Why Is the Cell Phone Industry So Screwed Up?
Cell phone bills are on the rise. Again. Oh, you broke your phone and didn’t have insurance on it? That’ll be $500+ to replace it. Or you can terminate your contract early. For $175.
What’s wrong with the cell phone industry? Why does it seem that customers are getting the raw end of the deal and nobody is stepping forward to fix it? Why, exactly, is the cell phone industry so screwed up? (See also: Why I Like My Flip Phone)
The Atlantic shows us how profit is shared in the cell phone industry, and why. Apple, of course, enjoys the major share of the profits on the handset side of the business (the company made media headlines in July 2011 for having more available cash than the United States federal government), while other developers are racing to keep up with our smartphone obsession.
As for network providers themselves, there is a little more competition, with Verizon and AT&T at the top and T-Mobile, Sprint, and various prepaid providers on the lower rungs of the ladder. Once AT&T lost its exclusive iPhone offering rights, Verizon made some significant gains, but the power struggle between network providers continues.
The Huffington Post has an entire section of their website dedicated to the legal battles between Apple and Samsung, the world's top two smartphone designers and manufacturers.
In August 2012, Apple sued Samsung for $2.5 billion over intellectual property right infringements. The verdict? $1 billion to Apple. And it hasn’t stopped there. Samsung countersued and lost, and now patent litigation is upping the stakes in the cell phone industry.
Innovation seems to be at war with healthy competition; if Apple controls numerous patents in regards to smartphone technologies, how can the others possibly compete without the threat of lawsuits? Some may argue that Samsung has superior technology and platforms via Google’s Android, but with one victory under its belt, lawsuits involving Apple or other cell phone companies are likely to get more frequent and messier from here on out.
Dwindling Profit Margin?
The demand for Apple products never seems to fade, but more and more people are jumping on the alternate smartphone bandwagon these days. While Apple is far from financially insecure, this spike in competition in recent years has forced the company to find ways to keep costs from spiraling beyond what the market deems acceptable (brand name can only get them so far, especially when you could easily buy another smartphone for half the cost of an iPhone).
Partnering with Sprint and Verizon (in addition to AT&T) helped Apple retain its dominance in the realm of cell phone sales (as much as 73% of the market share belongs to Apple), but in a time where disposable incomes are limited and cell phone bills are on the rise, the Apple frenzy has quieted considerably since the development of the first few iPhones.
As for network providers, gone are the days of relying on massive profits from the price-per-text model, as unlimited calling and texting plans are on the rise (despite their ever-increasing cost to the consumer). The industry experimented with unlimited data plans but ultimately found it unsuccessful and phased it out of their menu of services. Apps are also eliminating once-valuable sources of income for these companies, with free calling options from apps like Skype and free texting from a variety of apps like WeChat and What’sApp motivating customers to opt out of pricier calling and texting plans that offer more minutes and more texts.
The solution? Charge consumers more for data and make it harder for them to switch carriers.
Fierce competition over pricing structures and patents are complicating matters in the industry, and dwindling profit margins are prompting companies to increase prices for phones and cell service to maintain the same level of growth they experienced the previous decade. Who pays for all this? Consumers do.
What are you doing to defend your wallet form the mobile phone industry's aggressive pricing and marketing?