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Monday, December 28, 2009

Turn the Cell Phone Industry Upside Down

This a rare, off-topic non-workplace post but I'm on vacation this week and thinking about other things. While shopping for Christmas presents I briefly considered and then dismissed buying an iPhone or Blackberry for my wife. Our daughter has an iPhone and loves it; I have a company-issued Blackberry and find it handy at times. The purchase price of these devices is $450 - $500 unless you renew your cell phone contract, and then they are anywhere from $49 - $99. But that's where they lost me.

I went to my local AT&T store and found out that we don't have a line on our family share plan that is up for renewal until February. I pushed back some with the nice young man behind the counter; after all, I send enough money each month to AT&T for my home phone, Internet access and three cell phones to supply a third world city with food for a year. What's eight weeks if you're making a long-time and very good customer happy. Nothin' doin'! I'm under contract and they don't have any incentive to make me happy. That's when it hit me.

I know I'm slow, but I don't think about technology and the business end of technological companies that much. I have a full-time job, and technology is simply the tool set of our modern age. I don't focus on the latest gadget anymore than my great grandfather sat around his WPA work camp talking hammers with his fellow carpenters. Tomorrow the technology will change we'll be on to something else and I just refuse to get caught up in the hoopla over the latest gadget. What does interest me are people, and part of that interest is in the art and science of customer service and building customer loyalty.

So, thusly unfocused, I missed what the cell phone industry has done to all of us. This business has undoubtedly become a commodity. Although really neat developments like the iPhone make even guys like me sit up and take notice, cell phone stores could just as easily resemble groceries with high competition and low margins. Rather than let that happen, the industry came up with a great gimmick: offer expensive phones for next to nothing, require that the customer sign away their freedom of choice in exchange for the phone, then amortize that cost over the two or three year term of the contract. Without freedom to change companies, the industry resists commoditization. Phone prices from hardware makers and the monthly fees charged by the service providers can stay artificially high.

Here's what I've decided to do about it, and I think you should too. Hang on to your phone, save up your money, and the next time you need a phone buy it at full price without signing a contract extension. When your contract is up, you then have leverage to negotiate terms with the AT&T's and Verizons of the world. How much leverage is unknown right now; it depends upon how many people decide to take this route. What won't happen is your being held captive to a corporation at an expensive price in what should be a cheap commodity market.


David P. Leach said...

You are sooo right...except...those shysters have a back up plan to beat bright people like you: exclusive relationships between carriers and manufacturers. iPhones can only be AT&T for a while, and you can't take your Verizon Blackberry and convert it to use at Sprint because their G networks/powers are "vastly" different. Guess how I found this one out.

You really come to love this system when you have to give away brand new Storms cause they become complete paper weights if you keep them. How much did I spend on that puppy? $270?

Anonymous said...

Here's what I don't get - I understand you (the cell company) are amortizing the cost of my "expensive" phone over the two year contract. So why then do my monthly rates NOT go down after two years if I don't get a new phone? And if I do pay cash for the phone, as you suggest, why do I not get a discounted monthly rate since they aren't shouldering the cost of the phone?

It's all messed up, but you summed it up correctly - we all stand in line and pay a couple of hundred dollars a month to have this convenience. Just like outrageous popcorn prices at the theater - they do it because they can, and we blindly pay. And pay. And pay...

ScottGibbs said...

I think you'll see this model changed in the next couple of years or so. Currently each cell company uses different technology in their networks. So for example if you buy a phone that works on the Verizon network it wont work on AT&T's network and vice versa. In the next 12 months the cell phone manufacturers should have out chips in their phones that have the capabilities of working on multiple networks. Once that happens I think you'll start to see changes.