If you want a smart phone with unlimited data, you’re going to pay a lot of money.
The big 2 carriers have moved to more of an unlimited talk/text model (talk/text is cheap) that allows you to choose how much data you want/need. The less big 2 carriers offer you “unlimited” data (check their T’s and C’s to see if “unlimited” is truly unlimited).
The goal of all 4, of course, is to extract maximum dollars in to their vaults.
Here’s how the smartphone costs at the 4 carriers breaks down:
- Verizon: $70 for 6 GB of data, + $45 per smartphone = $120
- AT&T: $70 for 5 GB of data, + $40 per smartphone = $110
- Sprint: $60 (“unlimited” data and talk, but I think they still throttle beyond a certain data cap)
- T-Mobile: $80 for “unlimited” (I also think they throttle beyond a certain point, but too lazy to check their T’s & C’s since it is irrelevant to this post)
If it weren’t for T-Mobile, you’d think there was some sort of anti-competitive collusion going on here… hmm…
Let’s also not forget the typical 15% per month added in taxes per plan. Adding it all up, the average cost of a smartphone plan with data in the U.S. with the 4 mobile network operators is $115 per month (the reality is, T-Mobile is weighing down the average and it has the smallest subscriber base, so I’m being generous here).
$115 per month!? Have you noticed how prices have only seemingly gone up in recent years? And drastically so?
I have. And I thought it would be eye opening to calculate out what the lifetime cost of a smartphone would be, given current costs. I already calculated out the lifetime cost of cable TV, and… the results were a bit shocking. Smartphone use typically starts earlier in life than paid cable use, and the cost is higher per month, so I think we have an even bigger eye opener on our hands here.
The Lifetime Cost of a Smartphone
What if, instead of a smartphone with data plan, you invested your savings towards retirement or other major goals in life? How much money would you be able to save?
Lets assume the following:
- paid smartphone use starts at age 18 (it’s probably earlier for many these days)
- continue paid use until age 80
- the starting monthly average cost is the $115 quoted earlier
- average cost inflates at 5% annually, same as cable TV (note: I could not find any data on average annual inflation on smartphone plans, but I have no doubts this is close to reality when looking at the last 5 years – if there’s one thing telecoms are great at, it’s extracting more and more $ from everyone every year)
- we use after tax dollars (which is what you pay for a smartphone plan), that grow tax free in a Roth IRA.
Since the money spent presents a missed opportunity to have been invested, we’ll then figure out the lifetime cost of a smartphone plan at different investment return levels using the AARP investment calculator. Here are the shocking results:
- 4%: $1,322,648
- 6%: $2,409,402
- 8%: $4,844,418
- 10%: $10,560,088
And that doesn’t even include all of the sweet apps you paid for to make your smartphone actually “smart”. Or the cost of smartphone upgrade after upgrade when rendered “obsolete” every 2 years. Or even the additional costs of adding more people to the plan. This is simply the cost of 1 minimalist smartphone user over his/her lifetime, just for the service.
I don’t care what “perceived” value you get from Angry Birds, but I am willing to bet it’s nowhere in the ballpark of those amounts. And you thought Angry Birds was free… =)
But everyone needs some type of mobile communication device this day and age, right? Every human being for millions of years (up until about 20 years ago) would have disagreed with that statement, but I’ll give you the benefit of the doubt on this one. So what if, instead of a smartphone, you opted for a sweet prepaid phone with a talk/text plan and wifi internet capabilities (you could even get a smartphone, but simply use it only on wifi)? We could assume a $15 monthly cost (effectively replacing $115 per month with $15 per month). All previous assumptions would stay the same, except inflation. We’ll peg that at 2% for prepaid, even though I’ve only seen prices go down or stay the same in the last decade as competition has increased in the prepaid market. Your lifetime investment opportunity costs here would be:
- 4%: $74,547
- 6%: $160,517
- 8%: $371,604
- 10%: $903,398
Not exactly cheap, but much more reasonable.
