Cheap smartphones are the Bonnie to prepaid plans' Clyde

By Nathaniel Mott , written on February 1, 2013

From The News Desk

Bonnie and Clyde. Simon and Garfunkel. The Three Stooges. Each of these groups relied on every member to work. Bonnie without Clyde was just a waitress. Simon without Garfunkel is just Simon. And one Stooge is just a mentally ill person caught in an endless loop of pain and absurd situations. Nobody would find their story worth telling if it weren't for the other parts of the equation, the people who helped the groups become cultural touchstones.

The rise of the cheap smartphone has its own counterpoint: Increased awareness of prepaid plans. T-Mobile and Walmart have earned plenty of press for offering smartphones, including the iPhone 5 (soon, in T-Mobile's case) without subsidies and without a two-year contract. Now it seems that Verizon is ready to join the fray with the announcement of two new prepaid smartphone plans.

Verizon's plans are, by themselves, pretty boring. Customers will be able to sign up for unlimited calls and text messages with 500 megabytes of data for $60 per month, or unlimited calls and texts with 2 gigabytes of data for an extra $10. Yawn. But it does show that the No. 1 carrier in the US is thinking about the shift to non-subsidized, off-contract smartphones and the service plans that will power them.

Prepaid plans and cheap devices play off of and complement each other in a number of ways. The relationship can be divided into a number of subcategories, whether it's smartphone and coverage plans' pricing enabling each other, the drive towards commoditized devices and how Verizon plans to make money off of that shift, or a willingness to sell old or inferior technology at a discount.

That "price" thing:

Smartphone prices don't vary much after carrier subsidies. Most people will purchase a phone from anywhere between $0 and $299 on-contract, with many devices hitting the $149 or $199 "sweet spots." In that context, the $300 off-contract Nexus 4 could cost the same as the $649 off-contract Samsung Galaxy S III, creating a pricing war that consumers probably wouldn't even notice.

But, at the same time, it's hard to imagine mass adoption of prepaid plans if device prices don't fall, even if customers are already saving money on the plans themselves. There seems to be some sort of cultural barrier to understanding that a $650 investment now can save thousands of dollars over two years, making lower prices necessary for widespread consumer adoption.

Profiting from that smartphone in the junk drawer:

Verizon seems to be taking a slower approach than T-Mobile, capitalizing on increased attention on prepaid plans without jumping straight into the deep end of the non-subsidized smartphone market. The carrier is positioning the new plans as a way to breathe new life into old, dusty smartphones that reside in a junk drawer and as a way to bring connectivity to lower-income families.

Those goals line up with those of the cheap smartphone. Just a few years ago it would have been odd to hear of a smartphone, a mini supercomputer, being relegated to a junk drawer. Now we have smartphones that haven't been used in years acting as paperweights, disposable goods that can be forgotten without their owners seeming financially irresponsible. ("You spent how much on that phone, and you don't even use it!" is something pretty much no one wants to hear.) Lower prices make this shift easier to accept and show just how standard smartphones have become to our way of life.

Yesterday's tech is good enough for today's low-end devices:

New prepaid plans and cheap smartphones share another commonality: Accepting lower tech. Google's Nexus 4 doesn't support LTE networks, and cheap smartphones often take advantage of soon-to-be outdated parts to save on costs. Verizon's plans are limited to 3G data despite the carrier's status as the leading LTE provider in the US, reinforcing the message that many people don't care about the latest and greatest as long as they're able to connect.

I've argued before that the race to "cheap" will ultimately end in a market saturated with bargain-bin smartphones that differentiate themselves with some other feature. The same could be said for prepaid plans -- right now they seem like an oddity, and cutting subsidies or renewing focus on these "I don't want a contract" renegades is still worth paying attention to, but at some point in the future that won't be the case.

Having the largest carrier in the US step toward this future as the No. 4 carrier fully embraces it and a massive retail store tries to get in on the action should help the rise of the cheap smartphone gain some traction. But it's important to remember that this won't be a one-man show; Bonnie won't make it without Clyde.