(Editor’s Note: The company TracFone contacted PCWorld after this blog posted and offered a rebuttle to points made by Hernandez. TracFone’s response to this blog can be found at the bottom of the post.)
It’s no surprise that the wealthy would be more wirelessly equipped with a cell phone and laptop computer — heck, they probably even have an iPad by now — but the report saw something different in the the less affluent and less educated masses. Many didn’t even have a computer, but instead seemed to gravitate to a cell phone to access the Internet. About 20 percent of high-school dropouts use only a cell phone for wireless access, and 17 percent of them making less than $30,000 per year do the same. Households with less than $30,000 per year also had the highest jump, about 11 percent (tying with 18- to 29-year-olds) in wireless use.
Part of the reason could be because of government subsidies that give cell phones to the poor. In a saturated market, the only new business for mobile phone carriers may be the largest untapped one. “The low-hanging fruit is gone, and the wireless companies are going after the nooks and crannies,” Roger Entner, a wireless industry analyst with Nielsen told the New York Times. ” ‘Oh, the poor: How can we sign them up?’ “
Profits may not be large, but they’re there — carriers can receive up to $10 per month in subsidies, sufficient to cover what amounts to about $3 in service, Entner said.
About 73 percent of adults in poverty are estimated to have cell phones, likely because cell phones are one of the few consumer goods that can be obtained prepaid or pay-as-you-go, a necessity for someone on a tight budget who can’t afford a hefty deposit or a two-year contract. (No credit history can also make obtaining a cell contract next to impossible.) While $400 for a laptop may seem cheap, it could be a week’s pay for some consumers.
Enter TracFone, one of the biggest services in the prepaid cell world, which offers plans starting at $9.99 per month, and also the purveyor of SafeLink, a free service easily afforded by low income users and subsidized by taxpayers in 25 states and Puerto Rico. Wal-Mart’s Straight Talk prepaid program has also garnered market share for the budget-conscious. Other providers are likely to start infiltrating the market when customers decide to upgrade service.
“It’s a clever marketing tool,” Joel Kelsey, policy analyst with Consumers Union, publisher of Consumer Reports told the Philadelphia Inquirer. “Once the minutes are up, customers will dig deeper to pay for more.”
If statistics like Pew’s continue, our country may even see a distinct difference in the poor and wealthy — one reliant on their cell to access the Internet while the other is laden with numerous gadgets, from laptops to iPads to game consoles, all with wireless Internet access. While many may view this as a preference for smartphones over unwieldy laptops or PCs, it may be that for some people it isn’t a preference at all, but simply what they can afford.
TracFone’s Rebuttal (added 7/9/10)
SafeLink deserves praise – rather than venom – from PCWorld. Had the author, Ms. Hernadez, contacted TracFone for its side of the story, we would have informed her that SafeLink provides free cell phone service to more than two million Americans living in poverty in over 26 states.
Many of these low-income individuals otherwise would have no access to phone services – landline or wireless. What TracFone is doing to help ensure universal access to telecommunications is exactly what was envisioned when Congress voted in a bipartisan fashion for the Telecommunications Act of 1996 ensuring that quality telecommunications services are available to low-income customers at just, reasonable, and affordable rates.
Instead of just discounting phone service as had previously been done under the federal Lifeline program that made SafeLink possible, TracFone converts the available subsidy to free minutes. Additionally, TracFone pays for the phones and the awareness-raising campaign for SafeLink. Though SafeLink beneficiaries can opt to buy additional minutes, there is no pressure applied to them to do so. Any suggestion to the contrary is inaccurate. – TracFone