BARCELONA, Spain – In the old days, U.S. wireless customers typically paid $100 or $200 for a phone and agreed to a two-year service contract. Although the phone actually cost hundreds of dollars more, wireless companies made up for it through the monthly service fees for voice, text and data.
T-Mobile decided last spring to stop subsidizing phones and padding the service fees. Instead, it lowered those fees for everyone and charged for phones separately. A few months later, T-Mobile shook up the phone industry again by allowing customers to upgrade before the phone is fully paid off.
Rivals followed with subsidy-free, no-contract phone plans that also allow frequent upgrades, though they continued to offer subsidized plans as well.
Here’s a look at how wireless plans have evolved over the past year:
— T-Mobile US Inc.
T-Mobile eliminated both subsidies and contracts last March. Instead, customers buy phones outright and pay for them in installments over two years. Monthly fees for voice, text and data service have been reduced accordingly, as they no longer include the costs of phone subsidies.
So instead of a single monthly charge, customers get separate ones for the service and the phone. The total monthly charges don’t change all that much while the phone is being paid off. But after the two years, charges drop as customers pay the service portion only.
In July, T-Mobile introduced a $10-a-month program that allows people to upgrade phones up to twice a year instead of every other year. Customers turn in their old phone and pay a down payment with each upgrade. The program, called Jump, gets expensive for those who want to upgrade frequently, given the down payment and monthly fees. But customers get flexibility to keep up with the pace of new phone releases.
A few months later, T-Mobile began offering free text and data services to customers travelling to more than 100 countries. And last month, the company stepped up efforts to lure customers from rivals by reimbursing fees incurred for breaking service contracts early.
T-Mobile also eliminated down payments on most phones this year to make upgrades more economical. Starting Sunday, it’s letting customers upgrade as often as they like — though they’ll have additional installments to make right away if they haven’t paid at least half of the phone’s costs yet.
The changes appear popular. T-Mobile has been gaining subscribers after at least two and a half years of decline in key, good-credit customers, known as postpaid accounts.
A few weeks after T-Mobile introduced Jump, AT&T came out with Next. Customers pay the phone’s full retail price over 20 months and can upgrade after a year by trading in the old phone. There’s no down payment or upgrade fee. However, customers at first were essentially paying for the phone twice, as AT&T hadn’t reduced service fees, the way T-Mobile had.
AT&T addressed that in December by offering a $15-a-month discount for those who participate in Next or who otherwise buy or bring their own phone. Customers still pay more a month under Next than they would under subsidized plans. The iPhone 5s, for instance, costs $32.50 a month for 20 months.
Under new rate plans in January, the discount on service fees increased to $25 a month per phone for accounts with at least two phones sharing 10 gigabytes or more of data.
Verizon’s Edge, introduced in August, is similar to AT&T’s Next, except costs are spread over four additional months. So that iPhone 5s costs about $27 a month for 24 months.
At first, customers had to wait six months for an upgrade. Verizon later changed that to 30 days. The catch is that customers must first pay for at least half the device before trading it in, meaning extra installment payments to reach that threshold.
This month, Verizon began offering discounts for Edge participants. Customers on data plans of up to 8 gigabytes get $10 a month off, while those on higher plans get $20. Those who buy phones elsewhere or whose contracts have run out aren’t eligible for the discounts.
In changing the pricing, Verizon also increased the data allotment for some customers, while creating two lower-priced plans with less data. It began offering free texting to phone users worldwide, but that doesn’t apply when the customer is travelling outside the U.S.
— Sprint Corp.
Sprint was the last of the four national carriers to introduce an installment plan with frequent upgrades. Its One Up plan started in September.
By January, that plan was gone, as Sprint focused on a friends-and-family plan called Framily. It lets friends and relatives save money by pooling their accounts, while keeping individual billing and data allotments.
Just a week later, though, Sprint replaced One Up with Easy Pay. The difference is that Easy Pay customers have to pay all remaining installments before an upgrade. With One Up and those offered by rivals, full payment isn’t required, but the old device gets turned in.