16 October 2013

Why Don’t People Answer the Call to Cellular Phone Savings?

One of the costly monthly expenses for most households in America is their cellular phone bill.  The CTIA Wireless Association estimates that average cell phone bill was $47 in 2012 but many individuals pay double that amount.  The CTIA figures do not factor in the costs of handsets or choices for “reasonable” plans

Smart phone consumers comprise 46% of the market (including 66% of youths aged 21-30).    The CTIA figures do not factor in the costs of handsets or choices for “reasonable” plans.  So there may be a low cost plan, but if one is required to carry a data package, monthly costs precipitously increase.

Another reality is that the most of the major American cellular carriers push subsidized phones with strict two year agreements.  Few cellular consumers consider the overall costs incurred with such a subsidized cell phone contract.  Such customers are  are more concerned about getting what they perceive is the latest and greatest handset for a couple of hundred dollars down (usually 1/3rd of the actual cost) while paying a significantly higher amount in the monthly cellular bill then they might pay otherwise.  

Tero Kuittinen, an independent market analyst from Alekstra, notes: "That psychology has worked for hundreds of years, and it’s still working.”   Another factor to consider is the attachment that many people feel toward their cellular purchases.  AT and T retained gripping customers for years because it retained a monopoly on i-Phones, which had a less generous plan and cost more than other smartphones, but those in the Apple cult craved it.  It seems akin to the mentality which drives new car purchases that customers will overspend to get that “new car smell” for a durable that loses 20% immediately after purchase. 

T-Mobile took the lead among cell providers in weaning prospective customers from the subsidized cell phone model with their Simple Choice plan.  But an  alternate model which T-Mobile innovated but had more success in competitors emulating is the “Next, Edge, Jump” and “OneUp”.  These programs which are essentially cell phone installment payment plans.  Consumers lease a phone by paying a bit extra ($10-20 a month plus up to $10 for the privilege) for 20 to 24 months  but with the ability  to upgrade in six months to a year.  But if consumers do not “jump”, then they will pay significantly more as there is no subsidy underwriting the purchase. This sort of gimmick may have some appeal to digerati would constantly want to upgrade without being locked in a contract, even though they are effectively locked in a contract.

Alas, cell phone services are not fungible.  Aside from the handset cost, choice of carriers are impacted by coverage.  An inexpensive plan is worthless if one does not get range in one’s preferred calling area.  Verizon Wireless has the best coverage but people pay a premium for the extensive coverage.  But most customers may not need such extensive range.

Cost conscious consumers should know that they can cut their cellular costs in half (or more), by using Mobile Virtual Network Operators (MVNOs), pre-paid cell plans and fremium cell providers like FreedomPop. But the reality is that according to Ovum, only 23% of cellular customer have opted for such frugal mobile phone service. 

 As MNVOs and the ilk do not have the deep pockets for advertising, they have a dubious reputation.  In fact, when breaking up with Sprint to switch to one of its MVNOs Virgin Mobile to save half on cell costs, the customer service representative thought that it was a compelling argument to sneer “Well, that’s a pre-paid phone”.   As a customer who had been off his contract for over a year and did not need another handset, that was a less than convincing ploy. 

Usually, second tier cellular carriers offer less current handsets.  Even though these cell phones may only have been on the market for six months, finicky consumers turn their noses at these out of data handsets.  Sometimes, upgrades are prudent, such as switching from a 3G phone to one that also gets faster 4G or LTE coverage.  But when a new release is buggy, or simply has minor cosmetic changes, a savvy consumer should question whether the latest is really the greatest. Of course, with Apple i-phones, a consumer can not replace the rechargable battery himself, so it may only be good for around 18 months before starts to need replacement.

Personally, I have always considered the cellular phone plan to be more important than the particular handset.  In addition, I tend to baby my cell phone, so it has less wear and tear on the unit. But my experience switching cellular carriers from a Sprint HTC Evo with a 4.3" capacitive screen to a Virgini Mobile Samsung Victory (Galaxy II) with a 4.0" but with 4G LTE has demonstrated that the slight difference in display size impacts inputting on a virtual QWERTY.  

What may drive my decision to switch cellular companies again is whether FreedomPop allows for Bring Your Own Devices with their Freemium model roll out.  I would not buy one of FreedomPop’s outdated and refurbished HTC Evo Designs for $99 (or later $149), but I would happily switch to FreedomPop to get 200 voice minutes, 500 texts and 500 MB of data for free.  FreedomPop is relying on consumers to add on to their free base.  I might get unlimited calls and texts with a half Gig of data for $10.99.  But since FreedomPop will allow for tethering (hotspots) and they charge $10 per Gig of data, my old HTC Evo might be a supplemental hotspot for months that I need it. 

In another phase of its Un-carrier campaign, T-Mobile tried to  wreck the international roaming racket. T-Mobile stopped charging more for international text for Simple Choice customers when sending to 100+ countries.  Calls to Simple Global countries aside from the US are at $0.20 a minute.  Most importantly, there is no outrageous international data roaming charges at standard speeds.   However  there are some caveats to this International Roaming largesse.

Alas, T-Mobile considers 2G (or 128 kbs) to be an ideal speed for e-mail, social media, web pages and navigation but it such speeds would be painfully slow for graphic intensive applications.  So T-Mobile also offers three speed boost plans for international travelers.  One day of higher data speed (100 MB) for $15, one week (200 MB) for $25 and two weeks (500 MB) for $50.  This would be good for international travelers keeping in touch at home but operating on a guarded basis .  Since T-Mobile allows BYOD for GSM phones, it might pay for a traveler not taking a quick jaunt overseas to pick up an old unlocked GSM phone and sticking with T-Mobile.  Or they could just use that unlocked GSM phone with local SIM cards.  

As America enters harder economic times, more consumers may try to beat the high cost of living by answering the call to cheaper cellular services.

h/t: The Joy of Tech

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