I am an electronic engineer and design products. I have a fair idea of how much components cost. For one of my projects I bought a Sony Ericson GSM unit. This comes complete with GSM, 3 types of audio coding (PCM, etc...), keypad scanner, full AT command set, GPRS class 10 with TCP/IP stack, programmable I/O, user serial ports, real time clock, LED drivers,....and that is just off the top of my head. It costs R500 unit price. If you go to about 2000 units you can get them for R350. If you are someone like SonyEricson or Nokia then the core won't cost you anything near R350, rather R100 or less.
Take the above and add GPS navigation with a user programmable CPU running at 200MHz and you are talking just over R1000(again unit cost), all just on the area of a credit card.
LCDs can be costly especially in small quantities, but I reckon you can get a nice display (like the one on my Samsung E700) for about R400. The idea is not to use custom displays but more generic ones. So in theory someone like Nokia should be able to use something of the shelf. Epson is bringing out a plastic, as apposed to glass, based LCD this year dropping the cost even further. Bottom line is that when you reach quantities of a few thousand the cost drops a lot!!!
Plastic enclosures are expensive. You pay on average R30 000 for the cheapest 1-part mould. You could end up paying R500 000 for detailed moulds, and that does not even include the once off engineering cost. Lets say a phone's tooling will cost R1 000 000, then selling 100 000 units will add R10 to the cost of the phone. Plastic costs cents per unit. If Nokia sells only 1 500 cell phones of a certain model then it will cost close to R700 for the tooling cost per unit, but we all know they sell a bit more than that
Batteries are black magic. Again mass production brings down the cost. At the end we already pay too much for replacement batteries. The cost varies a lot depending on type and capacity, but this should not cause a phone to cost R4000+.
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The contract thing is vary much like insurance. Good risk pays for bad risk. In this case you get many people with cellphone bills of R2000+. I know these kind of people. They risk brain cancer looking at the time they are attached to their phones. So some people will use less than the cost of their cellphones. One thing to keep in mind is that the big spenders need people to call. Looking at my call usage I find that I receive a lot more calls than I am making.
At the end of the day the average usage of all users is levelled out and depending on the billions of profit they make they can afford to 'seed' the market with non-callers aka call-receivers. The idea is to make the money flow.
I used to be a call receiver type of guy. Basically made less than 10 short calls per month. Lots of people did call me. Now I am more a spender call maker kind of guy. In the span of 2 years I would have spent R14400 on contract and calls basically paying off each month contract subs and the R3600 my phone went for at time of sale. That leaves about R6500 extra.
* If all people made 10 calls per month the phones would not be free.
* Looking at simple electronics costs even the most advanced phone just has more software features. So you are paying more like you would for airbags and other options on a car. My feeling is that they are stuffing the price. The average electronic device's real electronics only contribute 10% to the final product's price.
So prices are manipulated and they are seeding the market with more handsets than required. I have received 2 handsets every two years since 1996. I give them away to friends and family. This opens up more future business for pay-as-you-go.
Think about this: If petrol was like airtime then companies like BP and Mobil would have given the cars away for free. You would be paying a lot per kilometer though. And if you think this is a funny thought then be more amused to know that there are companies out there that do just that. You get a car, must drive a minimum number of km/month. The cost includes petrol, services, insurance, the works. Some clients don't drive that much but some do 800km per day.
Another thing to consider is that electronic components are shrinking in size and cost. Example 433MHz remote control. Many remote controls are still about R100 for a transmitter and R200 for a receiver. Those are historic prices. The components I get these days contains a chip with a built in CPU, receiver and transmitter with PLL in a small 5x5 mm chip for only R30(unit cost). People will be milked until they learn otherwise.
Thought I would share a few things you could tell your family over Sunday lunch
VMS
