Forget the iPhone 5C; the myth of the low-cost smartphone

Forget the iPhone 5C; the myth of the low-cost smartphone

Summary: Don't be swayed by the initial price at the US carrier store. The phone you get for free has a total price nearly the same as that high end smartphone you can buy for $200.

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Forget the iPhone 5C; the myth of the low-cost smartphone
(Image: Nokia)

After reading James' post this morning where he compared smartphones to fast food restaurants, it got me thinking more about the price of smartphones and the myth associated with the advertised price. When you look at the total cost you will pay in the US for your phone and service, there is rarely any reason to select the mid to low range phone and in the end it may cost you more.

The current iPhone rumors state that Apple will announce both an iPhone 5S, as expected, and an iPhone 5C. The 5C is believed to be a low-cost iPhone that would likely kill off the current practice of selling older iPhones at significantly reduced initial prices. I personally don't think Apple should launch a cheap iPhone line and when you look at carrier pricing in the US it doesn't make much sense to ever buy the cheaper phone in the store.

Most US wireless customers are focused on the initial subsidized phone price and when we see press releases and announcements for new smartphones the subsidized price is always emphasized. The actual full price of the phone is often difficult to find and rarely included in a press release.

T-Mobile is the only major US carrier that breaks out the actual price of the phone from the monthly carrier fees. When you pay off the phone you are not saddled with the infinite phone subsidy that the other carriers charge. That is why all, except for T-Mobile's JUMP!, of the early upgrade "incentive" plans that carriers recently launched are a scam to get you to pay for your phone at least twice.

Whether you pay nothing for your phone at the store or $200 (most common price for a high end smartphone), the total two year cost of your phone and wireless service contract amounts to nearly the same amount. For example, a single line on AT&T with 3GB of data and minimum minutes runs you about $85/month. Multiplied by 24 months, the length of the full subsidized phone contract, totals $2,040. Thus, getting a phone for free only saves you about 9 percent.

This example is for a single line at the lowest cost. If you look at Verizon, a single line with minimal data will cost you about $110 per month and with Sprint that is closer to $120 per month. Thus the savings gets reduced to 7 percent and 6 percent, respectively. The more data you add to your monthly plan, the less savings you will see from that initial phone purchase. Also, if you continue to use your phone after the 24 months then you continue to pay for it even though it is paid off which results in any kind of initial phone savings going out the window.

The difference between the high end phone and the free phone can be significant, in terms of functionality, quality, reliability, likelihood of upgrades to keep it current, and more. I understand that people want to reduce spending, but I am not convinced that saving $200 initially is even worth the consideration.

If you go with a carrier like T-Mobile or pay full price for your phone with another carrier, then it is possible to save more. You could pick up a full price Lumia 521 for $144, or less, and that does indeed offer a significant savings compared to a Nokia Lumia 925 at $528. Windows Phone doesn't have nearly the differentiation in experience that we see on low and high end Android devices either.

Don't be so quick to jump on that free or low cost phone the next time you get ready to visit your carrier store. Take a look at the two year total cost and decide if saving a few dollars a month is worth the possible cost of frustration dealing with a cheaper phone.

Topics: Mobility, Android, Apple, HTC, iPhone, Nokia, Samsung, Smartphones, Windows Phone

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145 comments
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  • 521 is at TMo

    520 is ATT Go Phone for $99. Best aspect you missed is that the 5xx series of Lumias give almost the same exact experience (outside of features) as the high end models.
    ikissfutebol
    • It's getting difficult for the average user to justify a high end phone.

      The lower priced phones are offering performance and features most people want / need.
      ye
      • Re: It's getting difficult for the average user to justify

        ... and that sends troubled companies such as Nokia down the pipe faster. Sad.
        danbi
      • But as we just discovered, they're not saving any money...

        by buying that lower-priced phone AND are risking getting much lower overall quality--forcing them to replace it more often.
        Vulpinemac
  • Just buy the phone from open market with no string attached...

    Lumia phones are excellent value...Considering that apple takes 50 percent margin on iPhone, buying an iphone is the worst choice.
    OwlllllllNet
    • Yes they are

      ... but just in the US, and maybe some other place I'm not aware of. The problem is just a few in the US want a Nokia phone.
      AleMartin
      • Maybe

        very few even know who Nokia is and what makes them better or worse. Most are just plain ignorant of them.
        stano360
    • You are missing the point completely

      What will the two year cost of the phone and the service be?

      Getting a cheap or free phone, only saves you a few percent over the life of the device when you include the data and voice.
      yoshipod
      • OwlllllllNet never really gets the point

        He's more like Rainman spouting "excellent value" and "K-Mart sucks". He doesn't get that Apple (or Nokia, or whoever) makes a one-time profit, but the carrier makes significantly more with each passing month.

