After years of waiting, T MOBILE US INC (NYSE:TMUS) finally got its hands on the iPhone earlier this year. The No. 4 carrier has made plenty of headlines this year with its “Un-carrier” push, trumpeting the end of subsidies on its network.
However, T MOBILE US INC (NYSE:TMUS)’s marketing attracted some negative attention, too, since its campaign was considered “misleading” as consumers are still effectively tied into two-year commitments. Customers are just tied to installment plans instead of service contracts, but the net result is the same. When CEO John Legere confidently told consumers that if T MOBILE US INC (NYSE:TMUS)’s service was terrible in any given month they were welcome to drop service and switch, what he didn’t mention was that consumers would have to pay off the balance on their smartphones, which could easily be upwards of $500.
Furthermore, T-Mobile hasn’t actually killed subsidies entirely, since there was a $69 discrepancy between its pricing and Apple Inc. (NASDAQ:AAPL)‘s — a discrepancy that had to be coming from somewhere. This pricing was merely a promotional arrangement and not meant for this world for long. T MOBILE US INC (NYSE:TMUS) just pulled a classic bait and switch.
What ever happened to “dramatically different?”
One of T-Mobile’s biggest headline advantages when it launched Apple Inc. (NASDAQ:AAPL)’s flagship in April was that it was offering the device for just $99 up front, in addition to two years of $20 monthly payments. That effectively undercut larger rivals who were charging $200 on contract.
T-Mobile billed the pricing structure as “incredible,” with Legere saying the company was the only one to offer a “radically simple, affordable iPhone 5 experience.” Late last year, Legere similarly teased that the iPhone experience would be “dramatically different” than on other carriers, while hinting at the $99 down payment. At the press event in March, Legere echoed, “I’ve been telling you that when the iPhone came to T-Mobile, that it would be different.”
That’s a lot of bragging about the $99 upfront price. T MOBILE US INC (NYSE:TMUS) isn’t being so loud with its iPhone pricing now, which has just jumped to $150 upfront (same $20 monthly payments). The promotional period has ended and T-Mobile is now charging a $150 down payment on the newest iPhone, with the total cost rising to $630. That’s still cheaper than most rivals, but the company just closed the gap by a lot. Unsurprisingly, it did not issue a press release advising consumers of the bump, but quietly updated prices on its website.
With the move, Sprint Nextel Corporation (NYSE:S) becomes the cheapest iPhone carrier, thanks in large part to a $100 promotion that the carrier is offering for any smartphone customers that switch and port their number over. That puts Sprint Nextel Corporation (NYSE:S)’s iPhone 5 at the subsidized price point of $100. Sprint Nextel Corporation (NYSE:S) also offers unlimited data with no strings attached while T-Mobile’s entry-level “unlimited” plan throttles data speeds after a certain threshold.
T MOBILE US INC (NYSE:TMUS)’s initial pricing is little more than an attention grab. Legere is very consciously going for headlines, in part by lacing his presentations with expletives, growing his hair out, and dressing differently (contrast Legere’s look this January with Legere circa 2002). Still, T-Mobile’s iPhone just got a lot less different.
The article T-Mobile’s iPhone Was a Classic Bait And Switch originally appeared on Fool.com and is written by Evan Niu, CFA.
Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.
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