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So What if Smartphones are Expensive, at Least we have Choices and Subsidies [Opinion]

After seeing an opinion piece on smartphone pricing by Dan yesterday, followed by our report that the DROID RAZR may be $649 off contract, one of our readers wanted to express his thoughts on the matter. Are we more fortunate than most countries? Has the smartphone become so integrated into our lives that the higher prices are justified? Rob K weighs in.

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Smart phones are EXPENSIVE! And guess what, they always have been. The Palm Treo 700w (which I owned) was upwards of $620 off contract and a whopping $500 with 2-year agreement. That was in 2006, with a 2-year agreement!

What has changed since then? Well for starters we have Android and iOS, and phones have actually come down in price while improving dramatically. We have diverse hardware and software (for better or for worse). The cameras! The screens! The apps! I think we have it pretty good.  

Full retail aside (as I assume most people do wait until they have an upgrade), $200-$300 for a piece of hardware and software that will literally be used every single day for a considerable amount of time isn’t too bad. I would argue that we use our mobile phones comparatively more than both TVs and home computers. The phone goes in our pockets when we wake up in morning and is not departed from us until we go to sleep for the night (where it will then serve as our alarm clock and weather report as soon as we wake up). For some people I know, the mobile phone has replaced the need for a home computer. To drop more dough on that device seems fair.

Motorola Mobility (the smart phone arm) lost money last quarter on $2.1 billion in mobile device revenue. Although their financials don’t break out segment level gross margins, as a total company they were only making 25% on their devices, a far cry from the 100% touted in previous articles. That doesn’t include the fact that they have to advertise and research and develop new phones! At the end of the day they didn’t make a single cent. Now sure Motorola might just be a poorly run company, but the fact is that even Apple is only making 40% (total company, including Mac sales) before advertising and R&D and they are considered the king of mark-up.

We have to be thankful for subsidies. Some countries don’t get them. At the end of the day, people don’t switch carriers all that much. It’s a hassle. We have family plans. There’s mobile-to-mobile. The service of X carrier is better here. We rarely pay full retail. Only hardcore enthusiasts and those who have disposable income are doing that.

$300 for a brand new phone with top of the line hardware is $13/month over a 2 year agreement. You don’t get $13 worth of enjoyment out of that phone you have every month? Get a RAZR (circa 2004)…oh wait that cost $500 on 2-year contract with Cingular when it debuted.

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Thoughts?

  • Steve Perry

    #whitegirlproblems

  • Lgreg64

    The only thing I wonder about is how come tablets are getting cheaper but phone are going up in cost?

  • Rich

    All smoke and mirrors… They always charge more because when they come down in price, they say your getting a discount or they are helping us…

    Point is if something cost 1 dollar to make and you charge 600 dollars, then drop it to 300 and say its a sale or a deal or wtf ever it is… this is still crap… there should be a law that says you can’t mark up a product but 10% of manufacturing cost…

  • Anonymous

    This is a confusing subject.  There are so many conflicting viewpoints, but most everyone makes valid arguments.

    At full retail, the carrier is losing money (assuming you buy a phone and then leave the company a month later).  The consumer loses very little (assuming they sell their month-old, pristine phone for close to full retail.)  So by this reasoning, you would think the wireless companies would be practically giving phones away, just to get the contract.  The contract is worth over $2,000 (someone in the comments did the math).  They should be subsidizing phones for very little.  Maybe the cost of an activation fee and tax.  No more than $100 for ANY phone.  You are “renting” the device for two-years (or a better description would be “pay-to-own”), and it’s definitely like those “Rent-A-Center” scams… you’re paying a 200% mark-up because you are making payments over two-years.  Your computer that is usually $600 at Best Buy will eventually cost you $2000 (at $20 a week or whatever….)  Both ideas pray on people who want what they want when they want it (and don’t have the means/dedication to save up).  This is how you have so many people with smartphones who can barely afford the data plan; they don’t have two pennies to rub together, but they got a subsidized phone for cheap.

  • Anonymous

    If the phones are subsidized, has anyone seen an amount for it on their bill?  And once the two year contract is up, has anyone seen their bill automatically drop by some amount?

