T-Mobile faces war of words after killing subsidies, contracts

T-Mobile CEO John Legere at today's press conference.

T-Mobile's seismic shift in how it sells phones and service may be too much for some consumers to process.

In moving away from the old -- and arguably more comfortable -- business model of subsidized phones and two-year contracts, T-Mobile is hoping to shake up the industry and grab a bit of the limelight in the process.

But oftentimes, different is scary. T-Mobile faces the daunting challenge of explaining to consumers how its newly unveiled no-contract plans offer a benefit over the old model, and why it's actually beneficial for them to pay the full price for a smartphone rather than take the subsidy.

"What we're attempting to do is to start a dialogue that is best had with as much visibility, transparency, and modularity as possible," CEO John Legere said in an interview today

Years of carriers offering up subsidized smartphones have conditioned consumers to believe that the highest-end devices cost only $200 to $300. In actuality, the iPhone 5 costs $650 without a contract at most major carriers. Consumers pay the difference -- and then some -- throughout the life of that two-year term.

T-Mobile is attempting to bring some visibility in the process by separating the phone and service costs into two different fees. Yes, consumers have to pay the entire price of the phone through an upfront fee and monthly installments. But the fees are more distinctly laid out relative to the bundled fee from a rival carrier, and are ultimately lower.

"While the operator is rightly stressing the simplicity and freedom of its new approach, it will also have to educate postpaid customers on the need to pay for devices as well as services," said Mike Roberts, an analyst at Informa Telecoms & Media.

For many, the monthly installments constitute another contract, just one that's worded in a different way. If a customer leaves T-Mobile before the 24 months, that person needs to pay off the difference for the phone, which essentially acts like an early termination fee.