T-Mobile has been getting huge props in the tech press for its decision in March to drop two-year cell phone contracts. And the company’s boastful ads for the so-called no-contract service have been all over television.
Here’s T-Mobile’s sales pitch: “With no more annual service contract required, we don’t lock you into a big commitment with our Simple Choice Plan.“
You’ll note that the usually reliable New York Times columnist David Pogue is featured prominently in the ad. He not only went for the pitch, but in a follow up column took readers to task for criticizing T-Mobile.
What’s wrong with the offer? A lot. The no-contract claim is less than honest; it only applies to people bringing their own phone, a tiny minority. If you want to buy the 16 GB iPhone 5 you pay $99 down and then pay T-Mobile $20 a month for 24 months, which brings the total cost of the phone to $579.
However, “consumers who cancel their wireless service face an unanticipated balloon payment for the phone equipment – in some cases higher than termination fees for other wireless carriers depending on how early they cancel. Instead of a “two-year sentence” for wireless service, consumers face a different two-year ‘sentence’ to avoid a lump-sum balloon payment for the phone,” said Washington’s AG Bob Ferguson.
How is that not a contract? Faced with Ferguson’s investigation and implied threat to sue, T-Mobile backed down. The company admitted that there actually is a contract, a subsidy, and they agreed to stop running deceptive ads and give consumers who bought into the plans a chance to cancel with no penalties whatsoever.
If you signed with T-Mobile between March 26, 2013 (when the offer began) and April 25, you may call T-Mobile at 1-877-746-0909 or dial 611 from a T-Mobile phone for more information and to get the refund.
I also noted that T-Mobile’s 4G service is limited to just a few cities, and it’s coverage area is smaller than that of its major rivals, although those are separate issues not involved in Ferguson’s action.
The industry’s practice of locking consumers into a two-year contract is obnoxious, and T-Mobile may have started something that will ultimately end those lock-ins. That would be a good thing, but it needs to be done honestly, with no hidden gotchas to trap an unwary consumer.
So props to AG Ferguson, and shame on you to the tech pundits who took T-Mobile’s bait. (Another tip of the hat goes to Jean-Louis Gassée, a veteran technologist whose Monday Letter alerted me to Ferguson’s action.)
San Francisco journalist Bill Snyder writes frequently about business and technology. His work appears regularly in CIO.com and the publications of Stanford's Graduate School of Business and the Haas School of Business at the University of California at Berkeley. He welcomes your comments and suggestions.