Yesterday Apple announced a shiny new version of its signature mobile device. This prompted considerable acclaim. However, within hours of the announcement, new revelations emerged. It became known that — presumably due to the malign influence of AT&T (a company that, unlike Apple, is capable of wrongdoing) — the new iPhone would be sold under a nefarious scheme specifically constructed to line the pockets of those peddling it at a rate brazenly designed to cover the cost of each unit’s production — and even more, if you can believe it!
As you might imagine, this has prompted considerable outrage, which has in turn spurred real grassroots action. And even if those online petitions and Twitter accounts somehow fail to force AT&T to start buying Americans free electronics, surely the tide will be turned by thoughtful essays like this one, in which the author explains why it’s vitally important that companies do everything they can to accommodate the customers whose fanaticism renders them price insensitive and/or whose contractual commitment has already been secured.
Seriously, though: at $99 they’re going to sell a staggering number of these things. People are actually just upset about the reality of handset subsidies. Well, good. They should be! There are many things wrong with these subsidies.
First, they’re a particularly opaque form of consumer credit — you only have to read a few examples of the outrage alluded to above to see that most consumers haven’t really internalized how they work. That’s never a good thing.
Second, underwriting handsets forces carriers to lock down both customers and their phones in order to recoup the subsidy cost. By necessitating long-term contracts, friction is introduced to the market and competition is hindered. By requiring a hardware architecture that supports locking, carriers can more easily cripple phones’ functionality. And since carrier locking reduces the reusability and resalability of handsets, more phones are discarded. It’s a terrible set of incentives for consumers: every one or two years you’re offered a new electronic gadget at (seemingly) below market cost! And if you choose to take it, your old handset’s value is next to nothing, thanks to software restrictions imposed upon it. It’s a recipe for electronic waste.
Third, the opacity of the finance mechanism at work helps support bad perceptions about the fair price of mobile data service. It’s pretty clear that (given the bandwidth caps and speed limitations in place) mobile broadband has an artificially high price*. Admittedly, that’s probably mostly because businesses are the main purchasers of mobile broadband, and they’re less price sensitive than consumers. But this situation must be at least somewhat informed by consumers’ expectation that any given mobile account will cost $50+ per month. The popularity of the subsidy scheme makes it so that for most cutting edge services, a la carte (or even month to month) service isn’t an option at all — you have to enter into a contract even if you already own the device. Speaking as someone who has a bunch of devices and a strong desire to have them all constantly connected, this is pretty inconvenient.
But you know whose fault this is? Yours! Or ours, anyway. This country’s consumers have pretty clearly signaled their preference for subsidized handsets, and aren’t interested in hearing about the inefficiencies that those subsidies produce. I’m not immensely pleased about this collective decision, but that’s the way it’s going to be for the foreseeable future. The very least we can do is not whine about the inescapable consequences of this system — coming so soon after an economy-wide consumer credit implosion, these demands for free money (or at least a free extension of existing loans) are a bit much to take.
Incidentally, I do think there’s some reason for hope — over the long term, anyway. Wireless standards will eventually converge thanks to the efficiencies of the market and the physical limits on radio bandwidth. Once that happens there’ll be no reason to buy a new transceiver every year or two. Presumably there’ll be a similar leveling off in demand for these devices’ other capabilities, as handset manufacturers start to reach the sort of semi-stable compromise between power consumption, processing muscle and cost that microcomputer processor manufacturers have begun to find in the past few years (add display capability and size to that list for mobile devices, of course). I wouldn’t expect it to happen for a decade or so, but eventually we’ll start treating our handsets more like the watches they’ve replaced — as potential heirlooms.
* I can purchase daily unlimited GPRS traffic through Boost Mobile for $0.10. That’s a very slow service, but of course costs don’t scale evenly with the number of bits transferred. If a profitable unlimited data business can be run at that rate — including advertising, accounting overhead, bandwidth costs and infrastructure — then clearly 2.5/3G services (which typically cannot be purchased on a daily or even monthly basis) are being sold at a phenomenal markup.
I agree up until the end. Aside from a few crazies (like yourself, perhaps), who looks at computers (or economy cars, for that matter) as potential heirlooms? If anything, stuff that used to be looked at that way (watches, furniture, etc.) seems to be becoming steadily more disposable.
At any rate, you are correct that we are as much to blame for subsidized contracts as the companies that extend them to us. But it may be that incoherent (or, rather, ignorant) complaints about the inevitable result of this system are the only way to get people to *think* about the issue.
I’d be happier without subsidized contracts (or with a parallel system in which unlocked phones & month-to-month contracts were not a marginal alternative). If I have to endure some hypocritical whining to get there, I guess I can live with that. But of course, the only way to use this whining to effect change is to call people out on their ignorance, so they understand that these oppressive terms are the direct result of our desire for below-market electronics. So: good job.
Thanks! And yeah, I meant to add that I’m not *that* upset with the current subsidy situation, as the probable alternative is unsubsidized handsets and carriers *still* charging $70/mo. I think profit margins would likely inch upward during any such switch.
You may be right about the improbability of electronics acquiring heirloom status. Certainly there are reasons to doubt it: technology has been getting more disposable, not less. Barring some sort of global collapse, there’s no reason to think it’ll suddenly start getting more economical to repair electronics than to replace them.
On the other hand, there are *some* technologies that have reached this status. Guns. Pens. Timepieces. Some radios (arguably). I think that the key is that they not wear out — and that’s possible for electronics in a way that it isn’t for, say, cars (batteries can be made modular, after all). But I guess there’s likely to be a durability problem that needs resolution after the technology settles down. Even if some people use heirloom handsets, you may be right that most people will never think of their phones that way.