The REAL Lifetime Cost of a Smartphone Plan

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:

  • cost of smartphonepaid 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.

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