Technology Tuesday: T-Mobile Finally Offering iPhone

The No. 4 U.S. mobile provider, which plans to merge with smaller rival MetroPCS Communications, is launching the iPhone after it eliminated this week device subsidies and two-year service contracts favored by its bigger rivals.

T-Mobile, a unit of Deutsche Telekom AG, hopes its new approach will differentiate it from bigger rivals that already sell the iPhone: Sprint Nextel, AT&T Inc and Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc.

The company, which has long struggled with customer defections, hopes to attract cost-conscious consumers through an aggressive marketing campaign that focuses on its lack of service contracts and clearly outlines their monthly cost to own such devices as the iPhone.

U.S. operators have traditionally subsidized phones in exchange for tying customers into contracts but do not disclose how much of their monthly fee cover the device, a practice that T-Mobile USA criticized as lacking transparency.

“The industry’s broken,” T-Mobile USA Chief Executive John Legere said at a press event to announce the iPhone launch and service plans, which he had promised late last year.

In particular, T-Mobile USA is taking aim at No. 2 U.S. operator AT&T because the two companies use the same network technology, making it easier for consumers to bring their AT&T phone to T-Mobile’s network.

Legere estimated that T-Mobile customers would pay about $1,000 less over two years than they would for comparable services at AT&T, and T-Mobile’s website directly compares its pricing to AT&T’s service fees.

T-Mobile will offer the iPhone 5, Apple’s latest model, for an upfront payment of $99.99 followed by 24 monthly payments of $20. Its bigger rivals charge $200 upfront to customers who sign a two-year contract.

Reticle Research analyst Ross Rubin said it was still unclear whether consumers have as much disdain for contracts as T-Mobile hopes. But he said consumers will likely find the lower upfront cost for phones attractive and that the addition of the iPhone should help T-Mobile retain customers.

“Not having the iPhone 5 was certainly a big hole in its portfolio,” Rubin said.

T-Mobile said it will sell the older iPhone 4 for a $69 up-front payment and a commitment to pay $20 a month for two years. It also promised smaller upfront fees for the latest smartphones from BlackBerry and HTC Corp.

Bigger rivals AT&T and Verizon have said they would closely watch T-Mobile’s new service model and that they could follow suit if it proves popular with consumers.

The operator also announced on Tuesday an upgrade to its network with faster data services in seven markets using the Long Term Evolution (LTE) technology that its bigger rivals had a head start in delivering.

T-Mobile USA promised to offer LTE in markets with a population of 100 million by mid-year and expects to broaden coverage to 200 million by year end.

One key element of Legere’s strategy involves the proposed merger with MetroPCS, which needs shareholder approval at a special meeting on April 12, the date of its iPhone launch.

Two large activist shareholders, Paulson & Co Inc and P. Schoenfeld Asset Management, are campaigning to block the deal due to the level of debt that the combined company will have on its books. But Legere insisted the merger would go through.