        Not really rocket science but a huge reach for OwlllllllNet's limited CPU.
        Gr8Music
        • Don't worry about my CPU

          Lot of people don't use the data and minutes in their carrier plan....so you are paying for services you actually don't use...

          Get a decent phone from the open market and use data/minutes from pay as you go bundles.
          OwlllllllNet
          • Wow!

            That's the exact message I got from your post!

            "Lumia phones are excellent value...Considering that apple takes 50 percent margin on iPhone, buying an iphone is the worst choice.."

            K-Mart sucks!
            Gr8Music
          • wow for once a sane comment, and I actually agree

            except it wouldn't be a lumia but a nexus 4, an even better value. I know - "i'm being spied on by google" but that's OK.
            drwong
          • I haven't seen a pay as you go plan that is cheaper.

            It doesn't seem like there is much to be saved. I tried looking into straight talk to save some money, but we have 7 devices on VZW. For unlimited talk, text and double the data we use per month it comes out under $50 each.

            This is a great article but the hidden subsidy doesn't really seem to impact the monthly bill.
            LarsDennert
          • 7 devices? how many PEOPLE??

            SAD that these articles and responses only seem to consider the very wealthy American user. Almost any other place than in the USA, PHONES are not tied, ( nor even ALLOWED TO BE) to a contract for SERVICES. Most of the world cannot afford to have 7 devices per family say nothing of 7 pr person. I am CEO and principal owner of a major airline, our employees have ONE phone, I pay about $10 (after currency conversion rates) per person per line per month, for unlimited data/talk in Europe, and $650 for a top line iPhone UNLOCKED. the cost per year ( or to match your mandatory 2 to 3 year contract in USA) is less than one quarter the amounts listed here. So don't tell us that we get a "better value" being locked unlawfully to some vendor, taking away something that is supposed to be a uniquely American freedom, ( that of the right to a CHOICE,) not mandated by Federal laws which protect the rich, and the vendors of regulated services. As with "danbi",, I am no longer bound, nor will my employees be, by the US Idiocy of forced contracts. I spent 40 YEARS defending the Constitution, as a member of the USAF, but i know full well the freedoms i expect are GONE, and that might makes right, and wealth makes might, in the USA these days. NO contracts, or contracted phones for MY family,, ever again!
            LyonsAire CEO
          • Someone took the red pill

            USA is like the Matrix where most people live and earn only for the survival of large corporates. They have no value otherwise.

            In most of the free world ( most countries except US), a cheaper iPhone will make a lot of sense. In my country, I use to spend about 3-4 $ per month on a pay as you go with international calling and my annual mobile expenditure was about 50$. After coming to US, I spend twice of that per month. Not to mention the call quality s.u.c.k.s big time here.
            For most countries, a cheaper iPhone that costs half of iPhone 5s or 6 of whatever comes now makes a lot of sense.

            BTW, those who refuse to live in a matrix world, there are some options in US too like Lycamobile, Simple Mobile, Red pocket, H2O and so on that gives everything unlimited for about 40$ a month and no contract. they work on ATT and T-Mobile network so quality is as good as contract ones. Buy a Nexus 4 and a plan like this. The total cost over 2 year = 350 for Nexus 4 + 24*40 = 960 in service. Adds to about 1300$ over 2 yrs. Best thing, you are not bound with a contract, can switch provider or buy a new phone after one year or 6 months if you find a better deal and all phones are unlocked with no crapware.
            dheerajnagpal
          • Now who's talking about wealthy?

            Of course you realize that buy buying service in bulk, your carrier gives you a HUGE discount over retail rates.
            Vulpinemac
          • Ting

            Then consider Ting. They charge $6 a month per phone, then you can a la carte as many or as little voice minutes, text and data as you want. By 1000 minutes instead of 500 minutes and have 600 left over at then end of the month. no problem, they see that you could have used the 500 minute plan last month instead of the 1000 minute plan and credit your account the difference.
            fwarren
          • mine is cheaper

            I paid $350 for my nexus 4 and pay $30 a month to t mobile for 100 minutes unlimited texting and 5 gigs of data. Since I mostly text and use data it is significantly cheaper for me. I figure if I keep the phone 2 two years $45 bucks a month total cost.

            Shop around Virgin mobile and the smartphone have some good deals as (Though I can't use a nexus on Virgin)
            marque2
          • Re: Don't worry about my CPU

            I believe that poster was actually under the impression a better CPU will help you.

            Truth with computers is however, that the best CPU cannot help buggy software.

            Someone needs to fix your WinRT script, instead.

            By the way, I always buy my phones unsubsidized. This lets me have almost unlimited usage service for under 20 EUR. But then, I am not disadvantaged to live in the US.
            danbi
          • If I'm not mistaken,

            Coverage in the EU is cheaper primarily because it covers more population-dense areas and skips over unpopulated areas, while in the U.S. they have to cover more area to get more subscribers. So yeah, the Americans are quite disadvantaged in price for service.
            Jacob VanWagoner