By I-Hsien Sherwood | ( | First Posted: Dec 07, 2012 03:09 PM EST

(Photo : Reuters)

T-Mobile CEO John Legere confirmed that the wireless carrier will stop using the usual "contract" model for cellphone plans and move to a prepaid system next year.

The move will result in cheaper monthly fees for T-Mobile customers, as well as the flexibility to change or end their plan with no fees, though customers will need to pay more for the phones upfront.

Typical American cellphone plans subsidize the cost of the phone, making up for it with higher monthly fees and locking customers into a contract, often two-years long.

Consumers can pick up a new iPhone 5 for $199 from AT&T or Verizon. But an unsubsidized, no-contract version from Apple will run $699. Of course, Verizon and AT&T charge at least $70 a month for a calling and data plan. Prepaid plans can be as low as $40 a month, so they end up being cheaper in the long run, even with the more expensive phone.

And T-Mobile plans to mitigate the initial pain. The carrier will be discounting new phones, and while they won't be as cheap as a subsidized phone, the prices will be more manageable than buying an unlocked phone.

Of course, T-Mobile will need to offers some incentive to keep people on their plans, so wily customers don't buy a cheap new phone and bail. T-Mobile is busy tweaking its network to be compatible with AT&T's, so the temptation to jump over to the bigger carrier could be strong for many customers looking for broader and faster service.

While T-Mobile's LTE network isn't up and running yet, it should be by the middle of next year. And with the iPhone in their lineup, they'll present another viable option for people who want the latest and fastest. The company hasn't explicitly announced whether it will be offering Apple's iPhone 5 or not as of yet.

The carrier will also complete its merger with MetroPCS next year, folding in a good number of customers used to prepaid plans, so it might be able to win back some of the subscribers it lost to local carriers in the last few years.

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