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T-Mobile USA kicks off service pricing without phone subsidies

The logo of Deutsche Telekom AG is seen outside the company's headquarter in Bonn May 24, 2012. REUTERS/Wolfgang Rattay
The logo of Deutsche Telekom AG is seen outside the company's headquarter in Bonn May 24, 2012. REUTERS/Wolfgang Rattay

NEW YORK (Reuters) - T-Mobile USA is ditching phone subsidies under a new set of service plans, hoping to differentiate its offerings from bigger rivals by promising customers more flexibility.

The No. 4 U.S. mobile network operator, owned by Deutsche Telekom, hopes to regain ground after heavy customer losses to rivals such as Verizon Wireless and AT&T Inc in recent years. T-Mobile USA is proposing to merge with its smaller rival MetroPCS Communications,

While its bigger rivals tie customers into two-year contracts in exchange for discounts on smartphones, T-Mobile is doing away with the device discounts and telling customers they don't need to commit to a contract.

Instead, customers can pay for their phone over time in monthly payments that are separate to their service fees.

But even with the monthly phone payments, BTIG analyst Walter Piecyk said, T-Mobile customers would still pay less than at AT&T or Verizon Wireless. The biggest discount would be for customers who keep their phones longer than two years or hand down a device to another family member.

"This could be an effective way for T-Mobile to reinvigorate its efforts to brand itself as the low-priced option in the market," Piecyk said in a research blog.

Executives at AT&T and Verizon have said they could follow T-Mobile's footsteps if its new options prove popular with consumers. But many consumers may prefer the more traditional model, according to some analysts.

The plans, which were on the company's website on Monday ahead of a Tuesday press event, start at 500 megabytes of data downloads and unlimited talk time and text messaging for $50 and increase to $60 a month for 2.5 gigabytes of data or $70 a month for unlimited data usage.

Verizon wireless charges $90 for 1 gigabyte of data and offers 4 gigabytes for $110 and AT&T charges $95 a month for 1 gigabyte of data and $110 for 4 gigabytes of data.

On its website T-Mobile USA shows that it is clearly going after AT&T customers by comparing its pricing directly to prices at the No. 2 U.S. mobile provider.

T-Mobile USA customers who already have a phone would benefit from the lower service prices would benefit most from the new offerings but those buying a new phone would have to pay a monthly fee for the phone.

For example, its starting price for a Samsung Electronics Co Galaxy S III is $69.99 and $20 a month for two years, which adds up to $549.99.

In comparison Verizon Wireless and AT&T charge $200 for the same price to customers who sign a two-year contract.

Verizon Wireless is a venture of Verizon Communications and Vodafone Group Plc.

(This story was fixed to correct price of Verizon's 4 gigabyte monthly plan in 9th paragraph to $110 from $70)

(Reporting By Sinead Carew; Editing by David Gregorio)

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