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Why Are Phones So Expensive?

Full-screen displays, multiple cameras, foldable designs… Phones these days are becoming more and more powerful, yet their price levels are also hiking up. Today we answer the question, why are phones so expensive?

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Reasons Why Phones Are So Expensive

  • Rising Costs of Rare Earth Metals
  • Tight Control of Rare Earth Exports From China
  • Increasing Hardware Specifications
  • The End of Phone Contracts
  • Fewer People Are Buying New Phones
  • Compensating Sales Number With Price
  • Increasing Amount Spent On Research and Development
  • High-end Branding and Pricing

Rising Costs of Rare Earth Metals

Have you ever considered what your phone is made out of? Well, apart from metals like copper, silver and gold, it is also made up of rare earth metals without which it would be impossible to power your phone as they make up the myriad of colors on your display screen. Out of a list of seventeen rare earth metals, the ones that are used to make your phone consist of: 

  • Yttrium
  • Lanthanum 
  • Terbium
  • Neodymium
  • Gadolinium
  • Dysprosium
  • Praseodymium

Without these rare earths, especially dysprosium, it wouldn’t be possible to pack such advanced and complicated technology into a small mobile device such as your phone. Just imagine having a phone or a computer that’s the size of your living room! 

Rare earth metals – as implied in its name – are hard to come by. Only a few countries, for example, China, Brazil and the United States have mines specifically catered towards harvesting rare earths. Contradictory to what you may think, however, rare earth metals aren’t all that rare after all. There are nearly twice as many rare earth metals than copper in the planet’s crust. They make up one-five of the naturally occurring elements that we have on Earth. 

The reason why they aren’t as widely harvested is that building rare earth mines come with a cost: it is incredibly hazardous to both the environment and those living around the mines. Rare earth metals are usually deposited near radioactive elements, and mining rare earths entail digging up acids, carcinogenic and other hazardous elements, which cause incredible destruction and devastation to the ecosystems around them. 

Villagers who lived around these rare earth mines were reported to have skin covered with blisters as well as discoloration on their teeth. They and their livestock were poisoned by the soil and water around them. Due to the high cost of mining rare earth metals, not many countries have dared to engage in this costly industry. 

Due to the limited number of mines, it is estimated that the world’s supply of rare earth metals will run out in a hundred years. Until then, phone prices will only go up from here on out as it becomes more and more difficult to procure metals used to light up phone screens. 

Tight Control of Rare Earth Exports From China

The world’s largest rare earth metal mine is located in the Chinese province of Inner Mongolia. It is estimated that China controls more than ninety percent of the world’s rare earth exports, making phone production companies highly dependent on the communist world power. 

Prior to the 1950s, America was actually the world’s leading producer of rare earth metals. However, due to the aforementioned environmental reasons, they were slowly overtaken by the Bayan Obo mine in China. 

With help from the Soviet Union, Bayan Obo slowly became the world’s leading producer of rare earths as manufacturers from all around the world started subcontracting mining work to China, saving money and evading the strict regulations put in place by their respective home countries. In 2000, the State’s largest rare earth mine was shut down as they were no match to the cost-efficient and abundant production of Bayan Obo. 

Citing environmental concerns and conservation efforts, China attempted to put an embargo on rare earth exports to the US and its allies, though experts said that the restrictions were likely put in place as a form of diplomatic resistance against sanctions from the US. 

That brief episode in 2010 revealed just how dependent the world’s technological sector was on Chinese exports. Now, with the US-China trade war raging fiercer than ever, China is tightening its grip on its precious rare earth metals. Without an alternative reliable source for rare earths, it is hard for foreign companies such as Apple and Samsung to acquire these indispensable elements, and as a result, phone prices could only go up. 

Increasing Hardware Specifications

Narrow borders, double-lens cameras, lightning-fast CPU processors… Hardware specifications of phones these days are getting better and better, but they’re also becoming more expensive than ever. Putting things into perspective, the iPhone 6 cost around 200 dollars to make while the iPhone 11 cost a whopping 490 dollars. Among other things, its triple-lens camera kit and colorful retina display were components that cost the most. Not only has the price of rare earth metals skyrocketed, but the general cost to manufacture a phone has also gone up quite a lot. 

Nowadays, UFS 2.1 storage capacity, artificial intelligence chips, fingerprint or facial recognition have been the industry standard for mobile phones. With the recent development of 5G technology, prices have also gone up for acquiring 5G chips as well as for CPU processors. 

Take the Qualcomm Snapdragon 865 processor which is used by many leading flagship phones in the industry, for example, using it requires reconfiguring the insides of the phone to allow it to fit comfortably inside. On top of that, phone companies need to pay Qualcomm an additional hefty sum to use their 5G network. These different components all contribute to the rising cost of a phone. 

The End of Phone Contracts

Previously in the United States, flagship smartphones would sell for around 200 dollars due to two-year phone contracts. Mobile carriers came up with these contracts so that consumers were able to purchase phones at a reduced price and as a result, more users would enroll in their mobile plans. 

