T-Mobile USA will distribute Apple Inc.'s AAPL -2.63% iPhone next year, a deal that will fill a major gap in the fourth-largest U.S. wireless carrier's product lineup even as the carrier makes a radical move to eliminate popular subsidies of the expensive device.
T-Mobile USA will distribute Apple's iPhone next year, a deal that will fill a major gap in the fourth-largest U.S. wireless carrier's product lineup. Spencer Ante reports on Digits. Photo: Getty Images.
T-Mobile is the only major U.S. wireless carrier that doesn't offer the iPhone, and its executives have cited that omission as a key reason T-Mobile continues to lose valuable contract customers to competitors. But unlike its rivals, starting next year T-Mobile USA said it won't subsidize the price of the iPhone and other phones it sells.
Instead, T-Mobile will require customers to pay full price for the device, provide their own device, or buy the phone on an installment plan with a down payment plus 20 months of interest-free payments. Still, customers will see some savings because the new service plans are cheaper than the older service plans, which subsidized the devices.
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T-Mobile executives have blamed the lack of the iPhone as a key reason that the carrier continues to lose valuable contract customers.
A low-entry unsubsidized iPhone costs about $650, while other models with more memory cost more. T-Mobile said 80% of its new customers are currently signing up for these lower-priced "Value Plans."
The move by T-Mobile to wrap the iPhone into its new pricing model comes as other wireless carriers around the world begin to shift away from the long-held practice of subsidizing devices. Major wireless carriers in the U.S. and overseas tend to subsidize the cost of each iPhone by hundreds of dollars, in return for locking in customers for two-year contracts as carriers try to make up for the upfront expense with higher monthly service fees over the course of a contract.
T-Mobile and parent Deutsche Telekom AG DTE.XE -1.92% said the agreement with Apple will close a key competitive gap.
"We have now added the final piece to the jigsaw to boost the competitiveness of T-Mobile USA sustainably," Deutsche Telekom Chairman and CEO René Obermannsaid.
New T-Mobile USA CEO John Legere said that a certain number of customers won't come to T-Mobile stores if the company didn't have the iPhone. Mr. Legere added that it would launch an Apple product in "several months."
The terms of the deal with Apple weren't announced, but Deutsche Telekom said the cost of the deal was one factor that would depress its cash flow in 2013. To get the iPhone, Sprint Nextel Corp. S +0.09% had to commit to purchasing $15.5 billion worth of the Apple product over a four-year period.
"We worked very, very hard for a deal that made sense," said Mr. Legere, who added the deal would boost cash flow and earnings in2014. "This is not a volume commitment the size of what Sprint agreed to or anything close to it."
Even though T-Mobile didn't have an agreement with Apple to sell the iPhone, it has been trying recently to lure iPhone users whose contracts have lapsed with AT&T Inc.T -0.19% Mr. Legere said it has more than 1.7 million iPhones running on its network today.
The iPhone made for AT&T can also work on T-Mobile because it runs on similar network technology. But since AT&T's network uses different wireless frequencies, the iPhone on T-Mobile tends to download data at a much slower rate.
T-Mobile is now reworking its network so the migrated phones will be able to run on its higher speed network. Mr. Legere said the company would continue to "aggressively target AT&T."
The German telecom giant also said T-Mobile will spend more in the U.S. to build out its next-generation wireless network. The company plans to spend around $4.7 billion in 2013 and $3 billion in 2014 and 2015, up from an average yearly expenditure of $2.7 billion from 2010 to 2012.
