Data Demand Drives Higher Mobile Phone Costs

Users are willing to pay extra for advanced phones, driving costs to their highest level in years.

Mobile phone users are not only getting more social and looking for fun, they're also increasingly willing to spend more for the privilege when they buy a phone.

According to a new study from J.D. Power and Associates, they're willing to spend an average of $9 more on new phones -- an increase the research firm termed "substantial."

The average wireless handset price tag now hovers about $101, the highest amount cited since the firm began studying wireless device costs five years ago.

The research firm said that cost difference spiked during the past six months and represents the largest jump in two years.

"It's a pretty big increase, and I think it shows that usage habits are changing as well with people moving from voice to data and text activity," Kirk Parsons, senior director of wireless services at J.D. Power and Associates, told InternetNews.com.

The report findings are sure to be music to wireless carriers' ears in today's tough fight to grab subscribers. Such competition prompted fixed-rate plan wars earlier this year, is propelling exclusive device deals and pushing handset makers to advance mobile application efforts.

Parsons said new consumer phones, such as Apple's (NASDAQ: AAPL) iPhone, and increasing consumer interest in smartphones -- such as Research in Motion's (NASDAQ: RIMM) BlackBerry and the Palm (NASDAQ: PALM) Treo device -- are spurring users to accept higher device costs.

The study reports sales of smartphones have increased "considerably" over the past year, to 6.3 percent from 1.7 percent in 2007.

While users are willing to pay more, they're also hanging onto their devices a bit longer than in the past. The average reported cell phone ownership is 17.7 months, an increase from 16.6 months in 2006.

The current average reported purchase price for smartphone devices is $208. The average price for phones with less functionality is $58, according to the 2008 U.S. Wireless Mobile Phone Evaluation Study.

Not only are users willing to pay more, some who never paid for a phone are now forking over a few bucks. The report indicates a "sudden decrease" in the number of wireless customers who opt to remain with the free phone that typically comes with contract subscriptions. That figure dropped from 36 percent to 33 percent during the past six months.

As one industry analyst explained, there are two sets of users within the mobile phone and device space: those who just want a basic phone for voice, and those who want the features a smartphone can offer.

"We're seeing the basic cell phone segment getting squeezed a bit right now with the economy, but we haven't seen that on the smartphone side, no slowdown yet in device adoption," telecom analyst Jeff Kagan told InternetNews.com.

One reason is that carriers are pushing their smartphone devices in marketing plans and advertising much more heavily than their cheaper, traditional phones, Kagan said.

"The market will continue to be split but we'll see more growth on the smartphone side as people realize they want more than just phone call function," he added.

The study also reported on customer satisfaction with wireless handsets, weighing factors including design, features, durability, battery power and operation.

This article was first published on InternetNews.com.






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