T-Mobile USA's "radical" service plans promising no annual contracts aren't quite as radical as consumers might think, and the mobile operator will change its advertising and offer refunds in a settlement with the state of Washington.
On March 26, the fourth-largest U.S. carrier introduced a series of new service offerings, including no-contract monthly plans and a program that let customers pay for a new phone over the course of 24 months. In unveiling the plans, T-Mobile thumbed its nose at rival mobile operators, calling the new offerings "uncarrier" plans that would free the company and its customers from the constraints of conventional service agreements.
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Now the company has agreed to clarify a few things in that pitch after an investigation by the Washington Attorney General's Office. Specifically, T-Mobile didn't tell potential customers who bought phones on time that they would have to keep T-Mobile service for 24 months or pay off the rest of the phone's full price when they canceled the service, said Paula Sellis, an attorney who handled the case in the Attorney General's Office. The fine-print disclosures that T-Mobile did offer were hard to understand, she said.
"You had to dig very deeply to understand what the terms of the program were, and you had to put two and two together," Sellis said on a conference call on Thursday.
T-Mobile ads that promised "no restrictions," "no annual contract" and no requirement to "serve a two-year sentence" actually only covered plans with no phone included, the Attorney General's Office said. To get those plans, consumers would have to bring their own phone or pay full price at the time of purchase.
"In our view, those advertisements were quite deceptive," Attorney General Bob Ferguson said.
In a statement on Thursday, T-Mobile stood by its ads.
"As America's Un-carrier, our goal is to increase transparency with our customers, unleashing them from restrictive long-term service contracts -- this kind of simple, straightforward approach is core to the new company we are building. While we believe our advertising was truthful and appropriate, we voluntarily agreed to this arrangement with the Washington AG in this spirit," T-Mobile said.
Most U.S. mobile operators directly subsidize the cost of the handsets they sell, charging a one-time purchase price that's well below the true cost of the phone, if the buyer agrees to a two-year service contract. To cancel those contracts early, customers have to pay an early termination fee.
One difference between T-Mobile's term-purchase program and conventional contracts is that after making hardware payments for 24 months, T-Mobile customers can pay less per month if they keep using the same phone. However, for customers who want to cancel service early, the "balloon" payment for the rest of the phone's cost may be even higher than a conventional early termination fee, Sellis said.
Ferguson's office proactively investigated T-Mobile's claims after seeing the ads, without receiving any complaints from consumers that they had been deceived, Sellis said.
Because T-Mobile USA is based in Bellevue, Washington, the state's attorney general can regulate its advertising practices nationwide, she said.