Don't Fall for the Google Nexus One Bait-and-Switch

The spiffy Nexus One "superphone" was supposed to be the beginning of the end for business models that chained great devices to crummy carriers. But Google's sky-high termination fees, carrier lock-in, and nearly nonexistent technical support prove that it's no better than AT&T.

We probably shouldn't be surprised. When the Android device was unveiled last week, it was quickly apparent that anyone who bought the device was, for all practical purposes, chained to T-Mobile and its relatively limited network. Making matters worse, it is now clear that Google and T-Mobile are going to impose the industry's largest early termination fee -- a stunning (combined) $550 -- on anyone who cancels in less than four months.

If all that weren't bad enough, users are finding that technical support is practically nonexistent. You can't walk in to a T-Mobile store and get help because T-Mobile doesn't sell the phone. Google does -- T-Mobile is just the carrier. And Google only offers e-mail support. Good luck with that.

So users can buy a "superphone" that works on only one crummy network and has scandalously inadequate tech support. And if they don't like it, they can eat a huge termination fee. Superphone? Superscam is more like it.

Stuck with T-Mobile
A typical wireless business model works like this: A carrier sells a locked phone to a customer at a substantial discount to the actual cost of the device, figuring that it will make up the difference via charges for connectivity. If the customer opts out early, he or she is socked with an early termination fee (ETF) to help the carrier recoup the subsidy.

Because the phone is locked, it doesn't work on a competitor's network. So a customer who is unsatisfied within the typical two-year plan pays a penalty for dropping out and, in most cases, still has to buy another phone from the new carrier -- what a great deal for the carriers.

Google was going to change all that by turning the model on its head. Instead of the carrier selling the phone, Google sells the Nexus One (which is manufactured by HTC) directly to the buyer. In theory, then, the Google phone promised freedom to the user and an end, or at least the beginning of the end, of carrier lock-in tyranny.

In reality, nothing of the sort has happened. Users still don't have a choice. Here's why:

To begin with, Google's only active carrier partner so far is T-Mobile, which has less coverage than the other major telcos. T-Mobile's network runs on the GSM standard, as does AT&T's, while Verizon and Sprint run on the CDMA standard. Therefore, Verizon and Sprint are out. What about AT&T?

Google/HTC chose to use a radio that does not support AT&T's 3G frequencies; that means a Nexus One running on AT&T's network is reduced to using the snail-like EDGE 2G network, so AT&T is out as well.

Once you realize that the Nexus One is simply a fancy T-Mobile phone, Google's pricing plan makes no sense at all. If you buy the unlocked phone without a contract, it will cost you $529, as opposed to $179 with a two-year contract. The extra $350 buys exactly nothing.

(Verizon is expected to support its own version of the Nexus One later in the year, but it isn't clear if that carrier's version of the Nexus One will support both CDMA and GSM networks or just CDMA.)

No Support and a Big Opt-Out Fee
I was surprised when I realized how big a hit users will take if they opt out early from a Nexus One contract with T-Mobile. It turns out that the fee is really two fees: $200 from T-Mobile, and another $350 from Google, which calls it an "equipment recovery fee," imposed if you drop out in less than 120 days. You can read Google's terms of service.

T-Mobile's terms of service, also posted on Google's new phone sales Web site, describe its early termination fees. Customers will pay $200 if they cancel with more than 180 days remaining on the contract. T-Mobile also allows a 14-day grace period after customers sign up.

As far as I can tell, the combined hit is the heaviest in the industry. Sure, that seems surprising. But when you think about it, a company that has never sold a phone before, is working with a weak partner, and doesn't offer much tech support for a brand-new device probably expects a lot of customers to get angry and quit. The solution: lock 'em in with a whopping big ETF. Doesn't that sound an awful lot like AT&T?

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