Really, Why Are Smartphones Still Tied To Contracts?

Bennett Haselton writes: "It's not trivial to explain why cell phone companies find it profitable to sell phones at a deep up-front discount and make it back over a two-year contract. Why don't other companies sell similarly-priced goods the same way? (And why, for that matter, has T-Mobile found it more profitable to do the opposite, selling the phone and the service separately?) I'm trying to come up with an explanation that makes realistic and consistent assumptions about the stupidity of the buying public, and still makes sense." Read on for the rest of Bennett's thoughts.

Matthew Yglesias at Slate wrote a year and a half ago about T-Mobile up-ending the cell phone industry by starting to sell phones and phone service separately. Yglesias wrote about the prevailing cell phone business model up to that point:

The customer walks out thrilled with the deal he got on his phone. Only later, when his ridiculous, complicated, and obscenely high bill comes, does he realize he has been fleeced.
[...]
The subsidy model is basically a scam, but it only arose thanks to our own collective mental failings. A phone-buying public used to getting high-end devices for $200 or $300 may simply balk at the discovery that a pocket-sized computer’s actual price is twice that or more. Until now, limited competition in the industry has let us optimistically believe that the American phone-buying public is the victim of unscrupulous business practices. But if T-Mobile can’t make this work, the lesson will be that the real fault lies with ourselves.

I always thought the underlying question was more complicated than that. First of all, if customers really realized that they had been "fleeced" after the first of their 24 monthly bills came in, that scam should only work on a particular customer for... two years, and then they would be wiser the second time around. But plenty of users stay with Verizon and AT&T year after year, getting new free phone "upgrades" that lock them into extended contracts. And besides, are so many phone buyers really that dumb, that they would take a "free" phone while entering into a two-year recurring billing contract, without thinking about how much that would commit them to paying in the long run? This is why I think that explanation doesn't meet the criteria of making realistic assumptions about how easy it is to fool the public.

Or if you think people really are that gullible, then the obvious question is why that tactic doesn't work for other products sold just a few feet away at the same Best Buy. While cars and other big-ticket items are often advertised for "No money down and just 24 monthly payments of $X", the vast majority of laptops and other expensive consumer goods are simply advertised with their sale price, and if you want to pay for them in installments, you can work that out at the time of purchase. If consumers are really dumb enough to be swindled into overpaying for their cell phones over two years, why aren't laptops and other items advertised in terms of two-year monthly payment contracts? This explanation makes inconsistent assumptions about how dumb we are.

And it can't be as simple as "Some people don't have the money to pay for the phone up front," because most places you enter into a cell phone service contract, will also let you buy the phone outright and set up an installment plan to pay it off (which of course is basically the same thing as paying it off over your two-year contract). You have to get a credit check to get on an installment plan, but you have to get a credit check to get on a cell service contract too. So that can't be the complete explanation either.

And then there's the twin mystery of why T-Mobile finds it profitable to do the opposite and avoid contracts entirely. This, at least, has a plausible explanation -- T-Mobile, with the smallest coverage area of the major cell providers, was looking for a way to differentiate itself from competitors that didn't involve slashing prices in proportion to their smaller coverage. So their phones don't work out in the boonies, but you know exactly what you're paying for when you buy the phone, and when you buy the service plan.

But why does everyone else continue to sell phones on contracts? Why do we still fall for it? And why don't the same tricks work for other expensive electronic goods?

