T-Mobile's new contractless data plan explained (FAQ)

Are you confused about T-Mobile's new contractless smartphone plans? CNET offers this FAQ to help decipher the details.

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.
Kent German Former senior managing editor / features
Kent was a senior managing editor at CNET News. A veteran of CNET since 2003, he reviewed the first iPhone and worked in both the London and San Francisco offices. When not working, he's planning his next vacation, walking his dog or watching planes land at the airport (yes, really).
Marguerite Reardon
Kent German
13 min read
T-Mobile gets iPhone, kills the contract
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T-Mobile USA is taking a bold step forward with a new contractless plan for smartphone subscribers.

The company posted the new changes to its plans, which made their first appearance last January at CES, on its Web site on Sunday. The new contractless plans may attract customers looking for a value. But figuring out the ins and outs of the new plans is a bit confusing. To help readers better understand what it all means, and whether they can actually save some cash with these new plans, CNET has put together this FAQ.

What changes did T-Mobile make to its service plans on Sunday?
T-Mobile announced on March 24 that it is changing its service plans. Customers can get unlimited voice and text messaging service, and on top of that they are able to choose from a variety of data packages. A plan for 500MB of high-speed data costs $50 a month. A plan for an additional 2GB of high-speed data is $60 a month. And users can get an unlimited high-speed data plan for $70. We'll break these down in more detail below.

But the biggest change that T-Mobile announced is that it will no longer require customers to sign a contract for service.

That sounds too good to be true. Is there a catch?
Yes, we guess in a sense you could say that there is a catch. T-Mobile is no longer "subsidizing" cell phones for service.

What does that mean exactly?
Smartphones are expensive. Some of the newer models cost between $600 and $700 at full retail price. Traditionally, wireless subscribers in the U.S. have asked customers to pay a fraction of that cost. Typically, the price is about $200. The carrier pays the rest of the cost of the phone. In exchange for this "deal," consumers agree to a two-year service contract. And if they leave the service early, they must pay an early termination fee.

T-Mobile is getting rid of the contract and the subsidy. This means that customers will have to pay full price for their phones.

What if I can't afford the cost of a new phone?
T-Mobile is offering a financing plan. For example, T-Mobile is offering the 16GB version of the Samsung Galaxy S3 for $549.99 if you pay at once. But if you can't afford that, you can put $69.99 down and pay an additional $20 per month on top of your service plan every month for 24 months. At the end of the 24 months, you own the phone outright.

This kind of sounds a lot like a contract/subsidy plan. What's the difference?
The big difference is that after you pay off the phone, your overall monthly bill goes down. It's just like when you finish paying off a car, or the mortgage on your home. Once the loan is paid off, you own the device outright and you can continue to use it. And because it's paid off, your monthly bill will go down by up to $20 a month.

This is different than the contract/subsidy model, because under that model, the carrier doesn't break out the additional cost of the device in your monthly bill. The price of that subsidy is bundled into the cost of the service you subscribe to each month. At the end of a two-year contract, the phone is likely paid for in full. And you are no longer bound to an early termination fee. But your monthly service is not reduced to reflect that the cost of the phone has been paid. Instead, you could continue to keep your old phone and still pay the same monthly service fee you were paying before it was paid for.

How do the new service plans work?
For individuals, plans start at $50 per month, which will deliver unlimited talk, text, and data. This basic plan, though, only entitles you to 500MB of high-speed, 4G data (more on this below). For an additional 2GB of high-speed data, you'll need to shell out an extra $10 a month (for a total of $60). And if you want unlimited high-speed data, that will cost you $70 per month. The plans also address hotspot use, which we'll address in a later question.

Family plans are similar, but with higher pricing. The base plan for two lines brings the same unlimited talk, text, and 500MB of high-speed data for $80 per month. Increasing your amount of high-speed data, however, will increase your bill $20 per tier (for 2GB or unlimited). The remaining family plan options work as follows:

  • Three lines: Basic plan is $90 per month with $30 per upgrade tier
  • Four lines: Basic plan is $100 per month with $40 per upgrade tier
  • Five lines: Basic plan is $110 per month with $50 per upgrade tier

Remember that for any plan you select, you will not have to commit to using the service for a set length of time. So, provided that you've paid off any new device that you buy (see below), you can end your service at any time without penalty.

If I get a family plan, can I share the data among my entire family?
No, T-Mobile does not offer subscribers the option to share data across a family plan. This means that multiple people on the same family plan can't share data. And it means that multiple devices using the same account via Wi-Fi do not share the entire bucket of data. Each person on the plan is given 500MB of data per month bundled with the cost of the service to use for connecting other devices via the Wi-Fi hot-spot capability built into the smartphone.