    Just curious.  Cause I’ve never seen it itemized on my bill before.

    • Anonymous

      A subsidy in this case means that Verizon is covering a portion of the price of the phone at purchase, not during the life of the contract, so you wouldn’t see anything on your bill.

      If a phone costs $640 and the with contract price is $300, that means Verizon is subsidizing $340 of the price of the phone.

  • RW-1

    Kill subsidies!

    If you can’t afford the phone as priced, then they will have to lower it and take less opf a profit from its sale (and that WOULD happen, as too many couldn’t afford it in the first place.

    In addition then you are not locked into these contracts, and you would really see the competition heat up for your carrier decision … adn if the carriers got to one unified network, then you have one phone that could work with all carriers, switch when you want.

    That’s the issue here, most people can’t afford the phones they have (even the iPhone if full price) and this is how the carriers have responded to keep you reigned in.

    You’re locked into a contract with termination because you are paying off the phone, nothing more than that: no matter what they tell you.

    They paid full price for the phone, and you get penalized that cost if leaving early.

    • Anonymous

      Subsidies serve a purpose. Subsidies are a perk to verizon contract customers. Regardless of whether you are on contract or month to month, the service costs exactly the same. The subsidy is a discount to those who sign the contract. I see a subsidy as a perfectly legitimate business tool. Verizon gets a guaranteed customer and the customer gets a discount on a phone.

      Do you really think that there would ever be one unified cellular network? These companies have spent millions if not a few billions of dollars on their respective networks. A unified network would decrease competition.

  • Anonymous

    How could anything be more simple — don’t think it’s worth it? DON’T BUY IT!

  • http://www.DavidPat.com David Pat

    in London you pay about $15 a month for smartphone service. That’s the power of no subsidies. 

  • Riley Munks

    if i want to buy a phone off contract, but i have a 2 yr contract waiting, can i sell it for money to help pay for the uncontracted. maybe buy a contracted then return it?

  • Anonymous

    Well, It’s true we don’t change carriers all that much, the things you mention are only hard to deal with BECAUSE of the subsidy/contract lock-in. With number portability, it really shouldn’t be a hassle to deal with family plans, etc. They should just move. And really let’s talk about family plans realistically, why do we have to pay extra to use the same amount of minutes? It’s a sweet deal for the companies, not only do they have you locked in, often at different expiration dates, which makes it that much harder to leave, but you pay them each month for that privilege, all to save a few hundred bucks on a phone…which incidentally is artificially over priced if you want to buy off contract. The only reason the carriers get away with this is because they have government granted monopoly, but aren’t regulated like they do. In the US there isn’t really any free market for phones or service, they all cost the about the same. It’s disappointing to see opinions for major web sites like this that seem to rather ignorant about the real reason some of us are concerned about the price/service we receive.  It’s not because we’re all spoiled brats and just want it, it’s because we are getting screwed by the lack of real competition.  AT&T is willing to spend something like 62 billion dollars to buy T-Mobile, but has admitted it would only cost about 3.4 billion to build out there network, why are they willing to spend the extra money? They know eliminating a low cost option will allow them to further raise prices and reduce services, since what are your options?

  • http://www.facebook.com/people/Graham-Cluck/1848256183 Graham Cluck

    Completely agree. I think we lose perspective sometimes, and forget what things were like in the past. Yeah $500-$600 isn’t cheap, but for what we’re getting now as opposed to just 5 years ago even, I’d say we’re actually pretty fortunate.

  • Anonymous

    This needs to focus on vzw phones, not any other carrier. They feel inclined to charge 300$ for their super phones when other carriers stop at 200$. Vzw is way over priced, you basically pay 100$ extra for an lte chip

  • Anonymous
  • ineff

    All I have to says is look at VZW prices vs the competitors. Ridiculous. 

  • Nicole Watkins

    My issue with subsidies is not that they exist, but that if I decide to buy a phone off-contract, I don’t get a cheaper…monthly…phone…plan.  Isn’t that the whole point of a subsidy and a contract?  I’ve never understood this about the United States and carrier subsidies.  Other than that, I do agree with the points that you made.