The best explanation I've heard so far involves a combination of the following:

• Cell phones, unlike cars and laptops, don't look like they should cost as much as they do. (Electronics engineers know that of course it's harder and more expensive to fit fancy circuitry into a smaller space, but regular phone buyers instinctively think smaller should be cheaper.) So people would instinctively balk at the sticker price of a smartphone, even if it were payable in installments so they didn't have to have the cash up front. As a result, they pay instead through a more expensive service contract, even though the total ends up being more than if they had just bought the phone and paid in installments.
• Cell phones, unlike cars and laptops, are only useful when tied to recurring purchases of another product, the cell phone service plan. This presents an opportunity to confuse buyers who have no idea how much that service plan should actually cost, so they don't realize how much the service plan fee has been inflated to cover the cost of the phone. A laptop, by contrast, may only be useful when connected to the Internet, but there isn't a one-to-one pairing of laptops with Internet service contracts because multiple laptops in the same household usually share the same WiFi bill. And all cars require gas, but it would be hard to sell someone a cheap subsidized car and then require them to buy all of their gas from one overpriced vendor for the next two years.

These explanations are at least internally consistent, so they could be true. Who knows if they actually are true. Can you think of others?

The good news is that other cell phone companies are catching on: When I called the local AT&T store to ask if they had any "free" phones that came with a two-year contract, the salesman immediately steered me towards purchasing the phone and the plan separately, T-Mobile-style, saying it was cheaper. He said I could get a Nokia 920 for free with a two-year contract to pay $40/month, or I could buy the phone outright and pay it off in installments of $11/month, while meanwhile using the service plan for $25/month, for a lower combined price of $36/month. The local Verizon store said I could get the latest Droid for free with a 2-year contract paying $75/month, or I could pay the phone off in installments of $16/month while getting a discounted non-contract service plan for $65/month. So Verizon in this case doesn't actually make it cheaper to buy the phone outright and pay it off in installments, but at least it's a step in the right direction. (When I bought a phone from Verizon two years ago, they didn't offer any discount on their monthly service plan even if you bought the device outright. It has always been possible to buy cell phones at a full retail price, but of course it didn't make sense unless you would get a corresponding discount on the service plan.)

So this is good news, but it makes the relevant question even more difficult: Why is it that cell phone companies previously found it profitable only to sell phones on contracts, and now find it profitable to move slightly in the opposite direction? With any luck, soon the question will be a historic one: "How come cell phone companies used to confuse us about what we were really paying for our cell phones, and why did we put up with it?"

Comments

Let's save Bennett some time

[XanC]

Can you find any statement that is incorrect?

Re: Let's save Bennett some time

[the_humeister]

I bought my Nexus 4 for $199 last year. It's unlocked with no contract. Went to Taiwan last year and just had to buy a 1 week data SIM. Now my phone was the WIFI hotspot for my family, who all had carrier locked devices.

Re:Let's save Bennett some time

[ArmoredDragon]

The reason for this IMO is the same reason why most people complain about living paycheck to paycheck: They use credit cards instead of savings to buy this year's Christmas presents. Then they end up spending most of their income on interest.

I keep having to say this over and over again, but I actually live rather comfortably on an under $10k per year income. I pay my own bills, but I have zero debt and a large cash surplus that continues to build (which was acquired entirely by saving my income.)

Living on debt is MUCH more expensive than living on a cash surplus. We're talking easily 3 times what you actually spend on your junk because of the way interest on credit cards and mortgages compounds.

That's easy

[Anonymous Coward]

Because telecom markets are monopolized (or at a minimum, duapolized), and it is precisely that level of control which allows them engage in predatory business practices.

Re:That's easy

[ShanghaiBill]

Because telecom markets are monopolized

I don't think that is the reason at all. I have always used no-contract pre-paid phone service. I save money, with no strings attached. There are good choices for anyone who cares, but most people choose the dumb option. Why? Beats me. The problem is that most of the people signing up for these contracts, are also eligible to vote, leading directly to our $17 trillion national debt.

Re:That's easy

[Andy Dodd]

It was impossible to do this until the past 2-3 years.

Straight Talk's MVNO plans were the first time anyone could get GSM service that was BYOD-friendly, and ST's SIMs disappeared in early 2012 or so for over a year. Also, you could only get their SIMs online so few people knew about them.

