BrainTrust Query: Are Phone Carriers Crimping Consumers?

The Wall Street Journal recently ran an article that describes how consumers are adjusting to increasing cell phone costs. It quoted consumers who were cutting back on restaurant spending, weekend getaways and clothing purchases. Between 2007 and 2011 annual spending on telephone services increased $116 while it fell by $46 on food, $141 on apparel and $126 on entertainment. Family annual cell phone costs with more than one smartphone can reach $4000.

According to Labor Department data, American households on average spent $1,226 on their smartphones in 2011, up from $1,110 in 2007.

Carriers are offering faster networks and eliminating unlimited data plans. The result is that the fee clock is ticking faster without any limit on how high the total can go. Carriers seem to be happy with the situation, seeking to push revenues as high as they can by adding (and charging for) additional services. The big question is: when will consumers become fed up? So far they have been willing to cut back in other areas to afford their cell phones.

Retailers have worried that mobile technology would provide too much price transparency. They worry that customers are using stores as showrooms for their online purchases. However, it seems that telephone services are cutting directly into the money consumers have to spend in stores.

I wonder if every retailer offered free WiFi whether it would reduce customers’ telephone expenses so they could spend more in the stores.

BrainTrust

Discussion Questions

Is there a way for retailers to fight back against the toll rising cell phone bills are taking on the consumer’s available budgets? Are consumers willing to pay much more for promises of higher data download speeds?

Poll

12 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Max Goldberg
Max Goldberg
11 years ago

Evidently consumers value their mobile phones more than they value an extra article of clothing or another restaurant meal. Mobiles are ubiquitous, with over 6 billion in use across the planet. They are no longer a nice-to-have item. As such, consumers are willing to give up some discretionary spending to have instant access to friends and the Internet. Free Wi-Fi is not going to increase consumer spending.

Ryan Mathews
Ryan Mathews
11 years ago

Let’s look at that $4,000 a year cell phone plan cost and see what it really means. The median (inflation adjusted) gross U.S. household income last year was $51,143. That means the median American could be spending roughly eight percent of their gross salary just on cell phone plans.

Will they pay more?

Who — in their right mind — thought they’d pay this much? And yet here we all are with family plans covering a mind numbing collection of devices whose primary uses have precious little to do with “just” making phone calls.

Actual telephonic communication? How passe! How droll!

Bring on the games and texts and social networking and music and downloaded Law and Order reruns, and that can’t-live-without app for locating the nearest alpaca rental service. That’s the stuff communications is really made of!

Is there a way for retailers to fight back? How about a national sanity check?

Frank Riso
Frank Riso
11 years ago

What if the retailers offered to pay the phone bill? Maybe not the entire bill, but if you buy something for $200 online then maybe you can get a $20 credit toward your phone bill. The more you shop, the more the retailers pay the bills.

Ralph Jacobson
Ralph Jacobson
11 years ago

One point the article didn’t make is that although food, apparel, and entertainment spending dollars went down, those amounts are minuscule based on a per-transaction metric. Also, many of those categories have seen deflation in retail pricing, so the tonnage/volume of products and services may have actually increased. Therefore, without more insights, I think consumers have found ways to enjoy their eating, clothing and entertainment, while still diving deeper into mobile services spending.

Mel Kleiman
Mel Kleiman
11 years ago

The winner will be the large retailer who can figure out some method to help consumers lower the exorbitant rates charged by cellphone companies.

Gene Detroyer
Gene Detroyer
11 years ago

I am sitting in a coffee shop. There are 8 of us here. Two are on their computers. Five are on their phones (phones in name only as none of them are talking).

My kids and their spouses have cancelled the paper version of the NYTimes to subscribe to the electronic version. I could go on with examples. Travel on buses or trains and see the number of people on their phones. Given a choice, I only fly airlines with GoGo.

Cell phones (again, phone is a misnomer) are not a toy or a tool. They are a way of life. Retailers must embrace every aspect of mobile technology. Why do many continue to fight it? It is not an either or choice for people. If retailers look at it that way, they will lose. There is no turning this trend around.

Doug Garnett
Doug Garnett
11 years ago

I’m skeptical of this analysis by the WSJ. Among other things, consumers have been trading off costs — eliminating land lines in favor of cell phones. And, really, $100/month isn’t very much when you have two adults and a teenager all with phones.

For me, this is a study I wouldn’t spend much time pondering. There’s far bigger technology spending risk in the trickle of online and mobile expenses that have emerged over the past few years (the $2 to $5 charges that can easily add up to $60 per month) combined with the increase in cost for broadband, cable, Netflix, HuluPlus, and any number of other aggregate entertainment costs.

Robert Straub
Robert Straub
11 years ago

My girlfriend demands that I call her on the phone even after I’ve explained to her that the reason I have a smartphone is so I can do everything under the sun except having to actually speak with another human being.

Craig Sundstrom
Craig Sundstrom
11 years ago

I didn’t read the article, so I can only comment based on what was offered here, but insofar as the cell phone average went up by a little more than $100, but the aggregate of the others went down by almost three times that much, it seems a stretch to say one is causing the other. Then again, maybe the main point is that the one went up, while the others went down, but that’s probably true of many expenses (energy, diet plans, etc.) so I’m unconvinced it makes sense for any retailer to see cell companies as an us vs. them dynamic.

Warren Thayer
Warren Thayer
11 years ago

Reading this makes me realize just how much happier and more relaxed I am, being a Luddite.

Tom Redd
Tom Redd
11 years ago

It’s not a question of fighting back, it’s about how to be part of this sea change in consumer lifestyles. As suggested by other members, people are spending their time on smart devices at home, in coffee shops, at stores, in their cars, etc. Transparency is here to stay; don’t fight it, figure out how to make it your friend. Offer free Wi-Fi, get your customers to download your store app, personalize their experience, make them offers, make their lives easier. Consumers won’t cut back on their use of smart devices, so help them make it painless while they’re in your stores.

On a macro level, maybe an innovative mega-retailer will work out a national deal with carrier(s) that associates mobile plan costs with consumer spending with that retailer?

Ed Dennis
Ed Dennis
11 years ago

This could be a two edge sword. Providing a benefit for the consumer can draw in consumers, but it can also draw in squatters! Starbucks and McDonald’s often are populated by internet squatters who come in to use the free wireless and purchase little.

I would think that the best solution for high cell phone bills is competition and if the majors get too far out of line, then minors will spring up to offer cheaper service. The big guys have fought competition with subsidized phones and contracts, but new smart phones are becoming available that can be purchased at reasonable prices and the consumer can then shop for services.

Now if retailers want to use a loyalty program to reduce pricing on cell phone bills like some are doing on gas purchases, they might get somewhere, but I don’t think free Wi-Fi is going to be much of an incentive as there is already a lot of free Wi-Fi now!