T-Mobile has scrapped the traditional two-year cell phone contract.

T-Mobile’s shift away from subsidized smartphones and standard two-year contracts could be a game-changer for American wireless consumers, but does the scrappy carrier have a good deal for you or mostly for itself?

T-Mobile is and has been America’s fourth largest carrier — the smallest among those offering nationwide home coverage. The provider has lost contract customers for years. T-Mobile’s coverage has been less than great in many areas and it often did not offer the latest and most popular smartphones. After its merger effort with AT&T was shot down by the Department of Justice for anti-competitive reasons, T-Mobile has attempted to remake itself by changing the rules under which most of us buy mobile service.

The biggest change of all is the end of the subsidized phone. For years, cell phone companies have offered free or low-cost phones to customers, earning back that subsidy by charging higher monthly rates and locking customers to two-year contracts with early termination fees. T-Mobile will still give you an affordable phone, only now you will pay it off in small installments over a two-year financing agreement.

What difference does this make? Customers who bounce from one two-year contract to the next may not see much difference. But if you keep your phone longer than two years or buy one elsewhere, your monthly rate with T-Mobile will no longer include an artificially higher price designed to recover the phone subsidy you no longer receive.

It also means nothing traps you with T-Mobile. If after six months you find their service unbecoming, you can leave without hundreds of dollars in termination fees. But customers on financing agreements will continue to make their payments for equipment purchases, and those phones will not be unlocked for use on another carrier until the remaining balance is paid off.

A typical T-Mobile customer looking for the latest iPhone will pay a $100 down payment and then finance the remaining balance, paying $20 a month for 24 months. Your monthly rate will start at $50 a month, which includes unlimited talk and texting, and a 500MB data allowance. If that is insufficient, an extra $10 a month will buy you an extra 2GB of data. If you want unlimited data, that plan is available for an extra $20 a month.

T-Mobile says their plans will save you $1,000 over the life of a two-year contract with AT&T or Verizon. We think they are exaggerating a bit.

Like their competition, T-Mobile is moving away from budget-minded “minute plans” that bundle calling, text and data. Instead, T-Mobile charges at least $50 a month for unlimited talk/text and a small data plan whether you want those features or not.

The Associated Press found that although T-Mobile ends up being the cheapest, the savings over its rivals is closer to $700 on average. The price over two years for a 16-gigabyte iPhone 5 with unlimited calling, unlimited texting and 2.5 gigabytes of data usage per month, excluding taxes, is:

• T-Mobile: $2,020
• AT&T/Verizon: $2,635 (2-3GB data plan)
• Sprint: $2,840 (unlimited data plan included)

Some other things to consider:

• Once your phone is paid off, your ongoing T-Mobile bill will no longer show a phone subsidy payback built into prices charged by other carriers;
• You can pay your phone off early, with no penalty;
• T-Mobile’s 4G network is a mix of HSPA+ and LTE. The more commonly encountered HSPA+ network gets good marks for speed, but a number of densely populated T-Mobile coverage areas surprisingly often default to their older 2G network, which is painfully slow. LTE is only available in about seven cities at the moment, so it is still a rarity;
• T-Mobile’s unlimited service is free from tricks and traps like soft caps and speed throttles. It also performs better than Sprint’s unlimited service on its overloaded 3G and spotty Clearwire 4G WiMAX network. Sprint’s LTE network is on the way… slowly. It seems to be rolling out first in small cities you have never heard of;
• T-Mobile’s coverage in rural and exurban areas is frankly terrible. Travelers on main highways may not encounter many signal gaps, but those living in small towns or off the beaten path may get a roaming signal or poor or no reception from T-Mobile’s own towers at all. The frequencies used for its data service also do not work as well indoors as its larger rivals.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/T-Mobile Ad 4-2-13.flv[/flv]

T-Mobile channels Oprah in this new ad as the big four wireless cowboys get in touch with their feelings. But only one is ready to don a pink hat and ride off on his own. (1 minute)

FreedomPop, which offers 500MB of free wireless data service a month via Clearwire’s WiMAX service on a range of devices, has a better offer for tablet owners coming in the second half of this year.

The FreedomPop Clip is designed to attach to Wi-Fi only tablets and provides wireless Internet connectivity when away from Wi-Fi. Better still, the service will be free for the first 500MB of usage each month and will support Sprint’s up-and-coming 4G LTE network for faster browsing. The add-on hardware only weighs 2.5 ounces and has its own built-in rechargeable battery estimated to last up to six hours.