T-Mo was the first provider to offer plans without a subsidy penalty, but they're not an option for many people because their network is so small. Although their 200MB/month "promotional free data" plan is one of the smartest marketing ideas in history. 200MB/mo leads to very little load on their network, but allows people in rural areas to monitor the reality of T-Mobile's services. (e.g. I'll know thanks to my Chromebook once they start offering more than just EDGE service in my area.)

Sprint and Verizon aren't feasible for BYOD due to being CDMA2000-based. That's starting to change slowly (the Nexus 5 was groundbreaking in this regard) but still they have a stranglehold on device compatibility.

AT&T does give any reasonable BYOD discounts unless you're on a family plan with lots of lines. (Their BYOD discount combined with an applicable plan is more expensive than their individual plans)

So contract-subsidized phones are taking forever to go away thanks to the carrier monopoly and a bit due to culture. People are stupid, and seeing a $1 phone throws them into a frenzy even if you show them the math that shows that they're paying so much more for service that the phone will cost them $200-300 more over 2 years than a cheaper no-subsidy plan and buying a device outright.

Re:That's easy

[FireFury03]

It was impossible to do this until the past 2-3 years.

Untrue.

In 2004 I bought my last subsidised phone - a Sony Ericsson P900. And the only reason I did this was because there was a loophole in the Orange contracts that meant I could get it dirt cheap by getting it on an expensive tariff and then change to a cheap tariff after the first month (they closed this loophole shortly after). My next phone was an HTC Dream in 2009, bought used off eBay. On Three's PAYG tariff that worked out pretty cheap. When the HTC Dream died in 2012, I imported a Samsung Captivate Glide and just swapped my Three SIM into it.

So the option to buy a handset and put it on a tariff of your choice has been there for years, if you actually look. But almost no one *advertises* off-contract handsets, so a lot of people don't even realise that you can do this, so they get a standard subsidised handset on, what they seem to think, is a good deal because they pay a low low upfront price and then a fixed monthly fee which gives them way more inclusive minutes/texts/data than they are ever going to use. If they had actually investigated their options, a lot of people would've realised that it was cheaper for them to buy a handset and put a PAYG SIM in it, because they're never *really* going to use those 10,000 minutes per month that they would've got with the subsidised phone.

Then, after 1-2 years, the MNO writes to their customer to say they can get a "free" (or low price) upgrade if they renew their contract, and you'd be stupid to turn down "free", right? Again, people don't investigate their options - if they did they would often realise it would be better to stick with their existing phone and move it onto a cheaper tariff.

And of course, no one in the industry wants to change this - the MNOs are making lots of money through these overpriced contracts, the phone vendors love the fact that everyone chucks away their perfectly good phone every 2 years and gets a replacement, and the customers usually don't know any better.

I guess add to that that for some crazy reason, phones are seen as a status symbol and therefore everyone's always got to have a brand new phone. TBH, from my perspective, the more recent phones don't seem anywhere near as good as the older ones, so I am loath to "upgrade" my phone. The HTC Dream may have been slow, but the form factor was fantastic; the Samsung Captivate Glide that I replaced it with is verging on the "slightly too big" side and the keyboard isn't anywhere near as nice to use; If I had to upgrade now, I'd be hard pressed to find anything to replace it with - none of the current phones have hard keyboards at all and screen sizes seem to have become stupid - everyone seems to be competing to be the first to make a phone that's even less likely to fit in your pocket/hand than their competetor's. Yes, the internals of phones are getting way better, but the form factors are far worse.

Your Blog Sucks

[Anonymous Coward]

Your Blog Sucks

Sure you can.

[CronoCloud]

You can most certainly get a smartphone without a contract, even as pay as you go. BH hasn't been paying attention.

Lease?

[SuperKendall]

I would argue that leasing a car is not unlike a phone contract, you get access to a way more valuable car for a period of time than the equivalent payment would get you.

Not that you get to keep the car after, but some people just go from lease to lease the way you describe going from phone to phone.

Seriously?

