The Family Struggle Over Skyrocketing Smartphone Bills
Can’t figure out how you’re going to pay that increasingly large smartphone bill? You’re not alone.
The hype over the iPhone 5 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 fast becoming a must-have item for all members of a family. Both moms and dads use phones for parenting and business, and increasingly tech-savvy teens value the devices even more than cars, highlighting the premium we all place on the mobile technology.
The only thing rising faster than our enthusiasm for cell phones are the bills for calls, texts and data — with pricing that paralyzes household budgets, especially in these tough economic times. And these smarter phones have families over a barrel, struggling to figure out what to cut and economize in order to fit them into the family budget.
The flurry of glitzy devices, capable of meeting 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 resulting struggle has many families taking a step back and considering how we got here, where is leading us and wondering if there is any help on the horizon.
Tracking a Bill’s Trajectory
The Labor Department reported what many Americans already know: the cost of having a smartphone is eating up an increasingly large chunk of monthly budgets.
The average U.S. household spends $1,226 on their smartphones in 2011, up from $1,110 in 2007, at a time when the total per-family expenditures rose only $67. That means Americans are cutting back on other expenses — like food, apparel and non-phone entertainment — to afford these cell phone increases. In addition, these cell phone figures are reported in the broad category of telephone services — and with landline expenditures decreasing — the increase in mobile is even more considerable.
The blow is especially rough for families to bear because they often have more than one phone and are paying much more than average — sometimes more than $4,000 annually.
According to a new study by ABC’s popular TV show Modern Family, households now own on average three mobile devices and three computers. Certainly they don’t all have monthly contracts, but the sheer volume of digital gadgetry demonstrates the foothold in many households.
Mobile: Now a Must-Have
These figures paint a picture of mobile devices gobbling up family budgets and eating into other budgets, but they certainly aren’t alone in putting families on the monetary hot seat. Other costs, like medical insurance, rent and education, have risen at a faster rate than smartphones since in 2007, when the iPhone debuted. In the five years since, families are finding that the devices themselves, their contracts and accessories aren’t necessarily gulping up the budget, but taking small nibbles here and there, which are amounting to a considerable amount over time.
Do-it-all smartphones have done away with other gadgets, saving some resources. With a mid-level smartphone, families no longer need traditional and video cameras, calendars, music players, maps and newspapers, for example. Still, just the addition of one “basic” need — joining clothing, food and shelter — is an adjustment for families in all economic levels, and the complicated and hard-to-understand billing process can send shockwaves to a budget.
Something’s Gotta Give
Families with limited finances are facing tough choices. Many who struggle with bills say they regularly neglect other creditors to make sure their phone service stays on. They’ll put off obligations like medical bills, for example, to keep the vital smartphone connection going. And when they get beyond letting these bills slip, to sliding into insolvency, the problems 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 Bostonm told the Boston Globe in a recent article. “People put phone bills right up there with paying the rent.”
With an ever-increasing percentage of Americans owning mobile phones and families struggling to pay for them, 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.
The government responded by expanding its Lifeline program, which provides free or discounted phone service to people who meet income and eligibility requirements. Starting in 2005, subscribers were given the choice between financial assistance for landline service or low cost, prepaid wireless service. The majority of subscribers, the FCC says, have gone wireless.
One-in-three households with an income under $30,000 a year now own a smartphone, according to Pew Research. That’s up from about a quarter in May 2011. And the struggle is spreading to many middle income families during this recession. Consumers can always limit themselves to more basic phones and minimal service, but cutting back isn’t always easy. Some customers, for example, are locked into multi-year contracts that cost hundreds of dollars to break.
The wireless industry says there are a wide variety of options for subscribers, but as carriers consolidate, the power is increasingly dominated by a handful of national operators, leaving competition and consumer choice to suffer.
For someone who thinks a $100-plus monthly bill is too high, the thought of paying $200 on top of that to break a contract to lower bills seems counter-intuitive. And as expensive networks continue to fuel the growth, the promise of innovation is ensnaring consumers who envision an easier way to live with mobile technology. But ultimately, find it more difficult to afford and budget for it.
When Bill Shock Knocks
This basic challenge is compounded by the growing “bill shock” trend, or a sudden and unexpected jump in monthly cellular bills. Families who sign up for a wireless plan expecting a fixed fee of $200 can receive bills substantially higher, due to overages. Parents and even teenagers themselves struggle to comprehend monthly limits and often don’t understand how data usage is measured. Many are also baffled at all the fees that show up on their bills, but they lack the wherewithal to dispute the charges.
Nearly 30 million Americans, or one in six mobile users, have experienced bill shock. The Federal Communications Commission is working to implement a better warning system, using a free alert, to cover fees tied to voice, data, text and international roaming. These changes, which are being implement this month, will feature two type of alerts — one sent when subscribers are nearing their limit, and another when they pass it.
The FCC expects the program will save users from high-priced overage charges and headaches, like the well-publicized Florida woman who racked up a $200,000 monthly phone bill.
But FCC intervention doesn’t mean escalating bills are going away anytime soon. Carriers are constantly tweaking service plans, and customers often have to play “catch-up” in understanding the confusing details about unanticipated costs such as activation, upgrades and early cancellation fees. And a more fundamental shift over billing and plans may be needed, especially as data rises in importance — and expense — on mobile devices.
The Data Trap
A large part of the rise in the cost of smartphones, which now stream movies, give turn-by-turn GPS directions, and function like mini-computers in a pocket — is due to the attendant cost of data. People are focusing their awe on these amazing functions, but they’re overlooking the fact it takes data to get them — and data is increasingly pricey.
With many members tapping away on their separate devices, families find it hard to keep track of data usage or even understand how it all adds up, and the reality can be shocking. The Wall Street Journal’s Anton Troianovski estimates streaming 30 minutes of video per day over a 4G connection — and doing nothing else — can cost $120 a month on a Verizon data plan.
Carriers are working hard to make that continued streaming as efficient as possible with features like 4G speeds, but they require expensive infrastructure and don’t come free.
“Speed entices more usage,” said Fran Shammo, Verizon’s chief financial officer, at an investor conference last week, 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 additional $50 billion by 2017.
In addition to speedier carrier services, innovations seem designed to push expenses higher. For example, the iPhone 4S debuted Siri voice recognition service, and the iPhone 5 joined other devices in featuring larger screen sizes, making them ideal for video viewing. These features encourage even more data consumption, requiring more expensive monthly packages or pricey overage charges. As smartphones become a more permanent fixture in everyday life, data and text plans will expand in price to capture the climbing cost of multimedia activities.
How High Is Too High?
So, how much is too much? At what point where the costs begin to inform different consumer choices and formulate a meaningful industry response? That figure isn’t currently in sight, but as unlimited plans expire and more customers are herded into tiered plans they find are more expensive, there may be greater push-back. And, as the trade-offs made to secure the smartphone become more painful, and growing numbers of families struggle with their finances at the end of each month, momentum may begin to build for change.
Right now, people are beginning to move beyond resignation and are gaining a more solid understanding that the promise of their mobile devices come with a sometimes hefty price tag. They may think these prices are the cost of living in America today, but will they advocate for a better deal tomorrow?
