Reuters - An Apple employee counts
cash after selling a customer three Apple iPhone 5 phones at the Apple Store on
5th Avenue in New York, September 21, 2012. REUTERS/Lucas Jackson
Heidi Steffen and her husband used
to treat themselves most weeks to steak at Sodak Shores, a restaurant
overlooking a lake near their hometown of Milbank, S.D. Then they each got an
iPhone, and the rib-eyes started making fewer appearances.
"Every weekend, we'd do
something," said Ms. Steffen, a registered nurse whose husband works at a
tire shop. "Now maybe once every month or two, we get out."
More than half of all U.S. cellphone
owners carry a device like the iPhone, a shift that has unsettled household
budgets across the country. Government data show people have spent more on
phone bills over the past four years, even as they have dialed back on dining
out, clothes and entertainment—cutbacks that have been keenly felt in the
restaurant, apparel and film industries.
The tug of war is only going to get
more intense. Wireless carriers are betting they can pull bills even higher by
offering faster speeds on expensive new networks and new usage-based data
plans. The effort will test the limits of consumer spending as the draw of new
technology competes with cellphone owners' more rudimentary needs and desires.
So far, telecom is winning. Labor
Department data released Tuesday show spending on phone services rose more than
4% last year, the fastest rate since 2005. During and after the recession,
consumers cut back broadly on their spending.
The combined cost of the components
for the iPhone 5 is estimated at $197, or only $9 more than for the iPhone 4S,
Arik Hesseldahl reports on digits. Photo: Getty Images.
But as more people paid up for $200
smartphones and bills that run around $100 a month, the average household's
annual spending on telephone services rose to $1,226 in 2011 from $1,110 in
2007, when Apple Inc.'s iPhone first appeared.
Families with more than one
smartphone are already paying much more than the average—sometimes more than
$4,000 a year—easily eclipsing what they pay for cable TV and home Internet.
The trend has been a boon for
companies like Verizon Wireless and AT&T Inc. (T). U.S. wireless carriers brought in $22 billion
in revenue selling services such as mobile email and Web browsing in 2007,
according to analysts at UBS AG. By 2011, data revenue had jumped to $59
billion. By 2017, UBS expects carriers to be pulling in an additional $50
billion a year.
But the question for the industry is
how much bigger bills can get before the cuts in other parts of the family
budget grow too painful.
Melinda Tuers, an accounting clerk
at a high school in Redlands, Calif., said she already pays close to $300 a
month for her family's four smartphones. She and her husband have cut back on
dining out, special events and concerts to make room for the bigger phone bill.
Her household may soon have an even
bigger hole to fill. Two of the Tuers's smartphones are on unlimited data plans,
meaning she pays the same price no matter how much she surfs the Web. She has
taken advantage of that freedom to watch TV shows such as "Covert
Affairs" and "Grey's Anatomy" on her phone almost every day.
Ms. Tuers now wants to replace those
three-year-old smartphones. But her carrier, Verizon, announced this summer
that customers would have to give up unlimited data plans if they want to
upgrade their phones at the subsidized price.
Ms. Tuers figures that she and her
husband would need to scrape together more than $1,000 to pay full price for
two new high-end phones or settle for one of Verizon's tiered-data plans, which
she fears would cost a lot more given her video habit.
Streaming 30 minutes of video per
day over a 4G connection and doing nothing else on her phone would cost Ms.
Tuers roughly $120 a month on one of Verizon's new data plans, according to the
carrier's website.
Carriers fully expect people to use
more data and pay more for it. "Speed entices more usage," Verizon
Chief Financial Officer Fran Shammo said at an investor conference last week,
according to a transcript. "The more data they consume, the more they will
have to buy."
But some question where the money
for that data will come from. Americans spent $116 more a year on telephone
services in 2011 than they did in 2007, according to the Labor Department, even
as total household expenditures increased by just $67.
Meanwhile, spending on food away
from home fell by $48, apparel spending declined by $141, and entertainment
spending dropped by $126. The figures aren't adjusted for inflation.
The increase in telephone-services
spending masks an even higher rise in cellphone bills, because people have been
paying less for landline service.
Much of the revenue growth that
industry executives and investors are hoping for is likely to come from
higher-income households that do have the money to spend more on wireless data.
But the wireless industry also generates a lot of revenue from lower-income
users.
Almost nine in 10 of all U.S. adults
have a cellphone, according to a Pew Research Center survey. Middle-income
consumers increased their telephone spending in 2011 by $59, almost as much as
the $64 in additional telephone spending by the 20% of consumers with the
highest incomes, according to the Labor Department data.
As wireless service gets more
expensive, the trade-offs become more painful. That could threaten to further
crimp consumer spending elsewhere—or slow the upward swing in consumer spending
on wireless.
That trend is evident in the home of
40-year-old Scott Boedie, a neighborhood service representative for a cable
company.
Mr. Boedie said he and his wife now
pay $200 a month for cellphone service, up by about $50 from early last year,
even as they have managed to cut spending on groceries by shopping at discount
chain Aldi and on "fun stuff" by going out to dinner and movies less
often.
Looking over the family budget on
Sunday night, Mr. Boedie said, his wife marveled at how much of it was going to
the phone company.
"It stinks," Mr. Boedie
said. "I guess it's the cost of modern-day America now
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