AT&T Challenges T-Mobile Uncarrier Strategy

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When T-Mobile CEO John Legere addressed the media at a press conference held in January during the Consumer Electronics Show, he promised to shake up the wireless industry. He promised to make T-Mobile a challenger to its three larger rivals, AT&T, Sprint and Verizon Wireless. He branded T-Mobile the "Uncarrier." Legere set forth to disrupt the cellphone world, and the plan is already working.

Tuesday, AT&T announced AT&T Next, a program that will allow its customers to upgrade to new hardware once every 12 months, rather than once every two years. AT&T now offers at least four avenues through which to purchase phones. Here's how the AT&T Next program works.

Those AT&T customers who don't like the idea of sticking with the same cellphone for two years can enroll in the AT&T Next program. Rather than charge customers the upfront fee for a new device, customers choose to make monthly payments for the device instead. AT&T discusses the Samsung Galaxy S4 as an example.

Normally, AT&T would ask customers $199 for the GS4 followed by a two-year contract. Remember, the full retail price of the GS4 (and most smartphones) is $649, and AT&T depends on the two-year contract to recoup the remaining $450 of the device's retail price. Of course, customers may choose to buy a device for full price at any time. With AT&T Next, however, there is no subsidized price or initial payment. Instead, AT&T has divided the cost of the GS4 into 20 monthly payments of $32. AT&T Next customers can walk out of an AT&T store without paying anything for a brand new GS4, but they'll have to add the $32 monthly installment fee to their monthly service plan. AT&T said most devices will come with a monthly fee ranging from $15 to $50.

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After those customers have made 12 monthly payments (totaling $384), the customer can bring the GS4 into an AT&T store and trade it in for a new phone. AT&T takes the old phone and gives the AT&T Next customer a new one for no money down once again, though they'll have to pay a new monthly fee based on the retail cost of that new device. Alternately, AT&T Next customers can make all 20 payments in order to own the device outright and hold onto it if they so choose.

AT&T Next can be used with any smartphone or tablet, but only lets customers upgrade hardware once every 12 months. For sure, the plan has some appeal, especially for those who get bored with phones quickly and always want the latest available hardware.

Now, let's consider the T-Mobile plan. In April, T-Mobile did away with device subsidies. Well, it at least made the cost of the device more transparent. Instead of charging customers $99 or $199 and asking them to sign a new two-year contract, T-Mobile tossed contracts out the window. Now, customers can make a down payment on a smartphone, usually $99, and then pay the rest of the device's cost off over a period of 20 months. A device like the GS4 carries a monthly cost of $24, which is added to the price of the service contract. Unlike AT&T, however, T-Mobile dropped the prices of its service contracts by about $20 across the board. It may or may not be any less expensive, but at least you know what you're paying for. (The $99 down payment, plus a $24 monthly device fee, times 12 months equals $387.)

Last week, T-Mobile introduced Jump, a new program that lets people upgrade to new phones every six months. Jump requires a $10 monthly fee on top of the device fee and service plan fee, but gives people more flexibility to change devices more often. They still have to make device down payments, and have to turn in their old phones when they upgrade. (Traded in phones at both AT&T and T-Mobile will be refurbished and resold elsewhere.) Looking at the math, the GS4 would cost about $303 to own over six months. (The $99 down payment, plus a $24 monthly device fee, plus a $10 monthly Jump fee, times six months totals $303).

AT&T Next is clearly a response to T-Mobile's no-contract and Jump programs. How long will it be before Sprint and Verizon Wireless follow? In other words, T-Mobile set out to change the industry, and just six months later, it has. T-Mobile's programs have forced AT&T to amend its own product offering to make sure customers don't flee to the competition. That's good for American consumers, because we now have more choice.

Keep it up, T-Mobile.