Tablets enabled with support for mobile data networks have never sold particularly well because of the added cost and expensive two-year contract required to maintain the service. Instead, some customers tether their tablets or enable an add-on Mobile Hotspot feature on their smartphone, which can cost $30 extra per month. The new FreedomPop Clip does not come with a contract or a monthly fee when users keep browsing to under 500MB each month. The forthcoming device will also support up to eight extra connections, in case you want to share.

Those who want more data, and around 30 percent of FreedomPop’s customers reportedly do, they can buy it on-demand without any contract or commitment. If you bug your friends to also buy the device, you can earn additional free browsing. In fact, FreedomPop will try and encourage sharing by including a new “open Wi-Fi” Internet service on a separate SSID. Those connecting through the open feature will likely get a marketing message encouraging them to get their own FreedomPop device, and their usage won’t count against your allowance.

FreedomPop Clip supports Sprint’s up and coming LTE 4G network.

Stop the Cap! has FreedomPop’s $99 iPod Touch add-on device, which works exclusively on Clearwire’s network. We’ve used it for about five months and can report the device works well whether you actually have an iPod or not. It is simply a portable hotspot shaped to clip to the back of the 4th generation iPod Touch (it won’t fit ours). But even if it cannot clip on, it still delivers excellent signals up to 12 feet away from the MP3 player.

Its biggest weakness is Clearwire’s hit or miss network. Here in suburban Rochester, N.Y., Clearwire provides service through a nearby cell tower about a mile away. At home, the device works with fair reception indoors, but really needs to be near a window to perform reliably. Outdoors, the device works much better. We found more trouble trying to use the device in a nearby restaurant and while in downtown Rochester because Clearwire reception proved spotty. When it does work, it provides an average of 800kbps-1Mbps downstream speeds, which is superior to most 3G networks, but does not come close to what Verizon’s LTE network can deliver. But then, FreedomPop data comes free.

Just remember to keep usage at 400MB or less every month. As you approach 500MB of usage, FreedomPop will “conveniently” bill you for additional usage it anticipates you will use unless you remember to shut this auto top-up feature off on FreedomPop’s website control panel. You must also use at least 5MB a month to keep the device active, so remember to power it up at least once a month and do some browsing.

The FreedomPop LTE-capable Clip will also reportedly work with 3G service, according to Forbes. This is an important consideration because Sprint’s 4G LTE network is still in its infancy and not yet available in most major metropolitan areas. But if it relies on Sprint’s overwhelmed 3G network, expect much slower performance.

The selling price for the device itself has not yet been announced, but we expect it will be available later this year at $99 or slightly higher.

Thanks to Stop the Cap! reader Jerry for sending this news tip.

Google Voice and its long distance calling service will be free for another year according to the company’s blog.

Google said it would extend its free North American long distance service through the end of 2013, and added it maintains very aggressive international calling rates.

Google’s phone service provides a free local phone number, free domestic calling, and offers free texting via an online application. Sprint customers can fully integrate the service with their smartphones while other carriers support the service less elegantly with an add-on app.

The service competes primarily with Microsoft’s Skype.

AT&T has once again received the dubious distinction of being America’s worst cell phone company, according to ratings (sub. required) from Consumer Reports.

AT&T’s bottom-of-the-barrel status has become something of an annual tradition in the consumer magazine’s ratings, as the company remains in last place year after year for dreadful performance, poor value, and downright lousy customer service. Its one bright spot: the company’s new 4G LTE service, which gets top marks for speed, although that rating comes before the majority of its customers are on the new network.

Verizon Wireless also took a tumble in the ratings published in the January 2013 issue. Verizon got downgraded for its new Share Everything plan, rated as only a fair value. Verizon’s vaunted customer service also declined significantly.

The highest ratings went to companies many never heard of:

• Consumer Cellular: This company resells AT&T service. The disparity between this top-rated, no contract provider and AT&T demonstrates that a bad customer experience with AT&T’s high prices and poor customer service can topple your ratings across the board. Consumer Cellular will face the same growing pains AT&T’s customers do in congested cities, but their customers seem to tolerate them better;
• U.S. Cellular: Top rated last year, this regional carrier provides service in the Pacific Northwest, Midwest, parts of the East and New England. The carrier, like the southern U.S. provider C-Spire, would probably have been acquired by one of the top-four carriers if the Justice Department seemed willing to accept further market consolidation. Its customers benefit from the company’s independence.
• Credo Mobile: Resells the Sprint network, but delivers superior customer service, which boosts its overall ratings. Formerly known as Working Assets, this progressive organization also enjoys loyalty because customers approve of the political and social causes with which it affiliates.

