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Why Do Cell Phones Cost So Much Money?

I’ve Always Wanted To Know:

Why Do Cell Phones Cost So Much Money?


There was a time not too long ago when the idea of having a phone that was always with you and always connected sounded more like science fiction then something you would be purchasing every two years. Since the dawn of the cell phone one question keeps popping up: Why are these phones so expensive? Common sense would lead you to believe that the longer the cell phone is out the cheaper they would get but it’s still quite common for someone to spend a few hundred dollars on a new phone.

To understand why they cost so much money let’s first look at the true cost of a cell phone. In the USA it’s very popular for carriers to subsidize the cost of a phone in exchange for a multi-year agreements to maintain service with that carrier. Let’s use the popular iPhone series of phones from Apple as an example but the same relative costs hold true for most smartphones. The price many people will pay for the iPhone 4s 16GB model is $99. The true cost of the device is $549 but signing an agreement for service for 2 years will offer you a $449 discount thus reducing the price paid to $99. This discount isn’t a free gift, cellular monthly service is priced with a very nice profit margin so that you pay back the discount and then some over the course of two years.

But why does a device that fits in the palm of my hand cost $549 anyway?

The answer is pretty simple: They are amazingly complex portable computers with sophisticated processor, antenna and glass designs. iSuppli [1] which does BOM (bill of materials) estimates for the cost of many consumer electronics has determined the iPhone 4s costs at least $188 dollars in raw materials and components. This estimate does not include Apple’s cost of design, prototype, manufacturing, marketing, support costs or profit for the device.

What costs the most in a typical cell phone? (costs based on iPhone 4s)

The cheapest component?  Ironically, it’s the most important in many ways; the battery only costs $5.90

Next time you’re in a wireless retailer looking at a $99 or $199 phone stop and think “I wonder how much this really costs” especially if you don’t have insurance available for the device as that will be the cost you’ll pay to get a replacement unit should something happen.


P.S. With contract based cell phone service that gives you a large discount it is always recommended to take advantage of upgrade offers. Since they build in the cost of subsidizing a phone into your monthly service if you do not get a new phone when eligible you’re just donating extra profit to the cell phone service provider. Used phones, especially high end smart phones, retain a decent value on the secondary market. Check eBay before deciding what to do as you may be able to get quite a few hundred dollars for a used phone.

Do you have a general technology or electronics question you always wanted to know like “How does a Microwave work?” or “Why do LED’s last so long?” Write me at Tim@WorldStart.com [2] and your question may be answered in an upcoming “I Always Wanted To Know.” For specific computer support questions ask our writers by clicking here [3].