The rise in mobile phone bills may have ushered in an era in which you eat what you say or download. Or rather, that how much you say or download determines how much you eat.
Household incomes have been flat or down for a couple of decades. But research is showing that the mobile phone has become so essential a feature of daily living that many individuals and families are willing sacrifice the iconic appurtenances of middle class life - a new car! a night at the movies! the latest styles! - to support their smartphone habit.
Whether this is sustainable remains to be seen. Some reports suggest that iPhone owners pay as much as double the monthly mobile bills that others do. The service providers are hoping they can increase revenues by enhancing speed and reception which will encourage additional usage.
There are precedents in economic history; color television and the onset of cable being one that could be particularly apt. Usage has declined as less expensive alternatives have become available via the internet. The phone makers and service providers are clearly aware of the budgetary constraints faced by most families, but appear to be betting on social pressure and their ability to capitalize on it.
All markets have limits. It is not yet apparent where this one's are. But wherever costs exceed customers ability to pay, there are opportunities for disruptive innovations. JL
Anton Troianovski reports in the Wall Street Journal:
More than half of all U.S. cellphone owners carry a device like the iPhone, a shift that has unsettled household budgets across the country.
Government data show people have spent more on phone bills over the past four years, even as they have dialed back on dining out, clothes and entertainment—cutbacks that have been keenly felt in the restaurant, apparel and film industries.
Heidi Steffen and her husband used to treat themselves most weeks to steak at Sodak Shores, a restaurant overlooking a lake near their hometown of Milbank, S.D. Then they each got an iPhone, and the rib-eyes started making fewer appearances.
"Every weekend, we'd do something," said Ms. Steffen, a registered nurse whose husband works at a tire shop. "Now maybe once every month or two, we get out."
The tug of war is only going to get more intense. Wireless carriers are betting they can pull bills even higher by offering faster speeds on expensive new networks and new usage-based data plans. The effort will test the limits of consumer spending as the draw of new technology competes with cellphone owners' more rudimentary needs and desires.
So far, telecom is winning. Labor Department data released Tuesday show spending on phone services rose more than 4% last year, the fastest rate since 2005. During and after the recession, consumers cut back broadly on their spending.
But as more people paid up for $200 smartphones and bills that run around $100 a month, the average household's annual spending on telephone services rose to $1,226 in 2011 from $1,110 in 2007, when Apple Inc.'s iPhone first appeared.
Families with more than one smartphone are already paying much more than the average—sometimes more than $4,000 a year—easily eclipsing what they pay for cable TV and home Internet.
The trend has been a boon for companies like Verizon Wireless and AT&T Inc. T -0.24%U.S. wireless carriers brought in $22 billion in revenue selling services such as mobile email and Web browsing in 2007, according to analysts at UBS AG. By 2011, data revenue had jumped to $59 billion. By 2017, UBS expects carriers to be pulling in an additional $50 billion a year.
But the question for the industry is how much bigger bills can get before the cuts in other parts of the family budget grow too painful.
Melinda Tuers, an accounting clerk at a high school in Redlands, Calif., said she already pays close to $300 a month for her family's four smartphones. She and her husband have cut back on dining out, special events and concerts to make room for the bigger phone bill.
Her household may soon have an even bigger hole to fill. Two of the Tuers's smartphones are on unlimited data plans, meaning she pays the same price no matter how much she surfs the Web. She has taken advantage of that freedom to watch TV shows such as "Covert Affairs" and "Grey's Anatomy" on her phone almost every day.
Ms. Tuers now wants to replace those three-year-old smartphones. But her carrier, Verizon, announced this summer that customers would have to give up unlimited data plans if they want to upgrade their phones at the subsidized price.
Ms. Tuers figures that she and her husband would need to scrape together more than $1,000 to pay full price for two new high-end phones or settle for one of Verizon's tiered-data plans, which she fears would cost a lot more given her video habit.
Streaming 30 minutes of video per day over a 4G connection and doing nothing else on her phone would cost Ms. Tuers roughly $120 a month on one of Verizon's new data plans, according to the carrier's website.
Carriers fully expect people to use more data and pay more for it. "Speed entices more usage," Verizon Chief Financial Officer Fran Shammo said at an investor conference last week, according to a transcript. "The more data they consume, the more they will have to buy."
But some question where the money for that data will come from. Americans spent $116 more a year on telephone services in 2011 than they did in 2007, according to the Labor Department, even as total household expenditures increased by just $67.
Meanwhile, spending on food away from home fell by $48, apparel spending declined by $141, and entertainment spending dropped by $126. The figures aren't adjusted for inflation.
The increase in telephone-services spending masks an even higher rise in cellphone bills, because people have been paying less for landline service.
Much of the revenue growth that industry executives and investors are hoping for is likely to come from higher-income households that do have the money to spend more on wireless data. But the wireless industry also generates a lot of revenue from lower-income users.
Almost nine in 10 of all U.S. adults have a cellphone, according to a Pew Research Center survey. Middle-income consumers increased their telephone spending in 2011 by $59, almost as much as the $64 in additional telephone spending by the 20% of consumers with the highest incomes, according to the Labor Department data.
As wireless service gets more expensive, the trade-offs become more painful. That could threaten to further crimp consumer spending elsewhere—or slow the upward swing in consumer spending on wireless.
That trend is evident in the home of 40-year-old Scott Boedy, a neighborhood service representative for a cable company.
Mr. Boedy said he and his wife now pay $200 a month for cellphone service, up by about $50 from early last year, even as they have managed to cut spending on groceries by shopping at discount chain Aldi and on "fun stuff" by going out to dinner and movies less often.
Looking over the family budget on Sunday night, Mr. Boedy said, his wife marveled at how much of it was going to the phone company.
"It stinks," Mr. Boedy said. "I guess it's the cost of modern-day America now."
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