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Saturday, January 23, 2016

Cell Phones Are Going To Start Getting Much Cheaper

Since the rise of the smart phone, cell phones have been crazy expensive.  A good smart phone without a contract will cost around $800, more than a decent laptop.  Since these high end phones are actually quite powerful miniaturized computers with cutting edge technology, this has been understandable.  Smart Phones have been at the front of technology's growth and innovation over the past few years

That, however, is going to begin to change this year.  The main reason cell phone makers have been able to get away with such costs is that much of the cost is hidden in your cell phone bill.  Customers have grown accustomed to getting free cell phones if they are willing to go with last year's model or a mid-level smart phone.  Many pay $200-$300 for a top phone, along with a two year contact.  This, of course, means that much of the actual cost of the phone is buried in those monthly payments made under the two year contract.  

Beginning last years, major cell phone providers have begun phasing out discounted phones which are paid through the monthly contracts.  AT&T just announced it is killing off phone contracts entirely.  Instead, users pay one price for their service and another for the phone, which can be paid for in installments over a year or two.  This change is a good thing.  It provides customers with transparency.  They can see what portion of their monthly costs go to the phone and what goes to service.  More importantly, if they choose not to upgrade, they don't keep paying that hidden cost for an upgraded phone that they never got.  Users can save money by holding onto their phones beyond the two year mark.  Once installment payments are done, they just pay for the service.

Of greater benefit to the consumer is that phones will start to become less expensive.  When users received a free deeply discounted phone, they had no incentive to decide if they could make due with something less powerful and cheaper.  Just get the best free phone, or pay a small sum for a top phone, knowing you could probably get that money back as a trade in on your next upgrade. 

When you actually see what you pay for a phone, you may not be willing to pay quite as much. Picking up a new iPhone or Samsung for $800 may dissuade some buyers, even if they know they can pay for it over two years, especially if they find that a $300 phone can do pretty much everything they want.

How cheap can phones get?  Well let's take a look at a very similar technology that has not had the benefit of cell phone subsidies: tablets.  You can pick up the Amazon Fire HD, a reasonably good Android tablet with a 7" touch screen for $50.  There is no reason you could not make a similar device with phone and 4G data for less than $100.  In some parts of the world today, you can buy a cheap smart phone with a camera and Internet for under $30.  Of course, that price comes with some real compromises in speed and quality.

Most of use will want more power and quality than a $30 smart phone can provide.  But I would not be surprised to see some really nice high end smart phones selling in the $300 range in the next year or two.  Even those really highest end $800 phones may fall closer to the $500 mark.  Today, you can pick up the very nice Nexus 5x for under $400.  

There will be some down sides to these price cuts.  The speed at which phones continue to develop will diminish as phone makes focus more on cost savings and less on improving speed and adding features.  But this new phase was inevitable as smart phones move from being "the new thing" to an everyday appliance.

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