Wireless carriers recently began offering new LTE-ready phones at bargain-basement prices of less than $100, but those customers still must commit to paying a minimum of $60 a month, or $1,440 for two years of voice and data service.
Two-year plans can be even steeper for extra data or texting on some carriers. Still, such costs have become an accepted fact of life for Americans who want mobile phones. As their buying trends show, customers value having computing and communications capabilities in a convenient wireless device.
Nielsen recently reported that American are buying up smartphones at a fast clip. Smartphones accounted for two-thirds of all mobile phone purchases in the three months from December through February.
Pre-paid phone plans, generally a cheaper option, are still a small portion of the total smartphones purchased, while most buyers are willing to sign up for a two-year service plan that can get expensive.
The newest devices under $100 are likely to continue the smartphone buying trend. Sprint recently announced the upcoming LG Viper 4G LTE smartphone with a price of $99.99 after rebate and subject to a two-year service plan. AT&T will sell the Nokia Lumia 900 for $99.99 with a two-year plan, starting April 8 for use on its LTE network.
Shortly after AT&T made its Lumia 900 announcement, Verizon Wireless said it would offer the LG Lucid smartphone for $79.99 after rebate and with a two-year commitment, and noted that the phone is geared toward first-time smartphone buyers. These are the buyers who aren't accustomed to monthly wireless service plan sticker shock.
As far as the service plans go for these three carriers, Sprint is sticking to its unlimited data approach for the LG Viper. Sprint still requires an "Everything" plan, which includes voice, text and data for $70 a month, while separately increasing that amount by $10 a month for smartphones on data plans.
AT&T and Verizon both start at $40 a month minimums for voice plans, while the minimum data plan on AT&T is $20 a month for 300MB, then increases to $30 for 3GB and $50 for 5GB.
Verizon recently began promoting a limited-time offer, complete with TV ads, for doubling the amount of data per month, charging $30 for 4GB (normally 2GB) $50 for 10GB (normally 5GB) and $80 for 20GB (normally 10GB). Verizon hasn't indicated how long its double data offer will last.
If the data costs haven't outraged consumers lately, some bloggers are picking up the cause. "It looks like a price war is already on for Long Term Evolution (LTE) devices, but 4G data plans remain stubbornly expensive for most smartphone users," wrote Dan Jones in Light Reading Mobile .
Jones noted that part of the promise of LTE technology was that it reduced the cost of delivering data to users, even though the savings is not being passed on to consumers. Noting that the carriers are spending billions of dollars on deploying LTE, he added, "My impression is that we're just looking at business-as-usual -- or worse -- from the operators with regards to 4G data plans."
Rob Enderle, an analyst at Enderle Group, said carriers aren't likely to drop data costs for many years. "This is capitalism at work, with supply and demand," he said. "Once we have an oversupply of LTE, prices could drop, but estimates are that won't happen until 2020. If you don't have enough of something to sell, you charge more for it."
Why, then, are carriers wooing customers with low-priced LTE smartphones if there's a shortage of LTE capacity? "The carriers are selling low-cost LTE smartphones because they are still interested in getting more customers, even though they are not interested in giving them discounts on plans," Enderle explained. "Each carrier feels if we don't get that customer, somebody else will, and the carrier with the most customers will win."
Phillip Redman, an analyst at Gartner, explained what's happening this way: "LTE does add some efficiencies on the network, but the real point is about speed. LTE is much faster in terms of throughput and latency than 3G. It's a much better data experience. The growth in usage scares the operators, if they support unlimited data plans. As metered data, the more that's used, the more [revenue] they make."
Carriers are exploring alternative ways to charge for data, including group or family data plans where a bucket of data is shared across many users or devices. Offloading users to Wi-Fi is another option, where users automatically switch to a Wi-Fi network for downloading big files such as video. The emerging Wi-Fi offloading technology still hasn't given carriers a way to derive revenue if the Wi-Fi is free, even though it could be a solution for data-intensive devices like the new iPad .
While not defending the carriers, Jack Gold, an analyst at J. Gold Associates, said there's a rationale for high data prices with new wireless products, such as cheap LTE phones. "Pricing is a legitimate way to limit excessive demand and regulate the market requirement, while funding additional improvements if possible," he said. "It's been difficult for carriers to engage in [setting up] multi-device data discounts because they're not sure what it will mean [in terms of usage] when users share data over multiple devices."
Meanwhile, MetroPCS, one of the smaller wireless companies, offers fast LTE service without the need for a two-year contract. The downside: MetroPCS just raised its unlimited data, voice and text plan from $60 to $70 a month.
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed . His email address is email@example.com .
Read more about mobile and wireless in Computerworld's Mobile and Wireless Topic Center.