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Cellphone plans are getting cheaper — thanks, Obama! (and T-Mobile)

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Next time you go shopping for a new cellphone plan, you're likely to find that the options are a lot better than they were a couple of years ago. Prices are lower. You don't have to sign up for one of those annoying two-year contracts. You'll probably get unlimited phone calls and text messages as a standard feature — and a lot more data than before.

If that happens to you, you should thank the Obama administration — specifically, the antitrust watchdogs at the Department of Justice.

Many of the positive developments of the past four years have been driven by T-Mobile, which until recently was the smallest of the nation's four national wireless providers. Back in 2011, AT&T was on the verge of gobbling up T-Mobile, which would have turned the industry's Big Four into the Big Three and eliminated the industry's most unpredictable company.

"Even prior to the merger, T-Mobile was known as being this maverick competitor," says Brent Skorup, a researcher at the Mercatus Center. If the merger had gone through, the industry's maverick would have disappeared.

But then the Obama administration intervened to block the merger. With a merger off the table, T-Mobile decided to become a thorn in the side of its larger rivals, cutting prices and offering more attractive service plans. The result, says Mark Cooper, a researcher at the Consumer Federation of America, has been an "outbreak of competition" that's resulted in tens of billions of dollars in consumer savings.

The Justice Department forced T-Mobile to stay independent

AT&T CEO Randall Stephenson (L) and T-Mobile USA CEO Philipp Humm are sworn in during a May 2011 Senate hearing on the merger.
AT&T CEO Randall Stephenson (L) and T-Mobile USA CEO Philipp Humm are sworn in during a May 2011 Senate hearing on the merger.
(Alex Wong/Getty Images)

In 2011, T-Mobile's parent company, Deutsche Telekom, wanted to get out of the American market. T-Mobile was struggling, and the German telecommunications giant didn't want to make the big investments that would have been required to make T-Mobile a viable competitor in the long run.

Also, AT&T made T-Mobile a no-lose offer. In addition to offering a generous $39 billion sale price, AT&T also promised to give T-Mobile a $3 billion breakup fee — and more than a billion dollars' worth of spectrum — if regulators blocked the deal. Either way, T-Mobile would come out ahead.

AT&T was willing to offer such a big breakup fee because it was confident the Obama administration would approve the deal. Regulators had recently approved several other massive deals, including Comcast's acquisition of NBC Universal in early 2011.

And AT&T brought a lot of pressure to bear on Obama administration officials. Left-leaning groups from the AFL-CIO to the NAACP — and even the LGBTQ rights group GLAAD — endorsed the merger. And of course AT&T dispatched its considerable lobbying muscle to get the deal approved.

But the Justice Department said no. In August 2011, the agency filed suit to block the merger, prompting AT&T to abandon the deal in December.

And regulators have continued to hold the line against wireless industry consolidation since then. After AT&T abandoned its bid for T-Mobile, Sprint made overtures, hoping that regulators would be more likely to approve the merger of the two smallest wireless companies. But once again, regulators signaled that they would oppose any deal that reduced competition from four companies to three.

T-Mobile's "uncarrier" strategy has shaken up the wireless market

T-Mobile CEO John Legere (David A.Grogan/CNBC/NBCU Photo Bank via Getty Images)
T-Mobile CEO John Legere.
David A.Grogan/CNBC/NBCU Photo Bank via Getty Images

After the AT&T deal fell through, T-Mobile needed a new strategy. It was still the nation's smallest wireless provider, which meant that it enjoyed fewer economies of scale and smaller profits than its larger rivals.

The failure of the deal also meant that the company had an extra $3 billion in cash and additional spectrum that would allow it to improve service. So the company did something that — at least in the stodgy world of telecommunications services — seemed radical: It got serious about competing with its larger rivals.

"At some point you realize that if you don't change something, you might go out of business," says John Bergmayer, a policy analyst at Public Knowledge who opposed the merger.

So T-Mobile and its new CEO, John Legere, started changing a lot of things. In 2013, the company dropped the much-hated two-year contracts that had become an industry standard. It introduced a new price structure that offered unlimited phone calls and text messages as a standard feature.

The new features came with a new slogan and a new, more combative sales pitch. "Carriers are really nice to you ... once every 23 months," Legere said in a 2013 speech announcing the changes, which he dubbed the "uncarrier" strategy. He denounced two-year contracts as "the biggest crock of shit I've ever heard in my entire life. Do you have any idea how much you're paying?"

In 2014, T-Mobile added more goodies, including more generous data caps and unlimited international texting. It boosted its data caps once again in 2015.

One of T-Mobile's most significant "uncarrier" moves — and its most controversial — is known as "Binge On." It allows customers the option to stream unlimited amounts of video content without the data counting against their data caps. However, to avoid overwhelming its network, T-Mobile simultaneously downgrades the speed of video streams, leading to lower picture quality.

That worries network neutrality purists like Bergmayer, who warn that carriers shouldn't be in the business of favoring some content over others. Network neutrality skeptics like Skorup, on the other hand, see it as an example of beneficial innovation that could be hampered by overly strict network neutrality rules. Either way, the program represents a significant experiment in managing high-bandwidth mobile apps.

How T-Mobile changed the wireless industry

Verizon To Purchase AOL For 4.4 Billion Joe Raedle/Getty Images

With T-Mobile abandoning unpopular industry practices and cutting prices, other wireless providers were forced to follow suit. Verizon announced it was phasing out contracts in August, and Sprint announced a few days later that it would do the same. As 2016 began, AT&T became the last major wireless carrier to abandon the practice.

And the other three major carriers have been forced to offer major price cuts to limit T-Mobile's gains.

Still, T-Mobile has seen big gains in market share. The company has attracted nearly 20 million new customers since the start of 2013.

T-Mobile's strategy has worked so well because in recent years wireless companies had gotten a bit greedy. Thanks to rapid technological progress, the cost of delivering a minute of phone service or a megabyte of data kept falling, but wireless companies dragged their feet on passing along those savings to customers through either lower prices or higher data limits.

Some parts of wireless plans had ludicrous markups. For example, until recently wireless providers were charging as much as 20 cents per text message — or $20 per month for unlimited text messages. These prices were orders of magnitude higher than the actual cost of delivering text messages. Yet as long as all four companies were offering similar plans, there wasn't much customers could do about it.

But that left a big opening for one company to defect from this arrangement and offer plans that were priced closer to the actual cost of service. T-Mobile did just that in 2013, and the industry has been locked in a price war ever since.

"Once competition breaks out, it's really hard to get it back in the bottle," the Consumer Federation's Cooper says.

And Cooper says that evidence from other industries suggests having a fourth company in the market makes a big difference. "The evidence is quite clear that losing the fourth competitor has a tremendous impact on price," he says. So if you're enjoying cheaper cell service, the Obama administration's antitrust regulators deserve a lot of the credit.