Cheapest Ever iPhone Data Plan Won't Be Cheap Enough

Today Freedom Pop debuts an ultra low budget cell phone plan, but even with the free data the service gives away, it's not likely the enticing offer will catch on with the mainstream.

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Today Freedom Pop debuts its ultra-low-budget data plan, but even with the free data the service gives away, it's not likely the enticing offer will catch on with the mainstream. Unlike other phone companies, Freedom Pop only sells the data part. And it does so for the very low price of $99, without any contract or anything. For that, users get the Freedom Sleeve, an accessory that attaches to a smartphone or iPod, but what really has people excited is the 500 megabytes a month that comes with it. There are no voice minutes or texts and each extra gigabyte costs another $10/month,  or you can get 5GB for $35 per month, which are all competitive rates.  Most people use less than 2GB per month of data. (I personally have used less than 500 megabytes this billing cycle.) So, even if users went 1.5 GB over every month that $20/month of data is way less than what the big three carriers charge. (Verizon gives 1GB for $50, AT&T for $40.) This plan should win the hearts of so many cost conscious Americans, especially as we move away from talking to data-things on our smartphones. Yet, if consumers behave as usual, this won't catch on.

Freedom Pop debundles cell phone use in a similar way to prepaid phone carriers Virgin Mobile and Cricket Wireless, which can make things a lot more affordable. Unlike those other carriers, Freedom Pop doesn't provide the voice part of the phone. But, otherwise, it's the same idea: They do not subsidize the cost of the phone, but they also don't lock people into two year contracts. Even when subscribers pay upwards of $600 for an unlocked iPhone, going the cheapest route possible, these plans can end up costing less over two years, as The New York Times's Brian X Chen has shown.

As cell phone plan costs rise, the people continue to pick the locked in two-year contracts over experiments like this. These plans only make up for 23 percent of cell phone users, Chen noted earlier this year in a separate Times article. And, AT&T only lost contract customers at a rate less than 1 percent per month last quarter, reports The Wall Street Journal's Anton Troinovski. Chen attributes this choice to consumer psychology: "Right now, consumers don’t do the math, and they have a lot of resistance to paying $500 to $600 upfront, and they’d rather pay $100 upfront and then overspend," analyst Tero Kuittinen told Chen. "That psychology has worked for hundreds of years, and it’s still working." Yet, we think other factors are at play here.

  • It's less reliable. Freedom Pop does not have nationwide coverage yet. The network only covers 136 million people, says Troinovski. The company has signed a deal with Sprint's network, including its LTE, which, by the way, has the worst coverage compared to Verizon and AT&T. But, that won't roll out until March. Data is only as useful as the network it's on. What might work in your local area becomes a huge waste when your cell phone doesn't connect in another area, which is enough for Louis Dunton, a cell phone user Troinovski talked with. "I go with the more definite thing," Dunton said. "I need to have phone service at all times."
  • These plans aren't always cheaper in reality. As far as data goes, Freedom Pop offers an incredible deal. But, that doesn't include the phone, voice minutes, or text messages. T-mobile has a voice only Sim   card for between $35 and $50 per month. With 2GB of data, now users are up to between $55 and $70 per month. To put that in perspective, Sprint offers unlimited data, talk, and text for $79.99/month. Also a very frugal someone, who doesn't care about having the latest in cell phone technology can do well on Verizon. With a two year contract an iPhone 4 is free on the wireless carrier. That plus the cheapest 1GB $90/month plan comes out to $1080 over two years, which is less than the most frugal someone who gets an iPhone 4 on Freedom Pop. A $450 iPhone 4 unlocked from Apple plus 500 minutes and unlimited texts from T-Mobile for $40/month and the 500 GB from Freedom pop for $99 over 2 years that would cost: $1,590. 
  • It's inconvenient. Think of all the players involved. It's just easier to lock into a two year plan, even if it means an extra couple of hundred of dollars over two years. For people who have multiple people on their phone plans, like say a family, they pay for the convenience of a two year deal with a certain amount of data and minutes and texting. Debundling that across multiple services isn't easy, either. 

This article is from the archive of our partner The Wire.