And your lifetime savings, if invested, of choosing prepaid over a smartphone (smartphone – prepaid costs) would be:
- 4%: $1,248,101
- 6%: $2,248,885
- 8%: $4,472,814
- 10%: $9,656,690
Considering that the average retirement savings per household in the United States is $18,000, this should make everyone want to vomit on their smartphone, rendering the world’s smartphone population completely useless.
Cable TV gets picked on for its high costs and lack of perceived value add (all true), but we justify smartphones because they are more interactive and supposedly make us more productive and connected. That is… EXTREMELY debatable.
If these #’s don’t make you reconsider the value added and more generally, priorities in life, I don’t know what will.
I definitely take your point about the high monthly cost of a traditional smartphone plan (for the record I do not have a traditional smartphone plan and until 6 months ago I only had a dumbphone), but do you really think we will have this same technology for our whole lifetimes and the price will keep increasing?? We already have companies like Republic Wireless and Ting innovating on how to drop the cost to the end user. When you envision The Future don’t you think we’ll all have implanted chips or something? :) And what about people who use their smartphones to offset other costs? I have a friend who doesn’t pay for internet at home because she and her husband use their smartphones when they need access. Anyway, those are shocking numbers but I just don’t believe the price is going to monotonically increase at 5%/year.
Yes, I do think prices will increase at a 5%+ clip annually. When new competitors enter the market that challenge good ole’ boys pricing, they are seen as threats and quickly get bought out. And starting a cell company is not exactly easy – there are huge barriers.
Buying wireless spectrum requires BILLIONS in investment. Both Ting and Republic run off of other networks and are beholden to whatever price those network operators decide to charge them. They don’t own their own spectrum.
Virgin Mobile and Metro PCS were both bought out by Sprint. Alltel was bought out by Verizon. The examples are many.
I tend to agree with GE. I’ve been in involved in the telecom industry in some form for about 15 years now. I had a Blackberry much later in the game than most about 6 years ago. I then adopted an Android phone on US Cellular when they first came out. I was one of the people that blindly paid $200+ per month in my business for a phone. The ability to talk is becoming less and less important in day to day life with texting and e-mailing. I honestly don’t spend that much time “talking” on my phone when I really think about it. I bought into the Tmobile prepaid plan about 3 years ago on a jailbroken iPhone. I hated running a jailbroken iPhone but I saved literally an insane amount of money. Most people also don’t realize that prepaid plans are taxed differently than traditional plans. Last year I picked up Net10 and pay literally $45 per month unlimited everything on an autopay plan. Net10 works just fine on a regular iPhone, Android and even Windows Phones. I buy or even trade and then sell the phone I want or don’t want. I honestly love the freedom of not being tied in a contract with a carrier. I still wish the plan was a bit cheaper as in all honesty I’m still paying for a ton of voice minutes that I simply don’t use. Anyways I honestly thought telecom services would get cheaper with competition years ago but overall it really hasn’t.
Emily is right. I do not think it is fair to assume any model for the cost of wireless service over a 62 year duration. Think about the technologies/services that you might compare a smartphone to–cable, internet, personal computers, etc. These are at best closer to 30 years old than 60. We just can’t predict at this point how things will go.
Consider this: My father bought a PC in the early 80s for around $2000-$3000. Today I can buy a PC from HP with millions of times more computational capability at 20% of the cost, even ignoring inflation.
However, I do agree with GE on the larger point that saving money is good and wasting money is bad.
This is a great breakdown. It’s pretty scary to look at the differences and how much it adds up to. I only pay $40 a month for mine and I believe it’s totally worth it. It may cost me “a million dollars over 65 years”, but I believe it gives me enough benefit to justify that. If I really wanted to save that million dollars, I’d rather cut back on satellite tv or eating out (both of which are much more than $40 a month).
I love the way you made me want to vomit on my smartphone…as I read this post on my smartphone. Ironic! Anyway, I am locked into this contract for just less than a year from now. I have already calculate my cost to break contract though and plan to switch to republic wireless in September of this year (the point that it makes financial sense).
I agree $110 is way too much for a single phone. My bill started at $40 when i had phone only, and I was able to get into the smartphone game when Verizon still had an unlimited data plan, and my plan currently costs $65. I am praying my cellphone lasts forever, because I am certainly not going to pay $45 more per month for a limited amount of data!
