> This is how the rest of the world already works.

Look at how large parts of the world already deal with healthcare, and witness all the vitriol and anger against Obamacare which moved the US closer in line with with most other developed nations.

The US market has serious issues dealing with progressive change, due to massive corruption and regulatory capture.

Glad to see someone else here who is baffled by the state of American telecom industry as I am.

So here's what i understand about the industry prior to TMobile's "innovations":

- You buy phones from the Cellular service provider, which are bundled with the service (hence apparently higher bills)

- Since the phone is bundled with the service, i assume even if you don't use the service you still pay a good amount every month.

- You have a contract with the Cellular service which forces you to stick with them till the term of the contract.

- So its usually painful to switch carriers (breaking fee etc). (Do you get to keep your old number if you switch?)

- Since you are stuck with the cellular service they can pretty much charge you whatever they want during that time. Sure they gotta give you an incentive to renew the contract but as i see it the competition between carriers isn't that much.

Now here's how things work in my country:

- You buy mobile independently and then pay for the service

- You pay the service typically below 3USD for most users. And it depends ENTIRELY on your usage. No usage = zero payment.

- No contracts with the carrier. You get to switch at the drop of a hat.

- Thing is, cellular services mostly "prepaid" (post-paid is available but few users go for that). So you just pay the service in advance what you think will use and that is credited to your account. This doesn't expire for several months so no worries about over-estimating.

- So switching a service = getting a simcard of that service, adding balance to it (which you can from any corner store).

- Oh they even let you keep the number provided by the old carrier so virtually no switching costs.

- Hence the competition here is unimaginable! "Price war" would be an understatement. They even keep giving incentives to inactive customers to plug in their old sim cards.

- Its so freaking affordable people buy multiple-sim cellphones so they can use multiple services at the same time (hence utilizing best of each provider)

The simple version is: US cell phone contract = service bundled with a small loan for a phone.

It isn't that bad. They can't charge you whatever they want, your plan is locked in, and if they change it you can leave without penalty. For whatever reason you leave, you can take your number. Pre paid plans are available as options.

Nothing forces you to stay with a carrier. The penalty is just recouping some of the unpaid value of the phone. You owe less as time goes because you are paying back the value of the phone through your contract.

Correct me if I'm wrong as I always used a pre-paid phone on an MVNO prior to switching to T-Mobile after they started their reforms, but my understanding was that cell-phone companies would typically have something like:

PAYMENT = PRICE_OF_SERVICE + (PRICE_OF_PHONE / CONTRACT_DURATION)

I know this is a "naive implementation", but the problem is they would never take off the charge for the phone even after one had paid it off and that they didn't tend to have transparent billing so you wouldn't really know if/when you had.

That is essentially correct, though the math was completely hidden.

The justification for higher contract rates was because they were using that difference to subsidize new phones whenever you signed a new contract. So, 80 bucks a month for basic service and a few hundred MB of usage.

The problem was that after the 2 year contract ended, when they supposedly were able to recoup the cost of the original phone subsidy, your rate never changed. You'd still pay 80 bucks a month, even if you were happy with your current phone.

T-Mobile's change, much like the rest of the world, was to break out the math explicitly like you show. Then once you've fulfilled the (PRICE_OF_PHONE / CONTRACT_DURATION) term, it would simply vanish.

Although in "the rest of the world", where I'm from, you have the option of buying the mobile separately, and then paying for a separate contract (or top-up sim cards), the upfront cost of a new top-of-the-line mobile devices is much higher (iPhone 5S 700 EUR), so most people I know end up choosing the contract+phone option anyway.