T-Mobile Becomes First Major Carrier to Drop Subsidies

By FOXBusiness

T-Mobile became the first major carrier to drop subsidies this weekend when it unleashed a new pricing scheme that separates its devices from the network service cost.

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The mobile carrier, which is looking to finalize an acquisition with MetroPCS (NYSE:PCS), now charges about $550 for Samsung’s Galaxy S III smartphone, including a down payment of $69.99 and 24 monthly payments of $20.

A customer can also opt to buy the phone outright for $549.99.

To give some perspective, Verizon Wireless, a joint venture between Verizon Communications (NYSE:VZ) and Vodafone (NYSE:VOD), sells the same phone for $199.99 with a new 2-year contract. It claims the device was cut from its $599.99 retail price.

AT&T (NYSE:T), meanwhile, similarly sells the Galaxy S III for $199.99 with a new contract, claiming customers save $350 over the phone's regular $549.99 price.

Major mobile carriers use subsidies -- meaning they absorb much of the cost -- because it makes phone prices more attractive to customers, hoping the two-year contract pays off in the long term.

T-Mobile CEO John Legere said at a press event Tuesday that the new service plan will save consumers about $1,000 over two years compared with AT&T.

Carriers have expressed interest in distancing themselves from subsidies in an effort to ease the pressure on their margins, but have been slow to do so fearing the move would spook customers.

T-Mobile also dropped annual contracts during the quiet weekend launch on its website, and is now allowing customers to bring their own devices, essentially enabling them to use their existing owned-devices if they sign up for a new T-Mobile rate plan.

At the press event Tuesday afternoon, T-Mobile said it will begin selling Apple's (NASDAQ:AAPL) iPhone for the first time, beginning with the iPhone 5 on April 12.

The carrier recently secured regulatory approval in its tie-up with MetroPCS that would marry the world's fourth and fifth largest carriers. The $1.5 billion merger, however, has faced shareholder dissent from MetroPCS and remains subject to a vote by investors.

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