The Death Grip of The American Carrier


There’s a lot of subtle differences between the US and the UK. Like the fact that everyone in the US wants you to have a good day, or the fact that you have to tip various people in various situations (and it’s still not always clear to me when or how much).

One big difference I’ve enjoyed is that there are a lot of things here that are cheaper than in the UK, but one notable exception is Cellphone contracts. You can get some fairly cheap low-quality prepaid options in the US (even free if you qualify). If you want a smartphone, though, especially an iPhone, you’re going to have to pony up some serious dough.

Moving from one country to another gives you an interesting perspective on how little base cost has to do with the final cost to the consumer:

Quick contract comparison

The most recent international cellphone contract comparison I could find was from 2010 so I did my own. This data is only for one particular kind of plan, but there isn’t a great disparity across the board (ie. I’m not skewing the data to prove a point, this is pretty representative).

These are the cheapest contracts I could find with these specs. The US T-Mobile contract includes the new iPhone 5 financing deal (part of their new Uncarrier push) which adds $20 to your monthly rate for 24 months. The US contract is 171% more expensive, which I’d call significant.

_Comparison of equivalent cell phone contracts (24 months)_




Country
**UK**
**US**

Phone

iPhone 5

iPhone 5

Cheapest Option

T- Mobile

T-Mobile

Unlimited minutes

Unlimited data

Unlimited messages

Cost

£1033.99 overall plus £49.99 phone

$2259.99 overall plus $579.99 phone

Comparison

whistleOut

whistleOut

Total

$1663.37 (£1083.98)

$2839.98

Subsidized phones

Not only do you pay more in the US, you also end up giving a large amount to the carrier if you opt for a subsidized phone.

Slate Magazine:

If you buy a subsidized iPhone 5 from AT&T, the cheapest plan available costs $85 per month and only comes with 1 GB of data, a minimum of $2,040 over the two years of the contract. A basic T-Mobile unlimited voice plan with 2 GB of data costs $59.99 per month, $1,440 over the two years. In order to get that $450 iPhone discount, you would end up paying $600 more to AT&T over the life of the contract, and get less data.

You can save a large amount over time by buying the phone straight up — if you have the money. Many people don’t, or don’t realize they have the option, so the carriers will still end up making a giant amount off each smartphone sold. Now that Verizon have extended the wait to upgrade, that’s an extra 4 months profit in their pockets.

Side note: If you’ve wondered why every store you go into tries to sell you some “equivalent” Android phone, even if you specifically want an iPhone, it’s because the carriers make less from selling the expensive iPhone than they do from selling a cheaper Android phone with a similar contract, because they have to pay more to subsidize it.

Why so expensive?

The main reason that carriers charge such high prices is that they can. They all do it, so consumers don’t have a frame of reference for what services actually cost the providers — a hell of a lot less than you’d think. Whilst “development of infrastructure” often takes the hit for the high prices, that’s basically a sham. Here’s how inflated the prices really are:

Srinivasan Keshav, a professor at the University of Waterloo who studies mobile computing:

Including the cost of the wired and wireless paths, billing, paging, databases, and storage, the cost of a text message is likely to be no greater than 0.3 cents.

Zero. Point. Three. Cents. That means that in order to justify a $20 per month unlimited messaging cost (Verizon), you’re going to have to send over 6666 texts per month — that’s about 10 times the average number of texts Americans send per month. Or to look at it another way, they’re making 900% profit on each text. The margins aren’t quite as high on voice or data, but they’re still making a killing.

Conclusion

Buy a phone up front if you possibly can, but until something big happens to the market to dislodge the major players, you’re going to continue paying a monthly kings ransom to the carriers for anything above the most basic cell phone plans. Maybe the T-Mobile “Uncarrier” move will be the catalyst for change, but I wouldn’t bet on it.