T-Mobile CEO John Legere announces the new plans at the carrier's March 26 event. Lori Grunin/CNET

Are the new plans really unlimited?
Yes, but there is fine print to consider. For talk and text, at least, "unlimited" really means just that. T-Mobile will not differentiate between weekday, weekend, and night calls. What's more, all domestic messages (text, photo, and video) sent and received will be included. Data is unlimited as well, but not all of that data will come at the same speed.

As mentioned above, the base plan brings 500MB of "high-speed" data on T-Mobile's HSPA+ network. Though not 4G by the technology's strictest definition, HSPA+ can rival the speeds you'll see on the LTE networks from AT&T and Verizon Wireless. This year, T-Mobile is at last developing LTE, which will go even faster. Read on for more LTE details.

Once you go past 500MB, you can still use as much data as you'd like, but your speeds will slow to 2G. Indeed, if you've grown accustomed to HSPA+ or even 3G, that will be a big, and admittedly painful, change. So if you're a big data user, it's probably worth paying the extra fees to upgrade. Agreeing to 2GB tier should satisfy most users. We'd recommend the highest plan only if you do all of your computing on smartphone and rarely use Wi-Fi.

There are pros and cons to using such a model. On the upside, you won't have to worry about any bill shock from going over a set data amount (as you would on AT&T and Verizon). On the downside, unless you opt for the most expensive plan, you still have to keep track of how much data you're using.

Will be mega data users be throttled in any form, even if they have the highest plan?
T-Mobile says that it will not hard throttle or dramatically reduce your speeds at any point.

What are the options for buying a phone?
As mentioned, you can do one of two things. You can either pay full price for the phone up front or you can "finance" your handset by paying monthly installments for two years. These installments depend on the ultimate cost of the phone, but they range from $2 per month for a basic model like the Samsung SGH-T159 to $20 per month for the Galaxy S3. High-priced devices like the Galaxy S3 may also require a nonrefundable deposit when you buy the phone. Those range from $9.99 for the HTC One S to $199.99 for the Samsung Galaxy Note II.

Will I end up paying more for the device if I "finance" it?
No. When you add up the deposit, plus any installments, it equals the price of the phone if you were to pay full price at the time of purchase. You won't pay any interest if you choose the installment option. Whether you can find a cheaper unlocked version of the same handset is another matter, though.

Are there any activation fees for new phones or lines?

What happens after you've finished paying off your phone?
The price of your plan will drop to include only the price of your rate plan and the services you use.

Of all the changes T-Mobile is making here, this is the biggest win for customers. Again, remember that under traditional, contract-based plans where you bought a phone with a heavy subsidy, the cost of that subsidy was built into your monthly plan price. Sound fair? Sure. But, when you reached the end of your contract and the point at which you were no longer subject to an early termination fee, the monthly price of your plan didn't change. So even though you had essentially paid for your phone in full, you didn't get a break on your monthly fee. T-Mobile's new model, however, finally adjusts your plan as you're entitled.

Are T-Mobile's phones locked when you buy them?
Yes, but T-Mobile will unlock your handset when you pay it off.

What happens if you walk away from T-Mobile before your phone is paid off?
Though you can end your service plan at any time, you're still required to pay off the cost of your phone if you walk away before the installment period is over.

How is that different than an early termination fee?
Honestly, it's not that different. The basic concept is the same.

What if I choose to upgrade when I'm still paying for a device?
According to language on its site, you can upgrade at any time. Technically, you'll have to pay off for your old device even as you're paying installments for the new one, but T-Mobile says that it will be able to trade in old handsets for "fair market credit." We don't know how T-Mobile will determine that amount, but it should help Galaxy S4 buyers. T-Mobile also is mulling an "upgrade club" for people that always want the latest and greatest.

iPhone 5
At long last, the iPhone 5 has arrived at T-Mobile. Sarah Tew/CNET

Can I sign up for a plan and bring my own phone?
Yes, just make sure the device will support T-Mobile's network. That takes us to our next question.

If I bring an unlocked AT&T phone to T-Mobile, will it work on T-Mobile's LTE network?
For the most part, you should be able to get some service. You'll be able to make calls and send messages, but you may not get the same speed of service that you would on AT&T's network.

Here's why:

Up until recently, T-Mobile used its 1,700MHz spectrum for its 3G and HSPA+ service, which it has called 4G. It used its 1,900MHz PCS spectrum for its slower 2G and 2.5G services.

Meanwhile, AT&T built its 3G and HSPA+ network on the 1,900MHz spectrum. This meant that devices, which were designed for AT&T's 3G network, could operate on T-Mobile, but only at the slower 2G speeds.

T-Mobile is in the middle of a massive network upgrade. It's now moving its 3G and HSPA+ services to the 1,900MHz spectrum band. This means that AT&T devices designed for 3G and HSPA+ will operate at those speeds in markets where T-Mobile has made the network transition. The good news is that in the future, more of AT&T's 3G and HSPA+ devices will operate on T-Mobile's 3G and HSPA+ network. That will be the case, for example, with the iPhone 5. Here you can read how T-Mobile's iPhone 5 will differ.

