T-Mobile to eliminate handset subsidies ahead of iPhone launch

T-Mobile iPhone 5

On Thursday, Deutsche Telekom announced that T-Mobile USA had entered into an agreement with Apple to bring products to market next year. CEO John Legere confirmed the news while speaking at a conference this week, saying that T-Mobile will indeed be carrying the iPhone in 2013, and it will be offering it in a “different” way…

What does he mean by different? Well assumedly, it has something to do with the fact that T-Mobile also recently announced that it will be eliminating handset subsidies by the end of the year. That means that instead of paying $99 or $199, customers will likely be paying full price — so more like $600 — for the iPhone and other devices.

GigaOM has more on Legere’s comments:

“What was missing? A certain number of customers wouldn’t come to the store if we didn’t have the iPhone,” Legere said. “We worked very, very hard for a deal that made sense for us…

…When this device rolls out I can only tell you it will be a dramatically different experience, and I can only tell you that of all the reports that have been written about what’s going to happen when it comes out, they’re all wrong.”

Traditionally, carriers factor handset subsidies into their plans and other monthly fees. That’s why you sign a contract to get the lower price on a phone, and why there’s an early termination fee if you cancel — they have to make sure they make their money back on the device. T-Mobile, however, is moving to a completely different model.

The carrier will shift entirely to its unsubsidized Value Plans, which offer customers far cheaper monthly rates for voice and, particularly, data plans. With its new Value program, T-Mobile is keeping the contract, but passing the money it saves from not subsidizing handsets onto its subscribers. It’s an interesting strategy, but will it work?

It’s hard to tell at this point. But regardless, finally cementing an iPhone deal can’t hurt. T-Mobile will be the last of the four major carriers in the US to offer Apple’s popular handset — a device that it blamed for much of its recent loss of some half a million subscribers.

What do you think, would you pay more for an iPhone up front if it meant cheaper monthly fees?