In reality, phones cost way more than just 200 dollars; the cost was simply split up among two years and users paid for them in monthly installments along with their data plans. It wasn’t necessarily that phones were cheaper at that time, but that users were unaware that they had been paying for their phones every month due to contracts. 

In 2013, mobile carrier T-Mobile decided to put an end to these two-year contracts to boost their subscription numbers. As their users began to skyrocket, rival companies such as Verizon and AT&T followed suit, effectively terminating cheap initial phone prices. 

After these contracts ended in 2015, users then had to pay for their phones upfront in full along with a monthly fee for data usage, amounting to around 650 dollars per phone. This sudden increase in phone prices alarmed consumers, causing fewer people to change their phones every two years and began holding onto their existing phones for longer periods of time. 

Fewer People Are Buying New Phones

As seen in the chart above, phone sales have remained somewhat stagnant over the last five years. Fewer people are purchasing new phones now that almost everyone owns a smartphone. 

Eight years ago, smartphones were still new to the market and many people were still using button or flip phones at that time. When the iPhone 4S was first released in 2011, only one in three Americans owned a smartphone. Hot off the press and sensationalized by the media, smartphones were seen as the latest hit technology to purchase and own. In five years, the number of people who owned smartphones climbed up to three in four Americans. Phones were no longer luxurious coveted goods but rather commonplace accessories that almost everyone had access to. 

In 2016, Apple CEO Tim Cook described the smartphone market as currently not growing. Due to the end of phone contracts and the widespread usage of smartphones, as right now Americans are changing their phones every three years, instead of every two years as far back as 2016. Fewer people buying phones meant that manufacturers could either create more incentives to boost their sales numbers or increase the price per phone. 

Compensating Sales Number With Price

As previously stated, people are holding onto their phones for longer periods of time, and as a result sales numbers are decreasing for phone manufacturers across the board. Let’s take a look at leading technology giant Apple: for thirteen years in a row, they had been making sales records year after year, but in 2016, they suddenly made less money in a quarter than they did in the previous year. 

Although they were still making billions of dollars of profit, they began to realize that the exponential growth of sales numbers could not continue forever, and hence, they had to take action to protect their revenue. 

They had two options: they could either increase the number of buyers or the price per phone, and since the first option wasn’t possible due to the aforementioned reasons, they decided to jack up the price. Other manufacturers were experiencing a similar slump in sales and decided to adopt the same method. As a result, phone prices seemingly went from 700 dollars to 1000 dollars overnight.

Increasing the Amount Spent on Research and Development

You may think that by buying a phone, you are only paying for its software and hardware. In reality, you are also paying for the factory worker who assembled your phone, the Apple Store salesperson who sold you the phone, and of course, the research and development team that came up with all the new technology that is packed into that phone in your hands.

In the United States alone, Apple hires around 12,000 developers and engineers. Their salary isn’t cheap either, averaging at $117,500. That means more than a billion dollars are spent on the research and development team alone.

As phones are getting fancier with the newest technological offerings and gimmicks, phone companies are spending more to develop cutting-edge technology that would set them apart from their competitors.

Just take a look at Samsung’s latest foldable phone for example, which costs a whopping 2000 dollars. Next time you hold a phone in your hands and are in awe of its multiple cameras, fast processor and 60Hz display, think also about the manpower that it took in developing all these technologies and you’ll be reminded of why your phone is as expensive as it is.

High-end Branding and Pricing

Before the age of smartphones, companies were focused on developing cutting-edge technology that would fit in a compact mobile device; style was perhaps the last thing on their mind. However, phone manufacturers these days are just as concerned about brand image and stylistic factors as they are with functionality.

Just as owning a designer handbag can be a symbol of wealth and status, so does holding a luxury flagship phone elude a sense of high-class manner. Phones have long since stopped being a device that you make and receive calls from, and phone manufacturing giants are eager to rebrand themselves into fashion icons as well.

A phone might not actually cost a thousand dollars, but if it is priced as such on the market, buyers who wish to display their wealth and stature are more likely to purchase it than a cheap phone that is geared towards the masses. Whether we like it or not, phones, being ubiquitous little devices that are almost owned by everyone, tend to say more about a person’s economic background than we tend to think.

Resources

https://www.theverge.com/2019/3/18/18263584/why-phones-are-so-expensive-price-apple-samsung-google

https://www.phonearena.com/news/iphone-galaxy-oneplus-8-pro-prices-camera-5G_id123515

https://cellphones.lovetoknow.com/buying-cell-phones/why-are-cell-phones-expensive

https://medium.com/back-market-engineering/smartphone-price-get-high-b82ec306a8fd

https://www.independent.co.uk/news/science/mobile-phones-elements-periodic-table-endangered-chemicals-st-andrews-a8739921.html

https://www.livemint.com/technology/tech-news/new-sensor-spots-rare-metals-used-in-smartphones-1556101297831.html

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