Palm Pre, other smartphones will still sell despite recession

Despite monthly costs of $70 or more for voice and data service on new smartphones such as the Palm Pre, consumers and business users have been lining up to buy the devices when they first go on sale as if the recession had never hit.

The phenomenon has had some analysts scratching their heads, since a $70 monthly cost would amount to paying $1,680 over two years as required under most carriers' subscription plans. That amount includes neither taxes and fees, nor any of the costs for a range of add-on devices or applications that many users find essential. It's fairly easy to reach $3,000 over two years for a single user, not including the cost of the actual device.

One of the reasons that some buyers are willing to pay that much is because they are early adopters who want the latest thing. The biggest complaints seem to come from buyers who are standing in line waiting to buy a new phone and from those that they have to pay $200 for an early termination fee to switch carriers.

Some buyers justify the cost of a smartphone plan as a replacement for a landline phone, which more consumers are willing to give up, noted Jack Gold, an analyst at J. Gold Associates.

Smartphone buyers, however, are not usually the buyers who would fret over a $70 monthly cost, said independent analyst Jeff Kagan. "Some customers are struggling in the recession and would not want to pay $70 a month, but they are not the target of the new Palm device or other smartphones like the iPhone or BlackBerry," Kagan said. "You have to look at what other similar devices are doing to compare, and other devices are actually doing very strong business."

For example, the iPhone has sold more than 21 million units globally, most in the U.S., since mid-2007. Its cheapest service plan is $70 a month for data and 450 minutes of voice, an AT&T spokesman confirmed. "A lot of people are buying that," he noted, without providing further details.