Many Still Resist Call of the Smartphone

NEW YORK (TheStreet) -- While the world once again paused in midrotation to admire something Apple's (AAPL) iPhone did, millions of workaday feature phones went about their unintrusive, inexpensive business.

In a tech environment that grinds to a halt when a smartphone unveils a new carrier -- never mind a new device -- it's easy to forget that simple flipping, sliding, Web-free "dumb" phones still have a more than 72% share of the overall U.S. mobile phone market, according to ComScore ( SCOR). Gartner ( IT) says that share jumps to more than 80% globally as legal, low-cost "white box" phones manufactured in Asia, India, Africa and Eastern Europe now account for a third of worldwide mobile phone production.

Simple cell phones are estimated to retain a more than 72% share of the overall U.S. mobile phone market.

Though its multiple apps, features and better overall functionality make it technologically superior to any feature phone, the smartphone still lags well behind its imbecile predecessors in one important consumer-oriented category: price. The NPD Group found that the average selling price for all mobile phones last year hovered around $90, a 3% drop from 2009. The average smartphone price, however, was closer to $140. While that's a 9% decrease from the year before, it still represents a $50 premium over phones already offering consumers a cheap way out.

At Verizon Wireless' ( VZ) online shop, for example, seven of the 11 phones offered free with a two-year contract are decidedly not smart. They include products from Samsung and LG -- which together account for more than 45% of all mobile phones sold in the U.S., according to Gartner -- but also lesser-known brands such as South Korea's Pantech, China's ZTE and PCD, once known as Audiovox. It's a similar situation at AT&T ( T), where free LG, Samsung, Motorola ( MMI), Sony ( SNE) Ericsson and Nokia devices are paired with Pantech and the ZTE-manufactured F160.

Charles Golvin, an analyst for Forrester Research, cautions that lumped in with buyers of those low-cost to free feature phones are more than 15% with so-called own quick-messaging devices -- phones such as the Sidekick or LG Ozone with easily-accessible qwerty keyboards -- who have Web surfing, emailing and data-buying habits more akin to smartphone users than to flip-phone owners still cranking out texts by hitting numeral buttons multiple times.

"These quick-messaging device owners are smartphone owners in waiting, and it's just a matter of income and spending power. There'll be more entry-level smartphones that are more than just two-for-one or models that have been sitting on the shelf for a long time that need to go out, but $45 items that, combined with entry-level data plans, will bring more people over."

But wait, haven't smartphones such as the Palm Pixi, Research In Motion's ( RIMM)BlackBerry Curve and HTC Ozone drifted into the free ranks as well? Yes, but Verizon requires at least $15 extra a month for its base 150 megabyte data plan (on top of a $40 to $70 voice plan and a $5 to $20 texting plan). AT&T want users to chip in the same amount for its minimal 200 megabyte plan (atop voice and text costs similar to Verizon).

"At $15 a month for Verizon or AT&T, that's $180 a year," Golvin says. "That is a meaningful amount of money for someone watching their dollars."

T-Mobile undercuts its competitors with a $10 entry-level data plan so its base talk, text and data package still comes in at $100 a month -- a $20 premium over voice and text alone. Even Sprint's ( S) Everything Data program, which seems like a steal at $69, is similar to AT&T and Verizon's base offerings and $20 more than Sprint's own voice-and-text package. And data-first plans at Virgin Mobile, which pair unlimited data with finite voice minutes starting at $25, are offset by $70 to $250 phone prices.

The price of the smartphone switch, however, isn't the only reason feature phone stalwarts are staying put.

"People who tell us they don't use the Internet on their phone tell us they don't do so because it's too expensive or because they don't see any value in it or any reason to do it," Golvin says. "For the feature phone owners, the latter is more often cited."

Valued or not, nobody's under any delusions about growing smartphone market share or where technology's heading. ComScore says that the 61.5 million U.S. smartphone users in the third quarter were a 10% improvement from the three months prior. Gartner, meanwhile, notes that 81 million smartphones sold worldwide in the third quarter was a 96% jump from the same period a year before -- outpacing the overall mobile market's 35% increase.

Though Golvin says price reductions and the growth of quick-messaging device owners' expendable income will help smartphone sales eclipse feature phones by 2015, Roger Entner, Nielsen's senior vice president for research, insights and telecom practice, was bold enough to suggest early last year that the switch would happen by the third quarter of this year. He pointed to results of a Nielsen survey that showed 81% of smartphone users were satisfied with their phone, compared with 66% of feature phone users and that 14% of feature phone owners used their devices only for calls, compared with 3% of smartphone users. The same survey implied that smartphone users were generally having more fun, with 20% more using their phone's still camera and video capability than their discount colleagues and 10 times more using Wi-Fi than their relatively disconnected counterparts.

Despite the survey's assertion that 45% of cell phone owners' next phone would be a smartphone, predictions of more than 30% smartphone sales penetration by Thanksgiving never materialized. While there were plenty of people who wanted a smartphone and all of the goodies that came with it, a frugal majority remained unconvinced last year that they needed one.

"If your attitude is that you need to keep in touch with your family, call them when you'll be late coming home from work and make sure you can reach your kid, a voice-enabled phone is all you need to do all that," Golvin says. "There are a lot of people who feel that a lot of the extra function and capability is extraneous to their life."

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Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.

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