A complaint filed with the Consumer Financial Protection Bureau (CFPB) against T-Mobile accusing the carrier of misleading advertising practices may have been driven by customer confusion surrounding the industry’s new no-service contract offerings, analysts said Tuesday.
According to a complaint filed by Change to Win, T-Mobile has engaged in deception by billing its services as “no contract” obligations when the majority of month-to-month services are tied to two-year equipment financing plans that carry financial penalties for early termination. The organization said that as of April 2015 just over 90 percent of T-Mobile’s postpaid subscribers are enrolled in an Equipment Installment Plan (EIP).
Change to Win said its complaint to the CFPB was based on its review of “more than 5,500 consumer complaints filed with federal agencies and the Better Business Bureau (BBB)” since T-Mobile launched its Un-carrier program in 2013. The organization alleges that the interconnected nature of T-Mobile’s no-contract service and equipment payment contracts is “not mentioned in many of T-Mobile’s advertisements” and is “obscured” by in-store advertisements, making it difficult for consumers to make informed decisions.
But while the service and device installment programs are related, Recon Analytics analyst Roger Entner said T-Mobile isn’t being deceptive.
“T-Mobile decoupled the service portion from the device financing cost recovery portion,” Entner explained. “When you join T-Mobile you don’t have a service obligation. If you finance a device through T-Mobile then that is a separate, second, even though related, transaction. T-Mobile is doing exactly what it is saying, it’s just that some consumers don’t or don’t want to understand the nuances.”
Though Strategy Analytics’ director of Wireless Operator Strategies Susan Welsh de Grimaldo declined to comment specifically on the T-Mobile complaint, she said it is entirely possible that consumer understanding has lagged behind the industry move from service contracts with subsidies to EIP options.
“The U.S. wireless market has been moving to EIP device purchases with no-contract services—and now leasing of devices is also in the mix,” Welsh de Grimaldo said. “So during the market transition from two-year service contracts with devices bought upfront with subsidies to a model of no-contract service, there is this risk of consumer confusion if they replace a service contract with a device contract.”
To avoid further confusion among consumers, Welsh de Grimaldo said carriers could be a bit more clear about what each service entails – and exactly what consequences can stem from ending an EIP early.
“Consumers on device instalment plans are not as ‘free’ from contract as they may think, so marketing messaging should aim to minimize confusion,” she said.
Filed Under: Industry regulations