The hype over the iPhone is giving way to a darker side of mobile life — think iStruggle, the dread over how to pay those monthly wireless bills.
Once considered a luxury, smartphones are now a must-have item for all members of a family. Both moms and dads use them for parenting and business, while increasingly tech-savvy teens value them even more than cars. The only thing rising faster than our enthusiasm for our phones are the bills for calls, texts and data — with pricing that often paralyzes household budgets. These so-called smartphones have families over a barrel, struggling to figure out what to cut to fit them into the budget.
The flurry of glitzy devices, able to meet a wide array of our everyday needs, is blinding us to the financial reality: all that promise comes with an often steep price tag. And the result is a struggle has many families taking a step back. How did we get here? Where is it leading us? And is there is any help on the horizon?
Mobile: Now a Must-Have
According to the Labor Department, the cost of having a smartphone is eating an increasingly large chunk of our monthly budgets. In 2011, the average U.S. household spent about $1,230 on its phones, up from $1,110 four years ago. Meanwhile, during that period, total per-family expenditures rose only $67, which means we’re cutting back on other expenses — like food, apparel and non-phone entertainment.
Families often have multiple phones as well, so the blow is especially rough for them — sometimes more than $4,000 annually. According to a study by ABC’s popular TV show Modern Family, households, on average, own three mobile devices and three computers. Certainly they don’t all have monthly contracts, but the sheer volume of gadgetry demonstrates digital’s foothold on our lifestyles.
But that figure paints a picture: wireless devices are gobbling up budgets. In the five years since the iPhone debut, families are finding that phones, contracts and accessories don’t necessarily gulp up the big chunks of the budget, but take more dangerous, small nibbles here and there, amounting to a an even more considerable sum over time.
With do-it-all smartphones, families no longer need photo and video cameras, calendars, music players, maps and newspapers, for example, saving some resources. But as phones become a “basic” need, in addition to clothing, food and shelter, the adjustment is being felt on all economic levels, and the often complicated billing process is sending shockwaves to budgets at the end of each month.
Something Has to Give
Families with limited finances face tough choices, and they often neglect other bills — like healthcare, for example — to keep their vital phones on. And when they slip beyond those bills, and slide into insolvency, problems can multiply.
“People say ‘I have to pay my phone bill, I can’t pay the doctor’,” Jay Gonsalves, president of the Action Collection Agency of Boston told the Boston Globe. “People put phone bills right up there with paying the rent.”
With more families struggling to pay for their phone bills, the issue is registering at the highest levels, at the White House. “Our phones shouldn’t cost us more than the monthly rent or mortgage,” President Obama said in April.
For example, the government expanded its Lifeline program, which gives free or discounted phone service to low-income families. In 2005, when it gave eligible subscribers the choice of landline service and prepaid wireless, most, the FCC said, went with wireless.
The wireless industry has a variety of options, but as carriers join, power is increasingly dominated by a handful of national operators, leaving competition and consumer choice to suffer. Of course, you can always switch to basic phones with minimal service, but cutting back isn’t always easy. If you think a $100-plus monthly bill is too high, paying $200 on top to break that contract seems counter-intuitive.
One-in-three households with an income under $30,000 a year own a smartphone, according to Pew Research, up from about a quarter in 2011. But the struggle is spreading to middle-income families, as well. And as expensive networks continue to fuel the growth, the promise of innovation is ensnaring consumers who envision an easier way to live with technology.
When Bill Shock Knocks
The basic challenge is compounded by a growing “bill shock” trend, or a sudden and unexpected jump in monthly bills. If you sign up for a fixed $200 a month plan, you can still receive substantially higher bills, due to overage charges. Parents, and especially teenagers, often struggle to understand those monthly limits due to the confusing methods data use is measured. And when the baffling fees show up, many often lack the wherewithal to dispute the charges.
Nearly 30 million Americans, or one-in-six mobile users, have experienced bill shock, prompting the FCC to work on a better warning system, using two types of alerts — one sent when you’re nearing a limit and another when you pass it.
But FCC intervention doesn’t mean escalating bills are going away soon. Carriers are constantly tweaking service plans, and customers often have to play “catch-up” and understand confusing details and unanticipated costs like activation, upgrades and early cancellation fees. A fundamental billing shift is needed, especially as data rises in importance — and cost — on mobile devices.
The Data Trap
A large part of the hefty cost is due to the rise of data. We use phones to stream movies, browse the Web and look up directions, and function — like mini-computers in a pocket — but often overlook the amount of increasingly-pricey data we use. And with families tapping away on separate devices, it’s hard to track use, much less understand how it all adds up. According to the Wall Street Journal, streaming 30 minutes of video a day over a 4G connection — without doing anything else — can cost $120 a month on a Verizon data plan.
Expensive infrastructure doesn’t come free.
“Speed entices more usage,” Fran Shammo, Verizon’s chief financial officer, said at an investor conference, underscoring how carriers see the trend. “The more data they consume, the more they will have to buy.” In the meanwhile, carriers like Verizon and AT&T, who earned over $22 billion in revenue selling mobile services since 2007, divvied-up nearly $59 billion in 2011, with analysts expecting that figure to jump an extra $50 billion by 2017.
Innovations seem to push expenses higher, too. For example, the iPhone 4S debuted Siri’s voice recognition service, while the iPhone 5 joined other Android devices with larger screens, making them ideal for streaming movies. Those features, which encourage even more data consumption, need more expensive monthly packages.
As smartphones become permanent fixtures in our everyday lives, data plans will expand in price to capture the climbing cost of multimedia.
So, how much is too much? Those figures aren’t in sight. As unlimited plans expired, carriers have herded customers into tiered plans. But with families struggling with finances at the end of each month, momentum may begin to build for change. Right now, though, families moving beyond resignation and gaining a more solid understanding that the promise of their phones come with a hefty price tag. ♦
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