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T-Mobile USA has become the first major wireless carrier in the U.S. to drop smartphone subsidies, moving away from a model that has helped companies like Apple bank large profits at a steep cost to carriers' margins.
The move by the country's fourth-largest wireless carrier sets up what will be a closely watched test of how consumers react when presented with the full cost of their favorite devices. The standard issue iPhone 5, for instance, sells for $199 with the subsidy and a two-year contract, but it costs consumers $650 if bought without carrier support.
One possibility is that consumers will opt for smartphones that are cheaper than Apple's iPhone and Samsung Electronics' Galaxy, as they do in other unsubsidized markets, an unfavorable development for the market leaders. The move could also backfire on T-Mobile, which has already bled more than four million valuable contract customers over the past two years, losing buyers to carriers like Verizon Wireless, AT&T or Sprint Nextel, which will still follow the subsidy model.
Samsung and Apple declined to comment.
T-Mobile quietly posted its new wireless rate plans on its Web site over the weekend ahead of an event Tuesday in New York, where analysts speculated that the company might launch its next-generation network and possibly give details on plans to sell Apple's iPhone, analysts said.
Read more about T-Mobile's new plans at The Wall Street Journal.