Good Question: What Is The Real Cost Of A Smartphone?
MINNEAPOLIS (WCCO) - Verizon Wireless says it's now joining the path other cellphone companies have already taken – no contracts.
The company announced Wednesday it will do away with two-year contracts that offer subsidies of hundreds of dollars on new phones.
People with current contracts will be allowed to stay, but others will have to pay full-price for the phone. Those full-price payments could be either upfront or in monthly installments.
The Verizon monthly data and cellphone plans will also be simplified and range from $30 to $80 per month with small (1 GB), medium (3 GB), large (6 GB) and extra-large (12 GB) package options.
But for those used to buying a subsidized phone, the full-price can be a little bit of sticker shock. So, what is the real cost of phones?
"Customers like it because we always like things that we think are free," said George John, a marketing professor at the Carlson School of Management. "It's not free, they're just rolling it into the price of the plan."
John said cell phone manufacturers often sell their phones at almost full retail price to cellphone providers. He expects the no-contract trend to be a positive development for consumers.
"It's a good deal for consumers in the long run because there's more competition and it should make prices more transparent," John said. "Overall, the people who take the biggest hits from this would be Apple and Samsung, because they don't get these automatic upgrades."
Without the subsidies, the retail price of an Apple iPhone 6 is $650. A Samsung S6 ranges from $575 to $685, an LG G4 ranges from $550 to $629 and an HTC One M9 from $550 to $708. Each carrier offers a different price upon purchase.
When asked why smartphones cost so much, John said, "They're amazing products. Think about it. It's an entire computer. It's about as complicated as your laptop, and you're going to squeeze that into a smaller package."
In 2014, research firm IHS found the materials to make an iPhone 6 cost $215.
"The big price of most of these products is not the materials; it's cost of development, the R&D," John said.
Ultimately, he predicts fewer contracts will mean more people buy refurbished phones, upgrade less frequently or turn to cheaper models.