Friday, November 12, 2010

Phone Subsidization

The number one sign that a company charges too much for its product is how much advertising that company does.

Listen to the radio on your way home from work today, and chances are you will hear at least 2 or more ads for a car dealership.  The money to pay for this advertising has to come from somewhere.  Why do all car dealerships seem to have a bottomless wallet when it comes to advertising?

Probably because they are charging too much for their product....but if we are willing to pay it, who are they to refuse our money?

The number one product in my mind that charges too much for their product is wireless carriers, i.e., Verizon and Sprint.  The easiest way to tell?  Look at the ads that are running for phones.  You can go to Best Buy, and get quite a few phones for one dollar.  ONE DOLLAR.  Go to, and you will see the same thing.

So, HTC builds a phone, which requires months and months of development, testing, refinement, manufacturing, assembly, packaging and delivery.  This phone contains more than one technological marvel in regards to chips, screens, buttons, and the like.  It requires multiple people to put the phone together, package and ship.

And yet somehow, they can manage to sell it for $1.  Why? Because the carriers are paying them so you will sign a 2 year contract.  Let's do some simple math to see....

The new Verizon all you can eat plan is $59 a month, I think.  I may be wrong, but I will be damned if I am going to open ANOTHER browser window.

59*24 (months) is $1,416.

My guess is that most average smartphones cost around $250 to manufacture, sell, and distribute.

So that leaves the carrier with $1,166 of cash after subsidizing the phone.  Sure, most of that is sunk cost to maintain, but there has got to be a hefty profit in there.  So you can see how it isn't a problem for them to throw around some easy money to make much, much more.

What I would rather see is them selling a phone for about $100 and knock a few dollars per month off of my bill, but we both know the system works.  Especially if you consider that person is probably going to add at least one premium service to their phone bill, and more than likely has a family plan with multiple phones on it.

Convinced that they make too much money yet?  Let's not even get started on cable television.

Posted via email from Explosive Amnesia

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