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{{DES | des = In 2011, officials at the Federal Communications Commission and the Justice Department moved to block AT&T’s proposed $39 billion acquisition of T-Mobile on antitrust grounds.  That led to some very serious price-cutting and unbundling competition. | show=}}
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A rash of consumer-friendliness has broken out across the mobile data industry. Over the last year, the four major carriers — AT&T, Verizon, Sprint and T-Mobile — have cut prices and offered greater flexibility in how they sell their voice, text and broadband services. The industry could be on the verge of an all-out price war.

Who is responsible for this blessed state of affairs?

Credit must go to the United States government.

In 2011, officials at the Federal Communications Commission and the Justice Department moved to block AT&T’s proposed $39 billion acquisition of T-Mobile. That kept the struggling, fourth-place carrier alive as an independent firm. And it led John J. Legere, T-Mobile’s flamboyant, foul-mouthed chief executive, to brand his company the “uncarrier,” and inaugurate a string of measures that have turned every accepted practice in the mobile business on its head.

T-Mobile’s resurgence, and the effect it has had on the larger market for cellular service, may hold important lessons for regulators who will soon sit in judgment over the latest enormous broadband proposal, Comcast’s deal to gobble up Time Warner Cable.

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Credit Stuart Goldenberg
While T-Mobile executives are reluctant to credit the failed merger with AT&T as the source of the firm’s aggressive new pricing strategy, they admit that they see themselves as disrupters in the market. “We want to identify every pain point for consumers in this industry and eliminate them all,” said Michael Katz, T-Mobile’s vice president for marketing.

In the last year, T-Mobile has dropped the traditional two-year contract from its lineup; now its plans come without customer lock-in. It has also dropped early termination fees, overage charges and other extra strings that carriers apply to keep you in line. The carrier now allows customers to text and use the Web while traveling in 100 countries at no extra charge. T-Mobile has also offered to pay off the early-termination fees its new customers might incur with their old carriers when switching. Most important, it has unbundled the price of a phone from the price of wireless service. Now, you can pay a separate amount for each piece. This means that if you decide against immediately upgrading when you finish paying off your phone, your monthly bill might — astonishingly — go down.

Former F.C.C. officials say this is exactly what the agency hoped for when, in 2011, it weighed in against AT&T’s plan to purchase T-Mobile. As the agency’s staff explained in a lengthy report, regulators feared that shrinking the four major carriers to three would give providers an incentive to raise prices. Instead, regulators saw an elegant escape hatch for T-Mobile. If AT&T was forced to call off the deal, it would owe T-Mobile a breakup fee worth at least $3 billion in cash, plus an additional $1 billion in rights to wireless spectrum. The money and spectrum would allow T-Mobile to build out its network infrastructure, making it more attractive to new users. Given the right leadership, regulators hoped the fourth-place carrier could play a spoiler’s role in the marketplace. By aggressively courting new users, T-Mobile would act as an agitator prompting change across the industry.

And that’s what has happened. After the merger fell apart, T-Mobile began to invest heavily in its network; its LTE broadband area now reaches 200 million people and its access speeds have been found to be faster than those of its larger rivals. The firm’s real innovation began last March, though, when it announced its Simple Choice plan, which offered two unusual features. First, there was no contract lock-in; if you found a better deal on some other network a few months after signing up, you were free to leave. Second, the advertised prices were for network access alone, and did not include a smartphone. If you wanted a smartphone, T-Mobile would sell you one at full price, splitting the payments over two years. A top-of-the-line phone, like the iPhone 5S, sells for about $650, which is about $27 a month for 24 months.

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John J. Legere, T-Mobile’s chief executive, branded his company the "uncarrier." In the last year, T-Mobile has dropped the traditional two-year contract from its lineup. Credit Steve Marcus/Reuters
What’s the benefit of paying for the plan and the phone separately rather than as one big bundle? At first glance, it might not seem as if you’re saving that much. If you buy an iPhone 5S and a 2.5-gigabyte plan from T-Mobile, you’ll be out $87 a month — that’s $60 for the service, and $27 for the phone. That’s only slightly less than the $95 a month AT&T charges for its 2 GB, two-year contract plan, which includes a subsidized phone. This plan was once AT&T’s primary offering. (If you bought a high-end phone, AT&T would also charge $199 when you signed up.)

But the real benefit of T-Mobile’s unbundled pricing is its flexibility. Separating the phone from the service lets you jump off what Jeff Bezos once called the “upgrade treadmill” — the pressure to constantly purchase the latest and greatest device even when you don’t really need it. After two years with T-Mobile, your $27-a-month device payment shrinks to $0, and then, if you’re still managing just fine with your pretty good phone, you’ll pay just $60 a month for network access. A contract plan doesn’t work that way; after you’ve paid off your phone, your payments remain the same. So even if you don’t need another phone, it makes financial sense to upgrade — and, in the process, lock yourself in for another two years because otherwise, you were just giving extra money to your carrier. Unbundled plans are also attractive for those who want to purchase low-cost unlocked phones — devices that can work on multiple carriers, like Google’s fantastic $349 Nexus 5. If you buy that device from Google, you can pay T-Mobile just for network access.

T-Mobile’s plans were so blindingly sensible that its competitors have been forced to respond.

In December, AT&T updated its plans to include a contract-free option. In February, Verizon offered a new set of plans that include similar options, though Verizon’s plans are far more costly and less flexible. The larger carriers have also copied other T-Mobile ideas. After T-Mobile introduced its early upgrade program, Jump, which lets you pay an optional fee for the privilege of getting a new phone more frequently than every two years, AT&T, Verizon and Sprint followed suit.

T-Mobile’s bold pricing efforts have helped it attract four million new customers over the last year. But the company’s cuts have come at a cost; in its earnings report this week, T-Mobile reported a loss of $20 million in the fourth quarter, up from $8 million last year, a decline the company attributed to the sums it has spent on promotions. Privately, its rivals say that T-Mobile’s spending is unsustainable, and that if larger competitors match all of its efforts, the company won’t be able to invest in its network. Many analysts also say they believe T-Mobile is bent on adding customers to make itself more attractive for an eventual sale to Sprint. That will be difficult, because the very fact that T-Mobile has been so disruptive as an independent company has made officials wary of approving more consolidation in the industry.

The upshot: Nobody knows if T-Mobile’s aggressive pricing will lead to a permanent change in the way cellular service is sold. But I, for one, am happy to see it die trying.
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