The cult of the smartphone

Tim Iacono tipped me off to an interesting Wall Street Journal article about cell phones that I hadn't yet seen. It raised some points that I've been thinking about for quite some time, and I thought they were worth sharing here.

Heidi Steffen and her husband used to treat themselves most weeks to steak at Sodak Shores, a restaurant overlooking a lake near their hometown of Milbank, S.D. Then they each got an iPhone, and the rib-eyes started making fewer appearances. 

"Every weekend, we'd do something," said Ms. Steffen, a registered nurse whose husband works at a tire shop. "Now maybe once every month or two, we get out." 

More than half of all U.S. cellphone owners carry a device like the iPhone, a shift that has unsettled household budgets across the country. Government data show people have spent more on phone bills over the past four years, even as they have dialed back on dining out, clothes and entertainment—cutbacks that have been keenly felt in the restaurant, apparel and film industries... 

Labor Department data released Tuesday show spending on phone services rose more than 4% last year, the fastest rate since 2005. During and after the recession, consumers cut back broadly on their spending. 

But as more people paid up for $200 smartphones and bills that run around $100 a month, the average household's annual spending on telephone services rose to $1,226 in 2011 from $1,110 in 2007, when Apple Inc.'s iPhone first appeared. 

Families with more than one smartphone are already paying much more than the average—sometimes more than $4,000 a year—easily eclipsing what they pay for cable TV and home Internet... But the question for the industry is how much bigger bills can get before the cuts in other parts of the family budget grow too painful. 

The article goes on to discuss an interesting developing battle with respect to smartphone data plans—with data usage now skyrocketing, cell phone carriers like Verizon are now eliminating unlimited data plans for customers who wish to buy smartphones at the subsidized rate. This means that many customers will have to either choose to actually pay full price for their iPhones (which very few can afford to do), or else pay even more in their bills each month.

I've always found it amazing how much people will be willing to pay on a per-month basis in order to avoid actually paying full price for their phones—in many cases, over the course of two years with an iPhone, people will pay 4 to 5 times the actual retail cost of the device just on monthly bills, without even thinking about what they're doing.

It's a topic that blogger Karl Denninger has tackled at length on multiple occasions, especially when Sprint announced that they would be allowing iPhones on their prepaid network without a contract. Citing a Fox Business article, Denninger wrote:

Virgin Mobile USA, a prepaid brand of Sprint, on Thursday announced it will offer the Apple iPhone on a no-contract basis to customers starting on  June 29, but you may want to think twice before jumping ship from your current  carrier if you're already an iPhone owner. 

The "garf" is that you're going to have to pay cash for the phone -- in this case, $549 or $649, depending on the model you want.  No subsidy. 

But.... the plan is $35/month for 300 minutes of voice and unlimited text and data. 

Now consider that over two years if you buy the phone from AT&T it breaks down like this: 

$199 up front for the iPhone 4S 

$39.99/mo for base 450 minute service 

$30.00/mo for 3gb of data 

$20.00/mo for unlimited text messages 

====== 

$89.99/mo * 24 months = $2,159.76 + $199 = $2,358.76 over two years 

Now on Virgin, it's $649 up front and then $35/month * 24 months, or $1,489.00 over two years. 

Want to pay an extra $869 plus additional taxes and fees on the AT&T service that are billed separately but not on Virgin, which simply charges sales tax (this can easily be $200 or more over those two years.) 

Go right ahead. 

For everyone else just tell AT&T and Verizon to***** off.

Interesting analysis. For what it's worth, the cost of using an iPhone on Virgin is still pretty damned expensive, but at least you're not locked into a two-year contract at exorbitant rates just to pay off the effective "loan" that you took out to buy your overpriced phone.

Either way, even though I personally continue to do it (not with an iPhone, with an Android, but that's a story for a different day), I really can't figure out how so much of America can justify spending so much on phone service even as they're cutting back on just about everything else.

Sometimes I wonder, in our desperate attempts to stay "connected" to the world with our phones, are we risking becoming completely disconnected instead? Once we choose to stay home and play with our phones rather than going out and having meals with friends, I think that choice has already been made. It's a weird choice, but we are where we are.

[Wall Street Journal]
[Market Ticker]