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2009: Cell phone sales will be down, but not out

If 2008 was the year of the 'smartphone,' 2009 may be the year of the smarter consumer looking to save on phone costs— landline or wireless —  by reducing service where they can.
Image: Cellphone use
As more consumers move to cell phones only, and away from landlines, they'll be looking at ways to use cell phones more practically at home, or if they're looking to save even more money, move to prepaid cell phones to to avoid a contract.Kim Carney

If 2008 was the year of the “smartphone,” 2009 may be the year of the smarter consumer looking to save on phone costs by reducing service where they can, including in some cases, losing their land lines, using alternative wired line-options or moving to prepaid cell phones that don’t require a contract.

Smartphones themselves — devices like the iPhone and BlackBerry which can surf the Web and provide e-mail access — had stunning growth this year, with shipments up 75.7 percent in the United States, according to a recent report from IDC.

Next year, the research firm projects smartphone shipments will continue to increase, albeit by only 3.1 percent in the U.S. That’s small but impressive compared to how more traditional mobile phones are faring. Shipments of those were down by 9.8 percent this year in the United States, and will decrease by 11.6 percent next year, IDC says.

“Smartphones will continue to grow as a segment, as consumers have discovered that a phone can do more than voice and text messaging, and that they want to do those things,” said Avi Greengart, Current Analysis’ research director for mobile devices.

“Apple has been influential here far beyond its sales reach,” he said. “Its 30-second tutorials (via TV ads) have educated consumers that so much more is possible when you move away from a 12-button feature phone and buy a smartphone instead.”

Mobile devices will be “the primary connection tool to the Internet for most people in the world” in the year 2020, according to a recent survey of experts by the Pew Internet & American Life Project.

But first we all need to get to 2020, and right now trying to get through 2009 seems challenging enough because of the economy.

Significant price drops on smartphones — many now are less than $200 and even $100 — and some lower monthly service plans, including Sprint’s “Simply Everything” plan for $99 a month, should help continue to fuel smartphones’ success, even with a weakened economy.

Some consumers, who are cutting costs in other areas, may decide it’s okay to splurge on their cell phones, said Rob Enderle, technology consultant and president of The Enderle Group.

“As long as the price delta isn’t too big, they may buy up because they will want some purchases to fall into the ‘feel good’ category and may be willing to pay $50 or so more for something that gives them that benefit,” he said.

Not for everyone
Still, smartphones will not be for everyone. “It’s a very niche audience that has around $100 a month to spend for a cell phone plan,” said William Ho, Current Analysis’ research director for wireless services.

Whether it’s a smartphone or a regular mobile phone, when it comes to cost-cutting, the phone to go may be the landline.

“If you can only afford one phone, it’s going to be a mobile phone,” said Greengart.

“Few consumers are going to drop their cell phone service; they’re much more likely to drop their home phone service,” agrees Ross Rubin, director of industry analysis for The NPD Group market research firm.

That’s the direction it has been heading the last few years, with an estimated 18 percent of households now having only cell phones and no landlines, according to a recent study by the federal Centers for Disease Control and Prevention.

Compare that to 2005, when 7 percent of those surveyed said they had cell phones only.

“Given the current economic environment, I’d not be surprised to see more and more people give up their landline phones for economic reasons,” Stephen Blumberg, CDC senior scientist told The Associated Press.

Going wireless only can be a good option for one- or two-person households, or for those who rent and don’t want to invest in a landline, said Ho of Current Analysis.

Still, there are reasons for hanging onto a landline. Cell towers can and do go down in severe weather, and when there’s an emergency, cell phone networks quickly get busy, making it difficult to place a call. Plus, there’s the battery life issue for anyone who uses their phone heavily or for long conversations.

“Battery life is pretty good these days, but if you keep your phone for two years, you know that the more you use the battery, the faster it drains, and ultimately you have to replace it,” Ho said. “Admittedly, it’s a small price to pay for mobility.”

In-home options
Two wireless carriers, T-Mobile and Sprint are making it easier for customers to drop their landline service. Neither have landline businesses like AT&T and Verizon, so any growth they get from these additional services is gravy.

T-Mobile is offering its “HotSpot@Home” program, which lets customers keep their landline number for $10 a month by using a home wireless network. To be eligible, customers must already have a T-Mobile cell phone plan that costs at least $39.99 a month.

Sprint is using femtocells, which resemble routers, to help improve wireless coverage inside the home, an oft-heard complaint of cell phone users and one reason many do not give up their landlines.

The company tested femtocells in Denver, Indianapolis and Nashville, and recently expanded availability to other areas of the country

The femtocell, plugged directly into a cable or DSL modem, or a wireless router, sends voice and data through the Internet connection to Sprint’s network, which then routes the signal to its destination. It’s similar to the technology of Voice over Internet Protocol, used by phone services like Vonage and Skype.

Sprint is charging $100 for the femtocell, $4.99 a month for the service, and $10 a month for a single phone line, or $20 for families, on top of the monthly cell phone bill.

Prepaid phones
“More Americans say they can do without phone service,” according to a recent survey by Online Resources Corp., a financial resources company that polled more than 1,000 households nationally.

The firm said 26 percent of households say they put their phone bills “on the bottom of the stack,” after mortgage, insurance, loans, utilities and health care payments. The company did not ask respondents whether those phone bills were for landline or wireless accounts.

Still, it’s a marker that if push comes to shove for some consumers in 2009, and they choose not to renew their cell phone contracts, or to drop their landlines, prepaid phones are an option. And all the major wireless companies offer prepaid, or pay-as-you-go, phones.

“T-Mobile does a good job of that with its FlexPay plan, introduced last year,” said Ho of Current Analysis. “It essentially mirrors their whole (regular wireless) plan without the commitment. For the most part, I think it addresses those consumers who don’t want a contract or who have fallen off the credit radar, or whose credit has been challenged.”

With FlexPay, customers can choose the phone they want, although they will pay full retail price; no discounts or rebates, and get the same monthly plan choices as those offered to contract subscribers — but without the contract.

FlexPay is different from T-Mobile’s Prepaid Plan, which does not allow plan choices, and instead offers two options: pay by the day or pay as you go. For example, the company's pay-by-the-day plan is a $1 a day use charge — only on the days you use it — and 10 cents a minute for calls.

Consumers may also want to consider using prepaid services from smaller companies like MetroPCS and Leap Wireless, which have expanded and improved their wireless networks around the country, said Ho.

MetroPCS, for example, has plans that increase in $5-a-month increments, starting at $30 and topping out at $50 a month for unlimited minutes.

No matter what you decide to do for cell service in 2009, odds are good you won't be going without it. It may pay to investigate some fresh — and possibly cheaper — options.