Switch, he said: T-Mobile will take the penalty for you

CEO John Legere says T-Mobile will ease a major pain point for cell phone owners: it will pay early-termination fees for those who jump from another carrier.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
6 min read
T-Mobile execs make their Uncarrier pitch at CES 201
T-Mobile execs make their Uncarrier pitch at CES 2014. James Martin/CNET

T-Mobile said Wednesday that it will pay early-termination fees for customers who are switching to the carrier from rival phone firms.

The bold move is the next phase of T-Mobile's so-called "Uncarrier" strategy. The company says it will pay early-termination fees for customers when they trade in their devices with T-Mobile and sign up for T-Mobile wireless service. T-Mobile said the total value of the trade-in offer to switch carriers could be as high as $650 per line.

The plan, which had been teased and touted for weeks on Twitter by the company's colorful CEO, John Legere, was unveiled at the company's press conference in Las Vegas at the Consumer Electronics Show. An advertisement for the promotion was leaked before the launch.

Here is how it works. Starting Thursday, customers can trade in their current devices to any T-Mobile location and switch to a postpaid Simple Choice Plan and they will receive an instant credit, based on the value of their phone, of up to $300. These customers can then purchase any eligible device, including T-Mobile's most popular smartphones, without putting any money down. Customers who qualify can finance the phone over 24 months with no interest.

After customers get the final bill from their old carrier, which shows their early termination fee, they can either mail that bill to T-Mobile or upload it to www.switch2tmobile.com. T-Mobile then sends an additional payment equal to those fees, up to $350 per line. In order to qualify, customers must trade their old phone, purchase a new T-Mobile phone, and port their phone number to T-Mobile.

The company also announced that it now claims the honors of having the fastest 4G LTE network in the US. And the company said its wireless network now reaches 209 million customers in 273 metro areas. In October, T-Mobile reported that it exceeded its year-end target for LTE by noting it had covered more than 200 million people in 233 metropolitan areas with the service.

Eliminating pain points
T-Mobile, the smallest of the big four nationwide wireless operators, launched the Uncarrier strategy in March. CEO Legere, who's now famous for his hot-pink T-shirt and his provocative antics -- such as crashing rival AT&T's CES party -- said the company's new focus is changing how the industry does business, by eliminating customer pain points.

At the top of his list of such points was eliminating customer contracts. In March, the company got rid of phone subsidies and contracts. In July, T-Mobile announced Jump, an early-upgrade program. In October the company introduced free international roaming for customers traveling abroad. T-Mobile followed up that announcement with an offer to give away for free 200MB of data service to tablet owners signing up for cellular data service with the company.

The move has indeed ruffled a few feathers and shaken things up in the wireless market. And it has started to win T-Mobile new customers. At the end of the third quarter, the company said it added more than a million customers to its service.

Competitors have already begun responding to T-Mobile's moves. AT&T and Verizon Wireless introduced their own early-upgrade programs last summer. And in December, AT&T revised its wireless-plan pricing. Like T-Mobile, AT&T now offers a plan under which customers can unbundle the cost of their subsidized device from their monthly service, effectively giving customers who already own their phones a discount on their monthly service.

And last week, in a move that looks like it was meant to upstage T-Mobile's CES announcement, AT&T said it would pay up to $450 to existing T-Mobile customers who want to switch to AT&T. The plan gives customers $200 credit for every line they transfer from T-Mobile to AT&T's new Next plans, which require that customers either pay for their device in full or bring an existing phone to the plan. AT&T also said it would give customers a promotion card of up to $250 for every smartphone trade-in they bring to the table. The actual promotion card amount is based on the type of device, its age, and its quality.

AT&T isn't the only carrier responding to T-Mobile's aggressive moves. Sprint, which is the third-largest national wireless carrier in the US, announced Tuesday its new "Framily Plan," which allows people to include up to 10 individuals on a single family plan and get up to a $30 discount on the total service. When at least seven people sign up for a single plan, each individual will have to pay only $25 for unlimited voice, text messaging, and up to 1GB of data.

Taking Uncarrier a step further
T-Mobile's plan to pay the early-termination fees for customers seems like a straightforward offer to get customers who may have been intrigued by T-Mobile's earlier offers to take the final plunge and end their competing contracts early. Early-termination fees, which are the penalties that customers have to pay when canceling a service before a contract is finished, are certainly a major pain point for many customers. These fees, which can be as high as $350 per contract, often lock customers into contracts with service providers for far longer than they would like. And they're one of the top reasons customers don't switch operators.

This new offer should appeal especially to families with multiple phones on contracts. Since most customers set up separate lines at different times, the contract periods often differ. This means some customers may still be on contract while others on the same plan are not. T-Mobile's plan could help entice some of these customers who want to leave their original provider.

Network improvements are key
But paying early-termination fees will take T-Mobile only so far in its battle to win customers. In order to truly compete with AT&T and Verizon Wireless, T-Mobile needs to continue improving its network, namely extending coverage with faster and more-reliable service.

John Legere
John Legere kicks back in this Twitter photo. John Legere

As the smallest provider, with only a limited amount of wireless spectrum, T-Mobile has been forced through the years to focus almost exclusively on serving customers in densely populated urban areas. The company's late start to offering 3G data service and then 4G LTE service also hurt its competitiveness.

Since its failed merger with AT&T a couple of years ago, T-Mobile has been addressing these issues. The company has rapidly expanded its 4G LTE network to new markets. And earlier this week, it announced an important spectrum deal, which will give it the necessary building blocks for creating a more rural and suburban network. On Monday it announced a $3.3 billion deal with Verizon to swap higher frequency spectrum for much needed low frequency spectrum. T-Mobile plans to use the lower 700MHz A block spectrum to improve in-building coverage of its 4G LTE service in major cities as well as use it to extend its network in suburban and rural areas.

Improved coverage should help the company not only retain customers but also attract new ones who previously wouldn't have been able to consider T-Mobile even with its aggressive pricing and offers.

T-Mobile is also planning to bid on other low-frequency spectrum in the upcoming incentive spectrum auction run by the Federal Communications Commission. That auction, which will take under-used broadcast TV spectrum and sell it to wireless operators, is expected to take place in mid-2015.

But just as it looks like T-Mobile is making headway with its aggressive moves, rumors have emerged that the company is yet again an acquisition target. This time Sprint, now owned by Japanese company Softbank, is supposedly interested in buying the carrier. Analysts and other wireless industry experts question whether this deal has any legs given that regulators rejected AT&T's $39 billion bid for T-Mobile. And T-Mobile's most recent spectrum deal with Verizon suggests the company is serious about competing as an independent operator.

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