iPhone spend sets US record

It took a computer-maker and a pager company to convince Americans a mobile phone is worth paying for, and now shoppers are splurging.

The US customers shelled out 40 per cent more for handsets last quarter than a year earlier, just as Apple put its Web-browsing iPhone on sale and Research In Motion brought out BlackBerry e-mail phones with video features. Spending rose to a record and jumped the most since at least 2005.

Americans, previously hard-pressed to pay $50 for a phone, are now more like their European and Asian counterparts and paying $300 to $400 for the top devices. That will translate into higher sales for Apple and Research In Motion and may bolster rivals Nokia and Sony Ericsson Mobile Communications, which tried for years to promote camera and music phones to the US buyers.

"The iPhone has made the US consumer appreciate the value of the mobile phone," said Carolina Milanesi, an analyst at Stamford, Connecticut-based Gartner.

The trend will continue this holiday season, said analyst Ross Rubin at NPD Group, which collects retail data.

Sales of pricier handsets such as the iPhone almost tripled last quarter and made up 11 per cent of phones sold in the US, Port Washington, New York-based NPD said.

Shoppers spent $3.2 billion on phones, or $83 each, up from $2.2 billion a year earlier and the most since NPD's records began in 2005.

Investors will look for proof today that the pace held up over Thanksgiving when Research In Motion reports fiscal third-quarter earnings. Net income probably doubled to $351 million in the period through December 1, while sales almost doubled to $1.65 billion, analysts in a Bloomberg survey estimated.

Shares of both Waterloo, Ontario-based Research In Motion and Cupertino, California-based Apple have more than doubled this year amid the jump in demand for so-called smart phones.

North America is the only region where the average phone price will increase this year, said Milanesi. Last year, mobile handsets sold in Japan cost 74 per cent more than in North America. In Europe, they were 10 per cent pricier.

While consumers in parts of Europe and Asia for years have spent hundreds of dollars on phones from Nokia and Sony Ericsson, only "extraordinary'' devices have fetched such prices in the US, said analyst Roger Entner of IAG Research in New York.

The iPhone, which doubles as a music player, cost as much as $599 when it went on sale in June and now sells for $399. Apple shipped 1.4 million of them in the first three months. BlackBerrys go for as much as $300.

The US carriers have used subsidies to keep prices of most other phones down. Motorola's Razr, which sold for as much $500 when introduced in 2004, can now be had free.

Subsidies have made it difficult for phone makers to sell directly to consumers and made carriers the gatekeepers, deciding which phones to offer.

"Carriers cheapened the device in the eyes of the consumer," said Entner. "That will change if manufacturers can keep coming up with really, really cool devices.''

For Steve Rogalski, a real-estate broker in Westchester County, New York, that change came in June. Having never spent more than $100 on a phone, he shelled out $599 for an iPhone, which he also uses as a map tool and a camera.

"I waited until the right device came along," said Rogalski, 61. "No other phone" ever made him want to spend that much.

Rivals to the iPhone and BlackBerry still need to prove they're up to the challenge. Apple benefits from a loyal following for its iPod music players and Macintosh personal computers, which sell at a premium compared with rival products.

Research In Motion won over bankers and lawyers with its reliable e-mail pager before branching into phones with video and music players for the consumer market in the past year.

"In the US, there are very few phones that are status symbols," said IAG's Entner. Even as demand increases, the handset needs to be "really, really attractive" to succeed.

Encouraged by the iPhone's success, Nokia, Motorola, Samsung Electronics and Sony Ericsson will push higher-end phones on Americans, said Barry Gilbert, a vice-president at researcher Strategy Analytics in Boston. They may open more stores to reach consumers directly, instead of relying on the carriers, which don't always offer the top models.

Nokia ranks fourth in the US. Sony Ericsson, fourth in worldwide sales, doesn't even crack the US top five.

The company is a joint venture of Sony and Ericsson. Nokia is seeing signs of change, spokesman Keith Nowak said. Customers lined up outside its flagship store in Manhattan to buy the $699 N95 camera and navigation phone this year. The company, based in Espoo, Finland, also has an outlet in Chicago.

"People are willing to pay," said Nowak, who is based in White Plains, New York. "The interest has been shifting to what these devices can do."