The iPhone: Stupidity for the Credit Card Economy

Hello there happy iPhone user. How much do you love your iPhone? What would you say if I offered you $1500 if you gave me your phone?

I am absolutely serious. Will you take me up on this offer?

If you decide to do it, then please follow these instructions: First, carefully wrap your Apple iPhone in layers of protective wrap. Next, get a ball peen hammer. Then, smash your phone into tiny little pieces. Finally, keep an eye on your bank account. A year from now you'll have $1300 that you wouldn't have otherwise. You can get the full $1500 if you wait a couple more months. Or, if you just hadn't bought the stupid thing in the first place.

My wife was phone shopping a couple months back, worrying about the prices on the various phones, especially the smart phones. I made her stop that. "The phone is free," I explained. It doesn't matter whether the phone costs $20 or $300, the cost of ownership is predominated by the monthly service fee.

The top of the line iPhone 3G with 16GB memory will cost you $299. But you'll pay about $110 each month on service and fees. If your phone has a three year lifetime, the total cost of ownership is $4260. That's $300 for the phone, $3960 for the service.

The cost of the phone is a fraction of the total cost of ownership. Ignore it. The phone, for all intents and purposes, is free.

I think the iPhone thrives on the stupidity that has given us the now failing credit card economy. You can't afford the ticket, but you can afford the monthly payment. So you buy it, without thinking whether it's really worth the total cost of ownership.

In most cases, it just isn't. My wife's final solution was to get a cheap phone on an inexpensive voice plan, and buy an iPod Touch—which is sort of an iPhone without the phone. That ends up being less than half the cost of the iPhone solution. Sure, the connectivity is not as strong, but you really have to ask yourself is it really worth the additional thousands of dollars? I suspect that if a lot of people thought it through, they'd realize the answer is, "No, it isn't."

Comments

Comments have been closed for this entry.

okay, explain this to me

We already have an AT&T plan and in March I'm up to renew the plan and get a new phone. My husband uses this plan because it fits his needs and he included me on it. I don't even know what it costs.

So, since in March I'll be able to get the iPhone, I thought I would. But now I'm wondering, and wondering how to figure out if it's worth it or not.

iPhone

I just "upgraded" to a cell phone that takes pictures. I also keep the instruction book handy. The camera cost me nothing--except a 2 year renewal. I pointed out to Verizon that they made a lot of money from me--I never even come close to the "standard" minutes.

But, as you pointed out, far too many people don't calculate the real cost of things they buy "on time."

How many commercials/ads tell what the total cost is?

My pet peeve is the AARP ad for term insurance, where the say "just pennies a day" And then mumble "per unit."

Yeah--$8 a month sounds good--except that buys you only $1000 worth of insurance. And their ad talks about average funeral costs that far exceed that $1000.

(I've ranted too much.)

I think your numbers are

I think your numbers are extreme here.

As far as I can tell, monthly "dumb phone" plans start around $40 plus taxes. iPhone plans start at $70 plus taxes. So over a two-year contract, that's still a pretty big premium—$720. Though you are getting unlimited data, which is worth something.

There's no question that iPhone users are making up a subsidized sale price with their monthlies, but I don't think it's as bad as you make it out to be. I suspect that the premium that can be applied to the phone (which I believe is amortized over the 2-year minimum contract) is probably about $10/month.

Now, if you're a light cellphone user (I am), a prepaid plan might be a cheaper alternative, and might make a better basis of comparison. I haven't done the numbers on that.

is it really worth the

is it really worth the additional thousands of dollars?

Yep.

Going for effect

You've exaggerated the difference. Except if you choose Sprint, you really have to pay at least $40 a month for any phone with the other US carriers. The iPhone (or any smartphone like Blackberry) difference is $30 a month. Over two years, that's just a $720 difference plus the cost difference for the phone (which is at most $299). So over 2 years, is the iPhone worth the extra $1000? Having experienced both, I'd have to say YES.

Or if you are like some of

Or if you are like some of us, we DID review the cost over the term of the contract, and concluded, WRT other options (eg upgrade current plan to include data, buy phone outright) that it was actually cheaper to do the 'proper' plan due to the telco rebates.

As for worth it, or not. Thats a personal assessment.

For me it was worth it for JUST two reasons.
1) Combining my iPod and my phone.
2) A seamless, painless, fully syncing address book on my phone.

In other words, one which carries the same data as my Mac's address book. eg Addresses (which are then touchable to give a map), urls, notes, all contact phone numbers, birthdays etc. Coupled to that, Im no longer held prisoner to a specific SIM card or phone, as the entire phone is fully backed up.

On both Windows & OS X, I have tried this with Motorola's, Nokia's, and others, and addressbook syncing has always been a fundamental pain in the butt; with poor choices for field mappings, incomplete data carrying across one way or the other, phone hangs/bricks, corrupted contacts causing phone weirdos, etc etc etc.

All the other stuff (browsing, apps, email, EASE-OF-USE, a DECENT calculator where you arent continually trying to figure out which button is the divide key, etc etc etc) is just icing on the cake. Plus its all stuff that I didnt expect to use much due to past experience with other phones (ie technically feasible, but not so useful in the real world due to poor usability / implementation) but now find I do, because its both usable and fun to do so.

