Buy an iPhone? No thanks, I'm going Nokia

NEW YORK--Collins Osei, who had bought an iPhone 3G last year, came to the AT&T store Friday not to buy the latest-generation iPhone 3G S, but instead he wanted to downgrade to a less expensive Nokia phone.

Nokia 2600

(Credit: CBS Interactive)

Osei said his decision to go back to a basic-feature phone was all about cost. The iPhone and its service plan are simply too expensive, he said. Osei, who is in the middle of his two-year contract with AT&T, had his iPhone 3G stolen recently. But he said replacing it with a new one would cost too much. Instead, he picked up a Nokia 2600 for a mere $43.

But Osei's decision didn't hinge just on the upfront cost of the phone. He also said he was tired of paying the additional $30 a month data charge that is mandatory with the iPhone.

"The iPhone plan was just too expensive," he said. "They made me pay $30 extra a month for data, and I don't really need the Internet on my phone. So I went back to a regular phone. And now I'm on a plan that costs $39.99 a month."

Osei might not be the only consumer out there turned off by the high cost of the iPhone service fee. Unlike previous iPhone launch days, there was no line of people this morning waiting outside the AT&T Time Square store hoping to get the latest iPhone 3G S. In fact, it looked like more customers were leaving the store empty-handed or with other devices than those leaving with new iPhones.

The reason for this might be that the new-generation iPhone is only an incremental advance in terms of hardware over last year's model. The two main highlights of the new phone are its faster speed and larger memory. Or perhaps more consumers had their new iPhones shipped directly to their homes.

But the sparse crowds at the AT&T store might also have something to do with the slumping economy. With the national unemployment rate over 9 percent, some consumers are reconsidering buying expensive smartphones and pricey service plans. AT&T and Apple have worked hard to bring the entry cost of the iPhone down to an affordable level. The new iPhone 3G S starts at $199 with a two-year contract, and last year's 8GB iPhone 3G has been reduced to just $99. But customers are required to sign two-year contracts for these phones, which at a minimum will cost them $1,680 over the life of their service contracts.

Peter Pham, CEO of Billshrink.com, a Web site that helps consumers cut waste out of their monthly bills said that it sometimes takes consumers a little while before they realize the full impact of the service fees on their wallets.

"Most people don't realize how much they are paying for their service until they are about six to seven months into their two-year contracts," he said. "And then they start to realize that their bills are really high."

The majority of cell phone users in the U.S. don't use all the services that they pay for, Pham added. His company's Web site can analyze consumers' phone bills and help them figure the best plan for their usage patterns given where they live.

Meanwhile, smartphones, such as the iPhone, continue to sell well. Analysts are predicting a big launch weekend for the new iPhone 3G S. Apple and AT&T are expected to sell more than 500,000 units over the next few days. Apple sold out of its preorder phones well before launch day, and it looked like there were steady lines Friday morning at Apple stores throughout the country.

But as the smartphone market matures and if the economy worsens, it will be interesting to see if consumers start demanding less expensive data plans from their carriers. Or perhaps some, like Collins Osei, will simply go back to their basic cell phones.