The other bit of good news is that there is a good chance that some devices made for AT&T will also operate on T-Mobile's 4G LTE network. Now that T-Mobile has freed up the 1,700MHz spectrum, it plans to use some of that spectrum for the faster LTE services. AT&T primarily uses 700MHz for LTE. But the carrier has a few markets where it is using the 1,700MHz spectrum. This means that its 4G LTE devices likely have radios that also support this frequency. And that will mean that those devices will be able to operate on T-Mobile's LTE network.

When will T-Mobile's LTE network be coming to my market?
T-Mobile's LTE is now live in Baltimore; Houston; Kansas City; Las Vegas; Phoenix; San Jose, Calif.; and Washington, D.C. New York City will follow sometime this summer. T-Mobile hasn't announce plans for any other cities yet, but it promises that it will reach 100 million Americans by the middle of 2013 and 200 million by the end of 2013.

Is T-Mobile's plan less expensive than its competitors' plans?
Yes, T-Mobile's pricing does seem to beat the big guys'. But when you are pricing out these plans, make sure you are comparing apples to apples. Remember that AT&T and Verizon offer shared data plans now that include unlimited voice, text messaging, and mobile hot-spot capability. Neither carrier offers unlimited data.

Sprint and T-Mobile structure their plans differently than AT&T and Verizon. Sometimes unlimited voice, data, and text messaging are included. And sometimes you can get a plan that offers unlimited usage of one thing but not the other. Also, data is not shared among users or devices, so sometimes you have to pay extra to use the mobile hot-spot feature on your smartphone.

Here's a quick look to compare:

T-Mobile's plans start at $50 for unlimited voice and text messaging service. And at that price you get 500MB of data at full 3G/4G speeds. As we said earlier, if you exceed 500MB of data in a month, you aren't charged an overage, but your service is slowed down until the beginning of the next billing cycle. Again, you can increase the amount of high-speed data you get with this plan. The next tier is $60 a month for 2GB of data at full speed. And then the unlimited high-speed service is $70 a month.

But T-Mobile's service only includes 500MB of mobile hot-spot service. And the data cannot be shared among multiple people on a plan or even among multiple devices. If you want more data to attach other devices to your plan via Wi-Fi, you have to pay extra. If you want an additional 2GB of data for a hotspot service, you pay $10. If you pay $20 a month you can get an additional 4GB of data per month for mobile hotspot.

Nokia Lumia 810
Under T-Mobile's new plans you'll pay $360 for the Nokia Lumia 810. James Martin/CNET

The total cost from T-Mobile if you want an additional 2GB of data is as follows: You'd pay $50 for unlimited voice and text messaging and 500MG of high-speed data for your smartphone and 500MB of data to use mobile hot-spot services. If you want to add more 3G/4G data for your smartphone, you'd pay another $10 for 2GB for a total of 2.5GB of data for your smartphone only. If you want more data so you can attach Wi-Fi enabled devices via your phone, you'd pay another $10 for 2GB of hot-spot data, giving you 2.5GB of data to use for the mobile hot spot.

Your total bill would be $70. If you wanted to finance a new phone, depending on the model you buy, it might be about $90 per month.

Comparable services from AT&T and Verizon Wireless are about $20 more expensive per month. With AT&T you can get 4GB of data, unlimited voice and text messaging, plus mobile hot spot, which uses your entire pool of data, for $110 a month. Verizon's plan also costs $110 a month for 4GB of data.

Sprint offers an unlimited-everything plan for $110 a month. Some plans include unlimited text messaging and some do not. The rest of the plans offer voice in buckets of minutes. Mobile hot-spot capability is priced separately.

The bottom line is that when you are looking at T-Mobile's new plans compared with these other services, they are a good value. And depending on what your usage is like and whether you have a device or are financing a device, you can save some money. And remember that you can expect to pay even less each month when your device is paid off, or if you bring your own device to the network.

To see how T-Mobile's plan compares with some prepaid offerings, check out Jessica Dolcourt's updated post.

Could I still get any of T-Mobile's prepaid plans, or is this new plan the only thing the company offers now?
T-Mobile isn't saying much other than what has been posted on the company Web site. From what we can tell, these new plans are the plans T-Mobile will be pushing. The company is still offering a very basic prepaid arrangement that seems to be geared toward voice-only customers. And you can still get service by the day. But the company is trying to steer its customers toward these new plans. T-Mobile has also started a new prepaid-only brand that it is calling GoSmart. It looks like that is the brand it will use to promote prepaid offers.

Can existing T-Mo contract customers switch over to this new plan without penalties?
According to a T-Mobile customer service rep who we spoke with online, current customers with a contract-based plan can switch after being in their current plan for 18 months.

Updated on March 26 at 4:30 p.m. PT with additional information.

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