Chapter 19 Question ○14

Why does a mobile phone only sell for thirty-nine.Ninety-nine dollars, but an extra battery for the phone costs fifty-nine.ninety-nine dollars? (Gu Tianxin) In some places, if you sign a two-year contract with mobile carrier Verizon, the company will pay 39.$99, for a super cheap price, sells you a Motorola V120e cell phone.But if you want to buy an extra battery for this phone in case of emergency, it will cost fifty-nine.Ninety-nine dollars.Why do spare batteries cost more than the phone itself? The rechargeable lithium batteries used in mobile phones are expensive to manufacture.Therefore, the more curious question should probably be, why are mobile phones sold so cheaply?

The answer lies in the unique cost structures of mobile operators.Most of the costs for such companies are fixed costs related to laying out the network, building base stations, obtaining relevant licenses, and so on.These costs, like advertising spend, do not vary with the volume of services they provide.No matter how much mobile operators spend to attract customers, this part of the cost will never disappear. Assume that the monthly fee for a regular service contract is $50.Then, for each customer that signed up, the company gained an additional $600 a year in revenue without a significant increase in cost.Therefore, mobile operators hope to attract more customers.

Cell phones and wireless service are highly related things.Experience has shown that offering mobile phones at special prices is an effective means of attracting new customers.Because of the large order volumes, mobile operators can negotiate extremely favorable prices with Nokia, Motorola and other handset makers.Many mobile operators offer new customers a lower price for their handsets than they paid for them, and some even offer free handsets.But even if the carrier pays $100 for a phone from Motorola, as long as the customer signs a contract with them and pays $600 a year for communication services, the deal is still a bargain.

On the other hand, selling batteries at a discount is not a successful means of attracting new customers. (That's not surprising, since most people don't need multiple phone batteries most of the time.) So mobile carriers find it profitable to sell phones cheaper than batteries.