[dos1]

Uhmm, are they? I never bought any smartphone on contract with operator. The last phone I bought like that was a standard dumb phone many years ago.

Of course there are offers like that, but saying that "smartphones are tied to contracts" is bullshit. You just buy a phone, put SIM in and you're ready to go. If you're doing it in different way, that's your problem.

Re:Seriously?

[mythosaz]

What are you talking about? Of fucking course we can do that here in the good 'ol U.S. of A.

What do you think happens with every Google Play Edition HTC One, or every Google Nexus?

The fact is that most people prefer to pay $25/mo burried in a contract over two years to pay for their new $600 cell phone, because this is America, the land of revolving credit and low, low monthly payments.

I've lost count of how many phones I've bought and just thrown my SIM in. The most difficult task I've had to ever do is walk into my provider and ask for a Micro-SIM card when I got a newer phone. The next time I get any hardware from them will be when I need a Nano-SIM.

That isn't to say that you can't use a plan to your advantage: I once got the entire family an "upgrade" for $25/mo on the package -- and got a whole pile of crappy Android 2.2 devices they were dumping -- but only because they lowered my service plan by $25/mo as incentive. [No doubt the sales associate got a perk for making the sale, and used their latitude in retention offers to lower my plan rate. Everyone won that day.] When the payment plan ended, my bill ultimately went down by $25 forever (or at least until they fuck all their customers again), and I had a pile of emergency phones I could just throw a SIM in when one of the kids invariably lost theirs.

Since I don't use their shitty "loan you $600, just sign up for two more years" upgrade plans, I'm always free to walk, and always free to negotiate the best rate for my plan or move to another carrier. So the next time they globally try to screw people, I can walk away without as much of a care, and put the next provider's SIM in my phone.

For that, I have to buy my phones outright -- like a responsible adult not living on the credit treadmill.

Re:Seriously?

[afidel]

You CAN take it to Sprint or AT&T, but you'll pay the same monthly charge as someone who didn't bring their own device (ie paying a monthly subsidy for a phone you didn't receive), there are sometimes exceptions, but in general that's how it works.

" why T-Mobile finds it profitable"

[wiredog]

T-Mobile is losing money. Something in the $100m/year range.

Re:" why T-Mobile finds it profitable"

[Anonymous Coward]

The analogy that I've long used is that Verizon is the hottest girl at the prom, and worse, she knows it.

That's why competition is so important. It's not just that Verizon is the hottest girl at the prom, it's that there's only 4 girls at the prom, 2 of them really aren't interested in being there, and the other 2 aren't really that hot or nice but there's no one else there. Meanwhile, the chaperones are keeping out oodles of much more deserving, attractive girls who want to be at prom but are forbidden because of idiot authoritarian parent council leaders, who maintain the status quo because Verizon is flirting with them.

Honestly, people take these contracts because they're gambling they won't leave after 2 years. And if they renew their contract, they obviously were right.

Re:" why T-Mobile finds it profitable"

[Daetrin]

I'm obviously at in advantage because i live in SoCal, but when i switched to T-Mobile at the start of 2010 i thought their 3G network was pretty good. When my phone started malfunctioning in... mid 2011 i think? and couldn't hold a 3G connection anymore, i thought their Edge network was slow, but i made do. When i got my new phone in late 2013 i thought 4G was blazing fast. Fast enough that i don't even bother switching to wireless at home. (That choice is influenced by being on the $30/month unlimited data plan and the fact that our wireless router can be a bit wonky at times.)

I haven't found anywhere outside in OC or LA where i can't get signal, except for some spots near the top of the Runyon Canyon Park, which i can live with. When i was on 3G or Edge there were a couple buildings that i couldn't get signal inside of very well (unfortunately one of those buildings was my office =) but since switching to 4G that problem seems to have disappeared.

(Except for the lunch room at work. I can't get signal in the lunch room. No one, no matter what their carrier, can get signal in the lunch room. They must have built it out of lead or something.)