I think you need to look at this like a service and not consider all these future projections. The cell phone provides a service that you pay for just like cable tv or the landscaping company. If you value what you pay for, then it is fair to spend the money.
Now I do agree that the cost is very high and needs to come down, but regardless of the cost, this is how many people go about they lives now.
Sure, everybody’s doing it. But isn’t that why the entire country is in debt? Just b/c most of the herd does it, doesn’t make it wise. That’s why this blog exists.
I just dropped my fancy-schmancy cell phone plan and it feels soooo good! I still need my smartphone since I do a little consulting and need to be connected, but I now use a freedompop for my data and so far it’s working just fine.
Fabulous eye-opening article – thanks!
After 3 years with Verizon on a 2-phone family plan I chose to get a new carrier. Went to the Costco kiosk (Verizon, ATT, T-Mobil) and found that T-Mobil had a great deal so I signed up for a family plan – me an HTC-One smart phone (4G) and a dumb phone for wife (she didn’t want a smart phone).
The T-Mobil coverage map said “good” coverage at our location. Got home and tried out the phone – fluctuated between 1 or zero bars depending on where I stood in the house. 4G coveerage? – zilch, nada, nothing.
Immediately returned it to Costco, got my money back and re-upped with Verizon for another two years – never had a coverage or connection problem – but just voice and text, no 4G.
Next time I plan to check out the pre-paid approach as it continues to improve.
Inciddentally we still have a VOIP land-line (Vonage) and we have great rates for overseas calls. Wife talks to Cyprus for an hour every day!
UPDATE. We finally dumped Verizon for Republic Cellular and bought a Moto-X and Moto-E phones. For unlimited talk, text and 3G data for me and unlimited talk and text for spouse, we now spend about $30 a month total. This saves us $45 a month over Verizon family plan which had NO data.
Great post. Last November, My husband and I switched from Verizon (iphone) to Republic Wireless (old android). Initially, I missed some features, such as pressing one button to get my voicemail. But I thought to myself, Is that feature worth $90 per month of saving? Having an ipad helped me making the switch not that bad.
I glad I switch and I have this blog to thank because it got me thinking how to cut my expenses. P.S. I got have my own modem and eliminate my cable last September. Yay! Monthly saving of $146.42
The analysis you showed above is in FUTURE dollars. $1 today will be worth $6.25 in 62 years (assuming a 3% annual inflation rate). Therefore, the cost in TODAYS dollars for your first example is as follows:
Still, it makes you think. That’s several years worth of living expenses there!
I don’t like this post. It frightens me witless to consider the accumulated cost.
Imagine a 2.4 average family and the money handed on a platter to these phone manufactures.
An article well worth sharing. Thanks.
We’re locked into a plan at the moment. As soon as we can we’re going to make the switch to a pre-paid phone.
We’re expecting our bill to decrease from $70 to ~$15. Using the 4% rule this means we need $33,000 less to reach FI.
I like your plan, when my cell plan is up I’m switching to a pre paid cell
Why in the world are you looking at $110 plans? The vast majority of people can get by on $70/mo plans with capped minutes and data using wifi at home and Google or Skype if they need more talk time.
Most people choose unlimited data.
Not that I’m defending Sprint, but you misrepresented Sprint’s price for unlimited data – it’s $80 per month.
A couple of notes on the assumptions:
Most teens/young adults are paying $30-40/month for their smartphone as part of a family pland discount.
The costs quoted are based on unlimited minutes. Most will have lower costs by choosing fewer minutes.
Also, as others noted, any assumption on the cost of technology going out more than five years is automatically suspect. This is why you can’t find data on the inflation of smartphone plans. To measure inflation, you need a fixed product/service to compare across the years. However, the cell phones and service sold ten years ago is long obsolete. I believe the BLS may measure CPI using a certain “median” service level. Still another variable are alternatives from Virgin, Republic, etc. as they obviously clost less than the Big 4’s plans. Any individual or family’s actual inflation rate is based on what they choose to purchase, and with that you must take into account the sacrifices in service level, etc. they accept in exchange for lower cost.
