Palm Pre, other smartphones will still sell despite recession

Pre service plans will be $70 or more a month, and buyers are likely to line up

Despite monthly costs of US$70 or more for voice and data service on new smartphones such as the Palm Pre, consumers and business users have been lining up to buy the devices when they first go on sale as if the recession had never hit.

The phenomenon has had some analysts scratching their heads, since a $70 monthly cost would amount to paying $1,680 over two years as required under most carriers' subscription plans. That amount includes neither taxes and fees, nor any of the costs for a range of add-on devices or applications that many users find essential. It's fairly easy to reach $3,000 over two years for a single user, not including the cost of the actual device.

One of the reasons that some buyers are willing to pay that much is because they are early adopters who want the latest thing. The biggest complaints seem to come from buyers who are standing in line waiting to buy a new phone and from those commenting on online forums that they have to pay $200 for an early termination fee to switch carriers.

Some buyers justify the cost of a smartphone plan as a replacement for a landline phone, which more consumers are willing to give up, noted Jack Gold, an analyst at J. Gold Associates.

Smartphone buyers, however, are not usually the buyers who would fret over a $70 monthly cost, said independent analyst Jeff Kagan. "Some customers are struggling in the recession and would not want to pay $70 a month, but they are not the target of the new Palm device or other smartphones like the iPhone or BlackBerry," Kagan said. "You have to look at what other similar devices are doing to compare, and other devices are actually doing very strong business."

For example, the iPhone has sold more than 21 million units globally, most in the U.S., since mid-2007. Its cheapest service plan is $70 a month for data and 450 minutes of voice, an AT&T spokesman confirmed. "A lot of people are buying that," he noted, without providing further details.

Gold said he was surprised by how many people are paying that much a month for service during a recession, whether the device is a smartphone or not. "I wasn't sure how many people would stay with the iPhone monthly costs after the honeymoon period, but it seems very little drop-off has occurred. So I am sure the Pre will not be any different."

Gartner Inc. analyst Ken Dulaney said the $70 starting price for voice and data service on the Pre "seems to be OK." Gartner today reported that smartphone sales globally were up 12% in the first quarter compared to the same period in 2008.

The Pre is being sold exclusively by Sprint starting June 6 with a price tag of $200 after a $100 rebate, but it must be purchased with a two-year subscription. A Sprint press release on the required subscription plans refers only to the Everything Data plan and Business Essential with Messaging and Data plan, but a Sprint spokesman said there are five individual and family plans as well as several business plans. The individual plans start at $70 a month and go to $100 a month, but the family and business plans can be much higher.

Accoring to Sprint's Web site, the Everything Data Plan (with 450 anytime minutes) is $70 a month, the 900-minute Everything Data Plan is $90 a month, and the Simply Everything plan has unlimited voice minutes and unlimited data for $100 a month.

The two Everything Data Family plans are 1,500 and 3,000 anytime minutes for $100 and $150 each per month, but they can be used by two phones.

The Business Essentials include six plans that range from 400 to 4,000 anytime minutes, with unlimited data, and are priced from $70 to $230 a month. Users can pool the minutes in a business, the Sprint spokesman said.

While some buyers might object to the monthly voice and data prices, Sprint said users could potentially save hundreds of dollars over its competitors.

Monthly data pricing plans won't be going down any time soon for smartphones, analysts predicted, although there have been some increases in the amount of data downloads allowed for the same price in mobile broadband service for Verizon Wireless, specifically for laptops and netbooks.

Carriers have no incentive to lower voice and data plans for smartphones because they don't want to have rates so attractive that users "saturate" their networks, Gold said. Still, he said pricing for voice and data won't be the main reason users buy the Pre or hold off.

"As for the Pre being that good, it remains to be seen," Gold said. "It seems to be a very competent device and has some unique features, but it basically needs a heavy data plan to get all the online apps it needs to run, so if Sprint can't provide the level of service and reliability users expect, I am sure you will be hearing complaints like the ones voice about AT&T's 3G service early on with the iPhone."

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Tags smartphonesBlackberryiPhoneeconomic downturnPalm Pre

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