3 min read

IPhone's High Cost Expected To Scare Away Consumers

Consumers on average are willing to pay only $99 for a regular mobile phone, and $199 for a phone with advanced data services, according to a Parks Associates survey.
The Apple iPhone is the darling of technophiles, but the price tag for the highly anticipated gadget is expected to keep most people's wallets closed.

Only 3% of U.S. consumers have a strong interest in purchasing the iPhone at its starting price of $500, plus a two-year contract with wireless carrier AT&T, according to research released Tuesday by Parks Associates. Consumers on average are willing to pay only $99 for a regular mobile phone, and $199 for a phone with advanced data services, such as video and Web access.

To breach that huge gap between the price of the iPhone and what people are willing to pay, Apple is banking on the device's unique touch-screen display and intuitive software for accessing voicemail, the Internet, and video and music libraries that can be stored on the iPhone. Parks Associates, however, found that those features, which tend to make Apple fans bug-eyed with excitement, are unlikely to sway the average consumer.

"The high-price point may prevent the iPhone from achieving greater adoption over the short term," Parks analyst Kurt Scherf said in a statement. "It may be an early-adopter product that appeals to technophiles, but initially leaves other interested users on the outside looking in."

The majority of consumers consider network and voice quality as the most important factors for their choice of mobile carriers, and only a small percentage consider handset design as important, Parks found. Fully, 49% of consumers surveyed believed multifunction devices would be expensive, and about a third believed they would suffer from performance issues, including limited battery life. In addition, only 17% of U.S. Internet households revealed an interest in playing digital music files on a new mobile device.

Parks, however, did find some acceptance among consumers for convergence devices that bundle music, multimedia, and communication capabilities. A firm 22% of respondents were clearly in favor of devices like the iPhone. But among portable music player owners, 41% preferred standalone devices, and only 26% wanted a multifunction device.

If AT&T -- the exclusive carrier in the United States for the iPhone -- expects a significant boost in subscribers because of the device, than it should reconsider. Parks found only 10% of mobile subscribers regard exclusive handsets as a highly important factor in their selection of a mobile carrier. Network coverage and voice quality were far more important by 72% and 68% of consumers, respectively.

To give consumers a clearer picture of how much iPhone will cost, Apple and AT&T released rate plans on Tuesday. The iPhone is scheduled to go on sale June 29 at the partners' retail stores, and the Apple Web site. The plans will start at $60 a month for 450 voice minutes, $80 for 900 minutes, and $100 for 1,350 minutes. All the plans included 200 text messages, unlimited data services, and the rollover of unused minutes month to month.

"The prices are competitive," Samir Bhavnani, analyst for Current Analysis West, told InformationWeek. "They're not a bargain, but they're not too expensive either."

The plans are unique, in that they bundle voice and data together, which is not surprising since the iPhone's data services are as much a selling point for Apple as the device's communication capabilities, Bhavnani said.

Based on the release in the past of other highly touted consumer electronics, such as the Sony PlayStation videogame console, Bhavnani expects the iPhone to sell out rapidly, leaving many fans waiting for the supply to catch up with demand. "You're going to see a big market for these things on Craigslist and eBay," Bhavnani said.