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Summary:

A recent poll indicates that 62 percent of U.S. consumers feel their smartphone is or will be obsolete before their cellular contract ends. Yet only 19% will pay $100 more up-front for a shorter contract. The technology cycle and cellular contract terms are out of whack.

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As new smartphones are launching on a regular basis, U.S. consumers are starting to feel the crunch of accelerating technology cycles: 62 percent believe that their current smartphone is either obsolete or will be so before the end of their current contract. The data comes by way of a poll from Retrevo, a Sunnyvale, CA consumer electronics shopping and review site. Retrevo’s poll results confirm a belief I’ve held for a few years now: mobile technology cycles are outpacing the lengthy two-year carrier contracts.

For a frame of reference, Retrevo determined that least 120 new smartphones from major handset makers were launched between April 2010 and March 2011. While many share the same or similar specifications, this time period saw a wide range of smartphone technologies used. Processors ranged from as low as 600 MHz for inexpensive Android handsets all the way up to dual-core 1 GHz processors for the new Motorola Atrix 4G.

Speaking of 4G, most phones didn’t have access to a next-generation network a year ago; now there are some on all four major carriers, so if you want the faster mobile broadband speeds, it’s already time to upgrade. I’m all for progress, and I love the empowerment of mobile broadband, but I’ve been critical of carriers for updating speeds too quickly: if the network doubles in speed every year, a two-year contract for hardware doesn’t make much financial sense. At least not for consumers.

The core issue is that as smartphone uptake is on the rise, the technology inside the devices is currently improving on a yearly basis. And yet, many consumers opt for a two-year contract in order to gain the cheapest hardware price due to carrier subsidization. Some could go month-to-month as I do, but that generally requires paying full price for a handset. I did that in January of 2010, paying $529 for a Google Nexus One. The up-front price was steep, but it provided full freedom to change carriers or handsets without any contract termination fees. Ironically, I’ve enjoyed the phone so much that I haven’t replaced it, although I’ve seen a likely successor in the HTC Sensation 4G (shown).

One solution to get the smartphone cycle in sync with contracts is the option of a one-year carrier commitment. Depending on your carrier, you may pay a little more up front for hardware, but only be committed to a year of voice and data service. Retrevo’s poll found that 66 percent don’t want to pay more for a phone in order to get a one-year contract, while 19 percent would go for a 12-month term for an additional $100 hardware price. Ironically, Verizon Wireless just this month eliminated such a one-year contract option, so it’s either pay full price for a phone or commit to what I call “cellular servitude” as your phone becomes obsolete.

Unfortunately, U.S. consumers want it all: cheap smartphones and the ability to upgrade to better handsets more often. That’s not economically feasible for now, or in the foreseeable future, so make sure you choose your phone wisely and early in the technology cycle.

  1. What you’ve avoided saying here is that due to the underlying tech (CDMA vs gsm) and spectrum (tmobile vs ATT) differences in the US, there is little to no ability to move a device between carriers. Without that ability there is little incentive to go month to month or have a shorter contract (especially since most carriers don’t discount month to month plans.

    I can’t see any reason to pay $400+ e tra upfront just so I can be stuck with the same plan on the same carrier.

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  2. Consumers feel that way because the US CARRIERS have them locked into a two year slave contract and it’s more expensive to cancel or switch than bitch…

    NEVER again…

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  3. Yes 2 years is way to long, in Denmark the carrier can contract you for no longer than 6 months, and some of the carriers offer you to buy a new phone every 6 months and keep you contract.

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  4. In this materialistic world, you will always find yourself wanting. You want to have the latest gadgets, latest smartphones but you can never cope up with how fast change comes and goes. The faster the technology change, the quicker we generate waste. And hopefully, these 62% (or even greater number) who thinks they have “obsolete phones” will be more eco friendly when they give in to their wants and ensure that they send their old mobile phones to recyclers, for the sake of the environment, and yes, for cash too. If you are in Australia, visit http://www.cashaphone.com.au for cashback options.

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  5. in the land of second hand flashed over prepaid things are even crazier. i own a cricket store in denver. customers who for years have been happy with basic phones are now buying smartphones, and they want the absolute cutting edge and want to replace them every couple of months.

    people who had never been very interested in technology or computers are now taking on phones as full time hobby. many people are coming by twice a week to check my inventory and/or ask my opinion on ebay and craiglist ads.

    the craziest part is that half customer never even set up the market or use even 10% of the phones functions. they are mostly buying status symbols.

    the one thing they do like to do is watch videos from youtube, etc. and phones with bigger screens sell fastest every time.

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    1. Thanks for the street-view, Tom! I particularly like your last comment as I’ve noted that the trend is for larger displays – I keep thinking Apple will finally move to a 4-inch screen but they want to buck the trend it seems. Granted, the 3.5″ high res screen isn’t hurting their sales. ;)

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  6. William C Bonner Thursday, April 28, 2011

    I don’t want to be paying the same monthly price for my phone as I would be if they were subsidizing a phone for me.

    I don’t want to pay $600 upfront for a phone that I can probably get subsidized down to zero if I watch the deals.

    I agreed to a two year contract nearly two years ago, after several years of going out of my way to find one year contracts, or continuing month to month after a contract expired. To some level it’s good because I KNOW that my phone is old tech, and don’t constantly wonder if I should buy now or wait. My contract is up in July and around that time I’ll be back in the cycle. Trying to figure out what to purchase. Trying to figure out what to sign. For now I can just enjoy looking at the tech.

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  7. worldbfree4me Thursday, April 28, 2011

    I concur. But switching carriers will result in a lost of Carrier Loyalty perks. I have been with Sprint for over a decade now and that has enabled me to get a new phone every year. Love my EVO but cannot wait to try the EVO 3D. So what I do now is purchase their very best phone, and sell it a year later to subsidize the purchase of my new phone virtually eliminating my up front cost!

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  8. You touched a nerve here. I got the iPhone 3g in July 2009 because it was $99. Now it barely works. It can’t handle Google maps (my most used app), and even the calendar is slow. I had to wait a full 18 mos to be able to upgrade at the full discount, but to get an iPhone 4 now is stupid. And, I don’t want to wait until Sept/Oct for the next iPhone. Can anyone suggest a fast Droid phone on ATT that will still be good (hopefully as good as iPhone 5) 18 mos from now?

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