(random musing: I like pink motorcycle lady, and don't remember anything distinctive about her voice at all. I don't really think she's any better or worse than CZJ was.)

Re:" why T-Mobile finds it profitable"

[WaywardGeek]

It's not just the dumb 2-year contract scam. We're also being fleeced for voice contracts, on both our land-line and mobile, because the phone companies prefer to continue charging a 1970's service charge for something that modern networks deliver practically for free. T-Mobile doesn't need 850MHz spectrum. They need free VoIP over WiFi whenever you're indoors at work, home, or a friend's house.

Fortunately, there's a new kid on the block, Republic Wireless, who is doing contract-free ultra-cheap service. By offloading traffic to your own home wifi, RW can in theory make money $25/mo for Sprint 3G "unlimited" service. That's the plan I have, and I have the $10 plan for my kids. Verizon 4G LTE was great (my previous phone was a Verizon/Google Galaxy Nexus), but for the $60/month savings on just one phone, I'll live with Sprint. Also, they've got the Moto-X for $300, contract free, and it's hands down the best phone I've had. Time will tell if sane service providers have a chance in this country.

Re:" why T-Mobile finds it profitable"

[Hognoxious]

It's not just that Verizon is the hottest girl at the prom

You lost me there.

Try again, but with cars.

Its like this...

[JustNiz]

Its like the story of the 2 bakers that had stores next door to each other, so were both not making much money.
One put his prices up, the other put his prices down.
Guess which one survived?

AT&T is the short-sighted baker who is still trying to charge you $10 for a loaf of bread and lock you into only doing business with them, because to do so makes them more money per customer.

T-Mobile has broken ranks with the price-fixing collusion of the big carriers, and are now trying to charge a fairer price and not lock people in, on the basis that Americans aren't actually stupid so will switch to a better deal. Honestly I'm not as sure as they apparently are about that one. T-mobile now make less money per customer, but are gambling on ending up with way more customers and it being a net win.
I hope T-Mobile are proved righ and do win because companies like AT&T badly need to be given a black eye for their sleazy price gouging and nickel-and-diming practices.

Because they can.

[nurb432]

Quite simple really. As long as they can trap you due to lack of alternatives, they will. Once there are *viable* alternatives, then they wont do it any longer.

That aside, i do see many non-contract smartphones out there.. but they do cost you upfront, which is beyond many people's budget in this current economy. So i really dont see the point of the question anyway.

Simple: So people will buy them.

[T.E.D.]

If I had to pay the up-front $700 cost of the latest-greatest smartphone, I'd never do it. When it's only $200, I can generally scrape that together.

Tied plans are hiding the true costs of the smartphones Americans buy, which is encouraging high-end sales. We all essentially have our next phone on layaway.

Re:Simple: So people will buy them.

[Jason Levine]

But in this case, cell phone companies could arrange payment plans and keep the service separate. Say the phone costs $700. You pay nothing now and pay $30 a month for 2 years. On top of that, you pay for your month-to-month service. Now suppose in month 5 you decide you want to go with Other Cell Phone Company instead. You cancel your service, but will still pay your initial cell phone company $30 a month until your phone is paid off (or unless you pay off the amount remaining). As for the risk of the person just refusing to pay that bill, that's what collection agencies are for.

The real reason for contracts is to make sure that customers can only jump ship once every 2 years. This lowers "I've had a bad experience, I'm leaving" churn as the customers might have forgotten about it by the time their contract is up.

Re: Simple: So people will buy them.

[shitzu]

I live in Europe.

First of all - the networks were not built after the technology was mature. We REPLACED the old network (NMT) with a newer network (GSM) which has been steadily evolving since then (3G, 4G). The 4G is basically a new network again, but as the phones are backwards compatible, the coverage is not such a big issue - if 4G stations cannot be reached, the phone uses 3G or older stations seamlessly.

