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Pre, iPhone, other smart-phones get cheaper to buy, but not to use

There’s great news and not-so-great news when it comes to smart-phones. On June 6, Palm released its $199 Pre — a worthy competitor to Apple’s iPhone. Two days later, Apple announced its faster and better iPhone 3G S starting at $199, and slashed the starting price of its current iPhone 3G to $99.

The bean counters at Apple’s many competitors are no doubt working their spreadsheets trying to figure out how they can reprice their products to compete. But if you shop around, you can already find various models of the BlackBerry, Samsung BlackJack and other smart-phones for as little as $49 — or even free — with a two-year service contract.

So, is there any reason we shouldn’t all jump for joy in celebration of this grand new age of cheap and super-powerful phones? You bet there is. Smart-phones may be cheap to buy, but they’re not cheap to use.

Like those adjustable mortgages that got so many people into trouble, smart-phones are easy on the budget to acquire but major financial sinkholes over time.

The real cost of a cellular device has never been what you pay for the hardware but what you pay to use it on a monthly basis. Like King Camp Gillette, who popularized the safety razor, the cell phone industry long ago figured out there is profit in “giving away the razor and selling the blades.” That’s been true for years, but with smart-phones it’s even more true because of data and text-messaging plans.

That $99 iPhone will cost you a minimum of $70 a month to use, but probably a lot more.The cheapest voice plan is $40 a month for 450 minutes. But if you use your phone the way most people do, you’ll probably need to spend $60 for 900 minutes, $80 for 1,350 minutes or maybe even $100 for unlimited nationwide calling. You’ll also pay $30 a month for the mandatory data plan whether you want it or not.

So now your bill is somewhere from $70 to $130. But wait — you still have to pay for text messages.

Without a special plan, outgoing and incoming text messages cost 20 cents each. So if you’re going to send or receive text messages, you’ll need to pay $5 a month for up to 200 messages, $15 a month for 1,500 messages or $20 a month for unlimited messages.

According to a recent Nielsen study, the average American teen sends about 2,500 text messages a month in addition to the number they receive. So if the phone is for a teen or an adult who texts like one, there’s no choice but to pay $20 for the unlimited plan.

Do the math and your AT&T bill is somewhere from $90 to $150 a month. And if you’re a heavy user, you had better opt for that higher figure or you might wind up like my poor son, Will.

Fresh out of college, Will bought himself an iPhone earlier this year and was shocked that his first AT&T bill was nearly $200 because he didn’t get the unlimited plan. Once he upgrades to that plan, his annual contribution to AT&T will be $1,800 plus taxes and regulatory fees. That’s a lot more than most American commuters spend for gasoline in a year.

Of course, no one forced him to buy a smart-phone. But given the lifestyle of most young adults, it’s rapidly becoming a necessity. Like a large and growing percentage of his generation, he doesn’t have a land line. And because of his nomadic lifestyle (he’s a musician), he needs to be able to get his e-mail on the fly. To him and many like him, trying to get by without a smart-phone and an unlimited plan would be like living in Los Angeles without a car.

Verizon Wireless pricing plans are roughly equivalent to AT&T’s. Sprint, which provides service for the Pre, some BlackBerrys and other smart-phones, offers a $99 “Simply Everything” plan that covers unlimited voice, data and text.

One of the reasons I hope the Pre does well is to put pressure on AT&T and Verizon to lower their prices. But even Sprint’s relatively good deal costs $1,200 a year, which is more than I paid for my first apartment after college.

One justification for these costs is that there is limited bandwidth for data — and, indeed, iPhone users have been known be heavy users of AT&T’s data network. Another justification is the enormous investment cell phone companies have made for their infrastructure, including the faster “4G” networks that the carriers will roll out over the next few years.

But those new networks will also have much bigger capacity. That could enable companies to lower prices but they may simply take bigger profits.

Intel co-founder Gordon Moore once famously predicted that computing power would roughly double every two years, a prediction that became known as “Moore’s Law.” After watching my phone bills grow over the years, I offer Larry’s Law.

It’s this: The cheaper things are to buy, the more they cost to use.

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