Also not considered is the cost of getting lost X number of times because dumb phones don’t have maps and GPS, or the time you spend catching up on e-mail at home/work because you can’t do it on the road, the benefits of streaming music or educating yourself with podcasts, etc. In other words, there are legit reasons for many people to own a smartphone. Let’s put it this way: realtors, sales reps, and most professionals need to be connected on the go. They have two choices: purchase a reliable smartphone plan (i.e. Verizon, maybe AT&T or Sprint) or find a different career.
For those who need it, the “good ole boys” charge a fair price. In a good year, Verizon earns 2-3% net profit; probably 3-6 cents of the average monthly bill. Of course, those who are paying $110+ per month to play Angry Birds are wasting of money —- no argument there, but that’s an exceptional example, not the rule.
Before you freak out over the $1,248,101 figure, remember you have invest the money saved every month, every year, for your entire life. Is that realistic? Instead, take a deep breath, and think: Write down your Needs and Wants for a cell phone plan. Establish what your Needs cost, consider if your Wants are worth their additional cost, and (like everything else in life) weigh the costs and benefits to make an informed decision.
Cell phones/smart devices are definitly very expensive but are also definitly one of the biggest destroyers of happiness that I know. I havn’t had a cell phone in 6 years (vonage, then OOMA at ~$3/mo for unlimited calling), but the biggest life change was getting ride of my Ipod touch (which can totally be used as a proxy cell phone by the way). I have been happier, more fullfilled, had more meaninfull relationships, leanred and grown way faster then I was when almost all the “free” time I had during a day was being sucked away by the constant on-line pull.
I can’t stomach the costs of these fancy smartphones everyone has. I have an ancient LGEnv3 on Pageplus, their simplest plan – at just $12 a month. Bought the phone new off ebay for $20, activated for $10.
$12 a month, no hidden fees, a million surcharges, or taxes.
My spouse has a slightly less ancient phone – a Palm Pixi Plus, bought new off ebay for $25, activated for $10, on the same plan at $12. It can access wifi anywhere its available, but he doesn’t use data otherwise.
That is less than 10% the cost of owning one of those fancy smartphones with all absurd charges. It astounds me that these companies get away with such robbery.
I think it makes more prudent sense to look at the cost of land line service over the previous 30-60 years to use as a model for projecting mobile telephone prices over the next several decades. Land line services have dropped SIGNIFICANTLY over the past 30 years. It used to be you saved money by having a party line that you shared with multiple households, and only one of you could use it at any given time. If you wanted to call someone 20 miles away, you dialed a 1 first and paid long distance.
And remember when the long distance companies came out with those insanely cheap long distance rates at just $0.10 per minute? And then someone dropped the price by offering an unheard of $0.05 per minute. Now unlimited nationwide long distance (often including neighboring countries like Canada or Mexico) is included with your $20 per month land line, even if you talk long distance from one coast all the way to the other coast 24/7.
When you factor that in, along with inflation, I think it’s somewhat more reasonable to project prices dropping over the long term. Not immediately, no, and maybe not even in the very near future, but at some point, yes. Especially if we can get the FCC to man up and classify ISPs and data carriers as common carriers where they can be more regulated. The services they offer aren’t all that expensive once the bureaucratic hurdles have been overcome, but as long as nobody stands in their way, they’ll be happy to make ever more profit off of them even as their own costs drop.
Anyway, I suspect your numbers would be closer to accurate come 60 years if you were to index your projections to similar services that we’ve seen in the past like land lines. It would still be painfully expensive and in many cases probably an unnecessary luxury, but it’s worth looking at both sets of numbers.
“Especially if we can get the FCC to man up and classify ISPs and data carriers as common carriers where they can be more regulated… but as long as nobody stands in their way, they’ll be happy to make ever more profit off of them even as their own costs drop.”
Tell me Keith: Did the government build the multi-billion dollar cellular data infrastructure? Did you build it?
No, the carriers built that. It is theirs. It belongs to them. They could choose to sell service to nobody if they so pleased. It is their property.