Also - socialism or regulation is not the root cause. I think the root cause is that all our networks use the same standard and you have always been able to slap your SIM card into any phone you buy since 1995 or so. At the same time US phones were tied to a carrier - they did not work in another network - therefore you bought your phone from your carrier. In Europe you always bought your phone from an electronics shop and SIM from a carrier.

The main regulatory trick that further fueled competition was when you could switch networks without changing your number. After that the competition went insane and prices went clise to zero. I pay for "unlimited" data (they start to cap speeds at some point if you torrent with it which i don't know exactly as i haven't hit the trigger) and calls by the minute - which amounts to around 6-7euros a month ($8-9ish). Paying 40-60$ a month sounds like a pure insanity - my mobile bills were that high in the nineties.

Because it works

[Registered Coward v2]

So this is good news, but it makes the relevant question even more difficult: Why is it that cell phone companies previously found it profitable only to sell phones on contracts, and now find it profitable to move slightly in the opposite direction? With any luck, soon the question will be a historic one: "How come cell phone companies used to confuse us about what we were really paying for our cell phones, and why did we put up with it?"

As TFA points out, it's generally a pricing perception issue. People will part with $0 upfront and pay $XX per month rather that $600 up front and $YY per month; even if the second option is cheaper. Since the first option results in more money companies do that

Why did T-Mobile decide to do it differently? The cell phone business is a high fixed cost (the network) low variable (carrying a call) cost industry. T-Mobile, as TFA points out is a much smaller #3. Even so, their fixed costs are probably not proportionately smaller since they still have a similar service footprint except perhaps in low density rural areas. So they need as many subscribers as possible to cover the fixed costs; hence a move to differentiate themselves in the market.

Who is this Bennett...

[Anonymous Coward]

...and more importantly why should I care about his random "thoughts" of the day?
How does this crap get on the front page anyways?

Fuck Timmy

[Jmc23]

and his bitch boytoy Benny.

Seriously, what is he twelve and never heard of any countries besides the USA.

Get this off /.

[alta]

First, this article is stupid and made more dumber for reading it.

Secondly, people like to finance everything. You're just financing your phone. It just makes it a little more complicated that it's hidden in a monthly service. It's that simple. Doesn't need a story. Can we un-post this?

tl;dr

[sootman]

Short version: "Bennett Haselton writes 1300 words on something that has been hashed to death a million times already."

Next!

Seriously, what is this shit doing on Slashdot?

Blog

[Anonymous Coward]

It's official, Slashdot has become Bennet Hasselton's personal blog.

Re: Convenience Factor

[shitzu]

The point is that they pay twice the price of the phone this way. If you find it convenient to pay double for phone as well as contract - by all means, do that.

Terrible article, avoids/dodges questions

[TrollstonButterbeans]

This article is pretty bad from this prespective. It raises certain questions and explores them, while ignoring all other possible questions.

Which is a very pretentious way of thinking.

A few of the comments here hit it head on (i.e. upfront costs too high, lock-in, etc.).

But a really large factor = in the 1990s there were tons of cell phone companies and it was an emerging market.

And these cell phone companies had major infrastructure expenditures because at the time coverage was mostly near major cities.

The typical WIN-WIN arrangement with customer and provider is the customer gets a low price (and all the greatness of a phone that works anywhere, unlike a landline) and the provider gets the security of having a stable cashflow to continue to improve their product and experience.

But Verizon and AT&T are monopoly utilities, thank goodness there is still T-Mobile as a 3rd option.

I am disappointed by this article, even in a few of the question are good, in that apparently the author of the article didn't think that any history of the cell phone industry was important to see the present in context of the past. History always sheds quite a bit of light on the present.

Doy

[CanHasDIY]

Because they make more money that way, doofus.

Seriously, who is upvoting this guy's blog posts in the firehose? Or does he have some dirt on the editors? Can't figure out why these BS BH posts keep making it to the front page...

Stupid title - not like this in most of the world

[kyrsjo]

The title of the article is:
"Really, Why Are Smartphones Still Tied To Contracts?"