The only thing I can suggest, is that like all Apple equipment, assess your needs and do a matrix against the device capabilities. If there is anything in your matrix which is a must-have but is missing, then dont buy the device in the hope that Apple will add it (or based on rumours that its coming). Only make your decision on 'real' stuff that is here and now. Any other way, when it comes to Apple, is bound to end in tears.

Disagree

Others have beaten me to it, Chip, but I have to say that your scenario doesn't quite go with my experience. Both my wife and I were already AT&T customers. We were out of contract with AT&T, so I could do the iPhone upgrade and had planned for some time that I would buy the 3G iPhone when it arrived. I was already paying roughly $100/month for both of our cell phones. With the addition of the iPhone, our bill only increased by the $20/month unlimited data plan to $120/month.

So, in addition to the initial cost of the phone, I'm only out another $20/month or $480 over the two year contract, definitely worth it to me. I didn't already have a modern mp3 player, so having a 16GB device that I can now enjoy in the car, as a phone and access the Internet has totally been worth it to me. I wish Apple didn't have DRM, but I rip all of my stuff to mp3 and tend to buy a minimal amount from iTunes, going mostly for Amazon and eMusic where possible.

There are cheaper options

My cellphone costs my company about $20/month - corporate discounts are huge once you add enough people...

I could tether that same phone via Bluetooth to my laptop on a month-to-month basis (no contract) for 3G broadband data.

The iPhone is hugely expensive for both the voice and (officially non-tetherable) data access it offers.

The integration may be enough for those who don't want to carry a laptop to pay the extra price - but there is no denying the iPhone is much more costly than other offerings.

AT&T Rates

The $110/month number wasn't pulled from my ass, that's the real monthly cost that I got from a friend who has an iPhone.

Admittedly, that may not be the lowest cost, so let's do apples to Apple.

The current AT&T rates can be found here:
http://www.wireless.att.com/cell-phone-service/specials/iphone-info.jsp

The minimum plan is $75/month (that's AT&T Nation 450 plus the 200 message Text Plan—don't get me started on that screw job). The taxes and fees will add about 15% to that. So, let's call it $86/month.

In the article I claimed $1320/year for iPhone service. Recalculating, with this lowest possible minimum service, it's $1032/year.

Oh, that changes everything. Not.

My Sprint PCS plan costs about $444/year including taxes and fees. So over a three year term, my additional total cost of ownership for an iPhone would be $2064 (three years service plus the phone). Personally, I can find better things to do with that money.

The point of my article is that the iPhone is freaking expensive, and a lot of people fail to consider the full cost of ownership. I think that happens because most people acquire the iPhone as an emotional decision, rather than rational one.

I didn't post the rant to attack iPhone owners, so apologies if it struck a personal nerve. I'm more focused on the people who don't yet own an iPhone.

For those people who don't yet have an iPhone, there are two things I want to say. First, I ask you to step back, consider the total cost of ownership, and decide whether it's really worth it to you. Because, frankly, given a choice, I'd rather see those thousands of dollars go to you than AT&T and Apple.

Second, if you decide not to buy the iPhone, yes, all your hipster friends will laugh at you. Just know that it's ok and I'll still love you.

I agree with your assertion

I agree with your assertion that it costs me more to own an iPhone. But since my wife and I both own one and have a family plan on ATT, it's not quite as much more... basically $50 month for the data service on both phones.

Still, we are both very much willing to pay extra for the really neat things that the iPhone allows us to do. We both use it all the time. Yes, we could figure out how to do most of the things in a cheaper way, but it would not be as elegant. That's worth $$ to me - I understand that it may not be worth $$ to others. To each his own...

Basically the same choice we made for our Mac laptops and for our Prius - cheaper alternatives exist, but we wanted something extra and were willing to pay extra.

This article speaks common

This article speaks common sense - phone networks are not charities and any deal they offer you is intended and marketed to make you buy.

Contracts are good for the company because they provide a guaranteed source of income month in month out (people can simply choose not to use their pay as you go phones - and these people provide the network with no revenue) so they are heavily marketed and cleverly advertised to get you to buy, that includes providing the most sought after phones on contract very much earlier than they come out on pay as you go.

They're still profitable for the company though, if the company wasn't making a profit from their sale something would be very wrong.

The way to buy phones is the same way you'd buy a credit agreement - work out your month by month budget, if it's possible to get it cheaper some other way, if there's any possible deductions. If you can avoid it with a little slack for emergencies. You're signing up to owe a company money every month for 12-18-24-or more months and you may as well consider that an interest free debt.

Interesting point, but...

From a purely economic point of view, I get what you are saying. But what about the "I want it factor." If its what you want and you can afford it, why worry about justifying it. Just get and enjoy it.

No body needs an iPhone. My 3 year old Treo did what I need a smart phone to do. But an iPhone is a slick gadget and I have a lot of fun with it. The extra bucks over a few years just doesn't hurt my feelings.

what?

a sprint unlimited data, texting, and 450 minutes of talk time (no rollover) is 69.99 ( not including any taxes). my att iphone bill is about 83 bucks a month (taxes and all) for 450 minutes talk (with rollover), unlimited data, and 1500 texts. thats only 13 bucks more a month or 312 bucks over a 2 year contract. its worth it. its a 3G phone (which gets reception places in texas where my moms sprint phone and my brothers t mobil cant) and an ipod touch. plus it is the best looking phone in america for $200. its worth it.