculations and determined that if a customer stays with T-Mobile for two years even with a new phone purchase, they would stand to save $250 over a subsidized plan with another carrier.

Success for T-Mobile will depend on how well the carrier can convey the potential for savings to its customers and potential customers.  The addition of an iPhone may help with that.

[Image via idownloadblog]