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

Even though the monthly costs for voice and data service on new smartphones such as Palm Inc's Pre can be $70 or more, 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 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. Including all of the extras, it's fairly easy to spend as much as $3,000 over two years for a single user, not including the cost of the device itself.

One of the reasons why some buyers are willing to pay that much is because they are by nature early adopters who want the latest thing. The biggest complaint from people who are standing in line waiting to buy a new phone and those commenting in online forums is that they have to pay $200 early termination fees to switch carriers.

Some people justify the cost of smartphones by using the devices as replacements for their landline phones, which more consumers are willing to give up, noted Jack Gold, an analyst at J.Gold Associates LLC.

Smartphone buyers, however, are not usually the type of people 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 since mid-2007, with most of those sales in the U.S. The cheapest iPhone plan is $70 a month for data and 450 minutes of voice service, according to a spokesman for AT&T Inc., the exclusive provider of iPhone service in the U.S. "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 will be sold exclusively by Sprint Nextel Corp. starting June 6. It will cost $200 after a $100 rebate, and 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.

According 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.

There are two Everything Data Family plans, one offering 1,500 anytime minutes and the other 3,000, for $100 and $150 per month, respectively. They can both be used on two phones.

The Business Essentials offering includes six plans that range from 400 to 4,000 anytime minutes, with unlimited data. They are priced from $70 to $230 a month. Users who work for the same organization can pool the minutes, the Sprint spokesman said.

While some buyers might object to the monthly voice and data prices, Sprint said its plans could potentially save users hundreds of dollars compared with what they would pay for service from its competitors.

Monthly data pricing plans for smartphones won't be going down anytime soon, analysts predicted. However, Verizon Wireless has offered some increases in the amount of data downloads it allows for laptops and netbooks without increasing the price of service for some plans.

Carriers have no incentive to lower prices for smartphone voice and data plans, because they don't want to offer rates that are so attractive that users "saturate" their networks, Gold said. Still, he said pricing for voice and data services won't be the main reason users decide to either buy a 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 voiced about AT&T's 3G service early on with the iPhone."

Copyright © 2009 IDG Communications, Inc.

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