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Wednesday, March 27, 2013

T-Mobile Introduces Aggressive Phone Pricing With No Contracts

T-Mobile Shakes Up Its Service

T-Mobile USA, long trailing its rivals in the cellphone industry, is trying to catch up by changing the conversation: it is selling the iPhone cheaper than the competition, and most important, customers would not have to sign a contract.

But it may not be enough to persuade smartphone users to abandon the competition.

Analysts said the new marketing strategy, which spreads the cost of a new phone over two years as a separate line item on the monthly bill, will still feel like a commitment to many customers, even if they can choose to pay it off early and walk away. And T-Mobile, which has a slower network than its competitors, is only just beginning to introduce major upgrades.

The company on Tuesday said the Apple iPhone 5 would be available starting April 12 for $100 up front, with customers paying an additional $20 a month for two years. Other new smartphones, like the Samsung Galaxy S 4 and the BlackBerry Z10, will be available with similar payment plans.

Although T-Mobile’s new phone plans require no long-term contract, customers would have to pay off the balance owed in order to end service prematurely.

For several years, T-Mobile, the No. 4 American mobile carrier by market share, has been bleeding subscribers to Verizon Wireless, AT&T and Sprint. In earnings calls, the company has said its main problems were consumers’ negative perception of its network and its inability to offer customers the iPhone.

Now that T-Mobile has landed a deal with Apple and turned on its new fourth-generation network, LTE, in seven cities, the company is hoping to mount a comeback. If T-Mobile does not find a way to bounce back, it risks losing even more market share to Verizon and AT&T and becoming a small niche player like Leap or U.S. Cellular.

The carrier, led by its eccentric new chief executive, John Legere, has been undergoing a rebranding into what it calls an “uncarrier.”

At a news conference in New York on Tuesday, Mr. Legere, wearing a blazer, T-shirt, jeans and sneakers with hot-pink shoelaces, casually dropped curse words while mocking his competitors, saying they were deliberately confusing customers with unclear two-year contracts and punishing them with fees for surpassing data limits or ending contracts early.

“Do you have any idea what you’re paying” Mr. Legere said. “I’m going to explain how stupid we all are because once it becomes flat and transparent, there’s nowhere to hide. You pay so much for your phones, it’s incredible.”

He said that T-Mobile’s contract-free plans would be more straightforward and cheaper over all for consumers, and that by moving to contract-free plans, the company was doing away with overage and early-termination fees.

Mr. Legere said that over two years, an iPhone on T-Mobile would cost $1,000 less than it would on AT&T. That would apply to heavy data users. But when looking at the cheapest plans on both carriers, the difference is much narrower. For example, an iPhone 5 on T-Mobile’s plan with unlimited text messages, unlimited minutes and 500 megabytes of data a month is only $360 cheaper over two years than an AT&T plan with unlimited voice and text and one gigabyte of data a month.

At $580, buying an iPhone from T-Mobile would also be cheaper than buying a $650 unlocked phone directly from Apple.

On Tuesday, T-Mobile formally replaced all its old phone plans with new plans that do not require signing a contract. For $50 a month, customers can get unlimited minutes, text messages and 500 megabytes of data; they can pay an extra $20 for unlimited data.

At AT&T and Verizon, the most popular phone plans cost closer to $100 a month with a two-year contract for limited data. The iPhone 5 costs at least $200 on their networks with a two-year contract.

Despite T-Mobile’s promise to be more straightforward than other carriers, some consumers might still find it confusing that they have to pay an extra device fee after paying $100 up front for an iPhone.

A version of this article appeared in print on March 27, 2013, on page B1 of the New York edition with the headline: T-Mobile Shakes Up Its Service.