T-Mobile goes $0 down for all devices, including iPhone 5 for $27/month
As part of its new un-carrier strategy, T-Mobile USA today announced that it will begin a new deal tomorrow: $0 down for all devices. Now, eligible customers can receive a phone with no money down and pay for the device over 24 months.
Context & Ripple Effects
T-Mobile had already separated service pricing from the traditional contract model with its contract-free plans and, in 2011, offered lower rates to customers who brought their own phones or paid full price. The new financing terms extend that approach to customers who want a flagship device without an upfront purchase.
The carrier had opened iPhone 5 pre-orders at $99.99 in April; removing that initial payment makes the monthly device charge the primary entry point for eligible buyers.
First-order effects
- Eligible T-Mobile customers can obtain any device with no down payment and spread its cost across 24 months; the iPhone 5 is priced at $27 per month.
- T-Mobile takes on the immediate financing exposure that customers previously covered through an upfront device payment.
Second-order effects
- Verizon and Sprint face a clearer comparison against T-Mobile’s contract-free service and low-entry-cost device offer, putting pressure on their own handset-payment terms for customers focused on upfront price.
- For handset vendors, installment financing broadens the pool of customers able to choose higher-priced phones without paying the purchase price at activation.
Third-order effects
- The move points toward wireless pricing in which service and handset costs are presented separately, with device financing replacing the upfront subsidy as the main acquisition lever.
- If carriers compete on down payments and monthly device charges, credit eligibility and financing terms become more consequential parts of wireless competition than headline handset prices.
The trend: U.S. wireless carriers are shifting handset acquisition from upfront subsidies and contracts toward separately priced service and installment-financed devices.