There’s been a lot of ink, digital and physical, used up discussing the various ways that you can analyse how much the iPhone is going to cost you. I think that at some level we’re all barking up the wrong tree.
There are a few things that we have to take into account about the current state of the marketplace:
-
The phone companies are trying to soak you for as much as they can get. That’s how the market works.
-
Unless you are planning on a massive lifestyle change, you are probably going to be paying for some level of cell service for the rest of your life. (NB there are exceptions but they’re becoming rarer and rarer)
So when we put these points together you starting looking at budgeting differently. Any phone is a point in time purchase that enters into your capital budget as opposed to your expenses. This is a recurring charge, just like your replacement schedule for computers. Most everyone I know replaces their phone every 12-24 months (OK, I know a lot of geeks).
You will be paying a certain minimum for voice service on your cell phone whatever the model, hopefully somewhat tied to your usage patterns and needs. If you plan on using any kind of smart phone, you’ll be paying for a data plan in just the same way you pay Verizon, Orange, Numéricable, Bell Canada, Rogers, -enter internet access provider here-.
Prices have gone up in recent years since the advent of the smart phone as I’m now paying for two services: voice and data. Just the same way that I pay for both of these services at home. Before internet access, I had a phone bill. After internet access I have a voice and a data bill (potentially on the same piece of paper but not necessarily). Overall I’d say that it’s reasonable to expect that these costs reflect something of the value of the service. In most markets, I pay more for Fiber to the House than I pay for a 512Mbps DSL line, just the same way that I expect to pay more for HDSPA’s high speed access vs pokey old EDGE.
How is this different from your home service? You purchase phones of varying degrees of intelligence for your house to plug into a wall jack, completely isolated (at least it is now - back in the dark ages, this wasn’t the case) from the cost of your telephone service. Depending on where you live, you are charged varying amounts of money based on your usage of the telephone line, a base fee plus additional services like long-distance.
Then you call up an internet service provider who will put in the necessary connections that permit you to connect your computer(s) to the internet. There may be an installation or activation fee on a cost plus basis and then you get into paying a monthly bill.
Now the only major practical difference for the consumer between this and your cell phone is that you probably have the right to cancel your service with a reasonable amount of notice (usually 30 days) or at the very least if you change residences. Some internet service providers do have more stringent requirements, but you rarely sign for more than a year term, and on top of that rental leases are generally on a yearly basis so the service provider has a pretty high confidence factor in you as a client. You’re not going anywhere.
When we transpose this to the cellular market though, there’s nothing physically tying you to your service provider. You could change service providers on a whim. That is, unless the service provider wrote your contract so that you committed to a certain minimum term. Now they do this for obvious reasons - it makes the revenue stream predictable and manageable. If there were no restrictions, a company could potentially lose it’s entire clientèle overnight as a result of some kind of bad press.
So it’s in the companies best interest to get you to commit to the longest possible term since on the balance sheet they see that as guaranteed income, especially since there’s usually an early termination fee that recoups the outstanding portion of the contract so for them it’s money in the bank. Obviously it’s not in your best interest as a consumer to commit to a long term contract unless there’s something in it for you. Enter the shiny baubles. The phone company offers you a really cool toy at a price that is obviously below what it costs to make and will take it out of you on the back end. A portion of your monthly service charge has nothing do to with the actual service provided - it’s basically a loan that the phone company extended to you that pays the difference between what the phone company paid for your cool new toy and how much they paid the manufacturer.
Now from my end as a consumer, I can look at this two ways.
-
That sucks! I don’t want to be stuck in a long term contract with financial obligations that might be overly onerous over time just to get a new toy cheap!
-
Whatever. I’ve budgeted about x/month for my cell service for the rest of my life anyway. Give me the toy.
If you have want to you can pay full price on the phone and then use it on a pay-as-you go service plan. The phone companies do their best to make these deals pretty unattractive, especially for data use, rarely offering any kind of unlimited data plan. For that you need to sign a longer term contract. And as long as you’re doing that, you might as well take the toy.
In an ideal world…
What I’d really love to see in this industry is a lot more openness and normalization that would let consumers really compare (sorry) apples to apples.
Personally I think that all of the phones should be offered naked, unblocked and unattached for a regular sticker price. Anyone can buy any model unrestricted for any carrier.
Then you choose a voice plan, SMS plan and data plan à la carte, adapted to your needs. x minutes of voice, y SMS messages, and z Mb or unlimited data. From there, you pick your service term of 0, 12 or 24 months and as a result, you get a subsidy of 0, $120 or $240 (for easy math). That would be cash over the barrel if you don’t buy a phone, taken off the price of the phone if you buy one, or a monthly reduction of your bill.
iPhone $500 Voice $20/month Unlimited 3G Data $30/month 50 SMS $10/month Monthly total $60/month Subsidy Options - 24 month contract: Cash Rebate $240 or Monthly reduction $20/monthNote - prices for demonstration purposes only.
That way phone companies would be required to compete on the pricing of their phones and services instead of competing on who’s the best at confusing the consumer. I suspect that most consumers would flock to the company that handled their pricing this way just to avoid the hours of wasted time trying to comparison shop for things that tweaked in every direction. In the end I suspect it would also be cheaper for the phone companies since their accounting would be vastly simplified.
But I’m not holding my breath.