However, this is really an American phenomenon - in most of the world the most common is to buy the phone you want "cash", then get a SIM card from the provider you want (or just move over your old SIM).

This also means that it's common to get a prepaid SIM if one goes abroad for more than a few days, in order to call/receive calls for cheap, and use data without being fleeced. It also means that the phones are not branded the same as the network, but branded as Samsung / HTC / Apple / etc.

Really!

[Anonymous Coward]

Really, Why Are Bennett Haselton Articles Still Being Posted?

Not that complicated ...

[gstoddart]

I'm trying to come up with an explanation that makes realistic and consistent assumptions about the stupidity of the buying public, and still makes sense

For years, companies (and even some government entities) basically kept saying "can't afford something, no problem, finance it". Which is fundamentally what caused the meltdown in '08 -- too much borrowing, and financial institutions giving out credit like candy to people who couldn't pay it back.

People have been conditioned to believe that their wants are in fact needs.

Can't afford that $700 smart phone? No problem, get it on credit. Can't afford the new sofa for your house? No interest no payments. Can't afford that new house? We'll give you a mortgage anyway.

When your buying public doesn't really understand credit, and when everybody "needs" to have the latest and greatest thing, the lure of convenient monthly payments (which you may still not be able to afford) solves your problem.

If the average America has $15K in credit card debt, you seriously have to ask why people buy their phones on an extended contract?

Seriously, you're trying to find the answer to a far broader issue than just cell phones.

Re:Why is it that cell phone companies...

[briancox2]

-1 Troll?

I wish I had a mod point to spare you, my friend. Except someone taking offense at your language, you make a great point. (Ironically, Bennet is very much pro-f-word.)

Every couple of weeks, Bennet Haselton has an idea, and much like Hugo Chavez, he feels that he and we have a duty to get into a lengthy discussion about his ideas on the matter. And who is he? He's a guy that started some once controversial websites and promotes internet freedom. So do I, by the way, though I don't make it my full time job. Are his ideas brighter and more wise than mine or yours? I can't say they are when he calls T-Mobile profitable.

But, apparently, timothy thinks his ideas are so important that normal Slashdot story excerpt length needs to be set aside any time he has something to say. So why should it be "Troll" behavior to question why his ideas are heralded while the ideas of most others can only earn a dominance of Score:5 at most? I think that's very relevant discussion on this thread. I M H O.

Re:Momentum

[nblender]

I've been in the telecom business but not the marketing end... I don't know about now but back then, the model was that phones were expected to last 18 months before the battery or something else gave out... So you wanted your customer to renew and tie in to a new 2 year contract when they were almost finished their current contract and prevent them from moving to another carrier.

Re:FCC induced problem

[Shakrai]

Actually it's a T-Mobile created problem. Nothing stopped them from bidding in the 700mhz auction, except for the part where they blew all their money (billions in fact) on the earlier 1700/2100mhz AWS auction. Nobody forced T-Mobile to do that. A lot of industry watchers scratched their head at that move, wondering why T-Mobile was buying high frequency spectrum to build out a last generation UMTS network when LTE and the 700mhz auction were already on the horizon.

More to the point, there are whole swathes of the United States where they hold valid PCS licenses that they've never used. It's not a spectrum limitation in these markets, it's an unwillingness to invest the required monies to service them. T-Mobile will never match Verizon or AT&T's footprint. One they don't have the money, two they're on record saying they don't believe that sort of coverage is important to their customers. On that last point they may be right, there's certainly room in the market for a value oriented competitor to the big boys, but so long as they have grossly inferior coverage they'll never really be in a position to dethrone Verizon or AT&T.

Verizon and AT&T are often condemned for the behaviors of their wireline divisions, wherein they seemingly cherry pick the most profitable markets for FiOS and uVerse, leaving the rest to rot on last generation DSL service. The irony is that T-Mobile does the exact same thing with wireless but is rarely condemned out for such business decisions.