NEW YORK — T-Mobile USA, the struggling number four cellphone company, is ditching plans centered on familiar two-year contracts in favor of selling phones on installment plans.
T-Mobile is the first major US carrier to break from the contract model. The company changed its website over the weekend to begin selling the new plans. It plans to lay out the rationale on Tuesday at an event in New York, which could also reveal when T-Mobile will start selling the iPhone.
T-Mobile has been losing subscribers from its contract-based plans for more than two years, chiefly to its bigger competitors, Verizon Wireless and AT&T. T-Mobile has done better with no-contract, prepaid plans, but those aren’t as profitable.
The new plan blurs the boundaries. A prepaid plan has lower monthly fees, but the buyer usually has to pay full or nearly full price for the phone. With T-Mobile’s new plans, the initial phone-buying experience won’t be much different from what it’s like for contract plans, but customers could save money in the long run.
For instance, someone who wants a Samsung Galaxy S III would pay $70 upfront and then $90 per month for unlimited calling, texting, and data. That monthly fee includes $20 to pay off the cost of the phone over two years.
The initial phone-buying experience won’t be much different from what it’s like for contract plans, but customers could save money in the long run.
When the phone is paid off, the $20 fee in that example disappears. On traditional contract-based plans, the buyer is deemed to have ‘‘paid off’’ the phone after a certain period of time and become eligible for a new, subsidized phone, but the monthly payments don’t decline.
As before, T-Mobile’s prices generally undercut those of the bigger phone companies. The chief downside is that its data network coverage is poorer in rural areas.
T-Mobile stopped short of adopting shared-data plans that Verizon Wireless and AT&T introduced last year. Those plans allow all of a family’s devices to share a pool of monthly data usage. Instead, T-Mobile is selling data per line in pricing tiers.
A big part of the reason for the exodus of customers from T-Mobile is that it, alone among the four national-level cellphone carriers, hasn’t sold the iPhone. That’s because its network has, until recently, not been able to offer high-speed data service to iPhones. It’s now able to offer such data in some cities, and the company has said it would start selling the iPhone this spring.
T-Mobile is a unit of Germany’s Deutsche Telekom AG, which has agreed to merge it with the number five carrier, MetroPCS Communications.