Overall, the magazine increasingly recommends consumers investigate no-contract or prepaid service plans before signing an expensive 2-year contract with the major four carriers. Pricing changes in 2012 have caused many subscribers to see bills rise, even as perks and benefits continue to erode. Device activation fees, upgrade fees, limits on early upgrades, restricted data plans, and all-or-nothing offerings that deliver (and charge) for features many consumers don’t use much have all reduced the value of contract service.

What keeps most customers coming back to another two-year contract is the chance to grab the hottest new smartphone at a discount. But consumers ultimately pay back whatever they have saved in higher fees over the life of the contract, which may make buying your own device at full price a better value with a no-contract plan.

Phillip “Do you want to depend on AT&T for phone service that could be gone with the wind for weeks?” Dampier

Superstorm Sandy is getting credit for exposing the thin veneer of the “wireless future” some phone companies want to give their most rural customers after disconnecting their home phone lines in favor of wireless service.

Unfortunately for the providers selling you on the wireless revolution, reality intruded last month when Category 1 Hurricane Sandy arrived. In its wake, the storm obliterated a significant amount of wireless phone service for weeks in some of the most urbanized sections of the country, while leaving underground, traditional wired phone service largely untouched.

The storm that blew into the northeastern U.S. Oct. 29 left a legacy of interrupted or inadequate cell service that lasted more than two weeks. AT&T and Verizon Wireless reported their networks were not fully restored until Nov. 15. Sprint and T-Mobile are still addressing some issues with their networks as of today.

Although the storm was enormous in scope, it was only a Category 1 hurricane. It could have been much worse.

So where did things go wrong?

Although some sites lost their wired backhaul connection which connects the tower to the provider, the biggest problem was commercial power interruption. Without power, many providers were caught flat-footed with inadequate on-site backup plans to keep cell towers up and running until regular power could be restored.

The wireless industry fought tooth and nail against common sense regulations proposed by the Federal Communications Commission after Hurricane Katrina devastated infrastructure and power facilities in southern Louisiana and Mississippi.

The FCC proposed that every cell tower be equipped with on site battery backup equipment that could sustain service for a minimum of eight hours — sufficient time for power to be restored or company engineers to arrive with more robust generators.

Providers howled about the cost of outfitting the nation’s 200,000 cell sites with even a conservative amount of backup power. The cellular industry lobbying group and Sprint sued, calling it a wasteful and unnecessary mandate. The Bush Administration eventually dropped the whole matter in November 2008 as part of its war on “burdensome” regulation.

Since then, providers have been free to design their own emergency backup plans, or have none at all. Few have made those detailed plans public, giving customers information about how likely their cell phone will work in the event of a disaster.

Verizon Wireless has been the most aggressive, voluntarily adopting the proposed FCC standards and outfitting all of their cell sites with a minimum of eight hours of battery backup power. Other providers have backup facilities at some sites, often with lower capacity batteries that won’t last as long.

Sandy illustrated that even eight hours might be inadequate. Many cell sites were on generator power for more than a week, assuming engineers could regularly reach each tower with equipment and fuel.

Other cell sites could not be returned to service immediately because of major wind damage or flooding. Those that were in service were often overburdened by enormous call volumes.

Meanwhile, unless your landline provider’s central office was flooded, your phone line kept working during and after the storm, especially if your neighborhood wiring is buried underground.

In many cases, it was the only thing working, because traditional phone lines are independently powered and not dependent on electric service in your home to operate. That is what kept your dial tone humming even as your smartphone’s battery ran out.

Ironically, the network that performed the best through the storm is the same one AT&T and Verizon would like to phase out, starting in rural areas. AT&T wants to completely abandon wired service in its most rural service areas, where calling and waiting for emergency assistance is already a hindrance. AT&T plans to spend billions to bolster its rural cell tower network to cover the landline areas it wants to abandon, but those communities would be entirely dependent on the reliability of that network, because AT&T’s competitors are unlikely to build additional infrastructure to compete.

As Sandy just demonstrated, if high-profit Manhattan customers could not be assured of reliable cell phone service from any company that provide service there, how likely is it that a customer in rural Kansas will be in real trouble summoning help over AT&T’s wireless infrastructure in the event of a cell tower failure, wiping out the only telecommunications service available in nearby towns?