Smartphones: Americans’ expensive new addiction

September 26, 2012
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Ok, so we know nobody has ever accused Americans of being stingy. The occasional sale comes along and they indulge. The coupon book arrives in the mail or Groupon is accessed and voila! instant savings gratification. But by and large, the American mindset is on achieving the highest value item for the lowest cost. However, low cost and high value are subjective terms, and this is where US carriers profit greatly.

The average monthly phone bill as of 2011 was floating around $100, and that’s not including phone upgrades or overage penalty fees. If you did your math correctly, that’s a whopping $1.2K per year just on phone services. As usual, we can blame the likes of Apple Inc. for this drastic change in priorities: spending in 2007 amounted to ¬†just $1K annually. Then the iPhone came out, data was available at 3G speeds and nobody ever looked back. The forbidden fruit had been digested into the heart and soul of Americans.

Joking aside, monthly phone bills are getting larger as other amenities and even necessities such as food and clothing are getting stuck by the wayside. Spending on food away from home fell by $48, apparel spending declined by $141, and entertainment spending dropped by $126. That may not sound like much to the average consumer, but to the average American surviving a recession, it’s a lot. For companies like¬†Verizon Wireless and¬†AT&T¬†Inc. it was enough to bring in $22 billion in 2007. The analysts at UBS AG expect these numbers to rise sharply to $159B by 2017.

The question is, when will Americans think enough is enough? That’s a question yet to be answered by the public, as more people are switching to unlimited data plans and doing more with their devices than ever before. Despite its¬†availability, the average family household still spends in excess of $4000 a year just on services like mobile Web browsing and mobile email. This spells a big win for carriers, who saw consumer expenditures in their market rise by a steady 4% last year.

9 out of 10 US adults have a smartphone and this translates to spending across the board, albeit unevenly, at $59 for middle class consumers and $64 by upper middle class and upper class consumers. Carriers don’t seem too worried about a downward trend or a slow stall as costs continue to rise in telephone spending. After all, who else will fund the LTE revolution?

As¬†Verizon Chief Financial Officer Fran Shammo said at an investor conference last week, “Speed entices more usage. The more data they consume, the more they will have to buy.”

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