T-Mobile will pay off your phone debt if you switch carriers

T-Mobile's brash CEO John Legere may offend some people, but he also turned the wireless industry inside out. The company's latest tactic to draw its competitors' customers is to pay off their phone debts when they switch to T-Mobile.

t mobile ceo john legere

T-Mobile CEO John Legere, shown in a June 14, 2014, photo.

Credit: Reuters

T-Mobile CEO John Legere can easily rub you the wrong way. He's brash, deliberately foul-mouthed, and prone to exaggeration and self-congratulation. The man deserves his due, however. In the last two years he's turned the once-ossified market for consumer wireless service into a reasonably competitive playing field.

I say reasonably because there are still only four major wireless carriers to choose from in the United States, their offerings aren't all that different from one another, and they're not particularly cheap. Consumers in Europe and Asia generally have it much better.

Even so, T-Mobile's "Un-carrier" campaigns effectively killed the odious two-year contract that was an industry standard just a few years ago. They also led to heightened competition among the carriers, a plethora of new choices for when and how to upgrade to new phones, and they put copious amounts of high-speed data within nearly everyone's reach.

Along with calling his competitors some distasteful names at a press conference in New York on Wednesday, Legere made a very good point: Although many consumers are no longer trapped by contracts and early termination fees (ETFs), many are effectively locked into service by having to make monthly payments on their no-longer-subsidized devices. (T-Mobile also rolled out new wireless plans for businesses at the same event.)

For example, a consumer who buys a $650 phone for no money down will typically pay it off by making $27 month payments for two years. Consumers who want to switch carriers before they've paid off their devices have to cough up the remaining balance in a lump sum. That's certainly not unfair, but it does make it much more difficult to switch carriers.

T-Mobile's solution is to pay off the remaining equipment charges for customers who switch to T-Mobile. In return, customers must hand over their old smartphones and buy a new T-Mobile device. The carrier will give new customers a trade-in value for their old phones and prepaid cards with the balance of the outstanding phone payments after they submit a wireless bill to T-Mobile. Financially, it's a wash for the consumer — the advantage is that he or she can start over with a new carrier.

The new offer is really an extension of an older T-Mobile initiative that ultimately won the company millions of new customers. When the carrier launched its Un-carrier campaign it offered to pay ETFs for people who switched to T-Mobile before their existing contracts expired. That's now fairly common industry practice, and it wouldn't surprise me if T-Mobile's competitors quickly mimic this latest tactic, as well.

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