Smartphone Costs to Plummet in 2011 and Beyond

by Mercator Advisory Group 0

We’ve written in the past at how smartphone penetration will accelerate based on dropping hardware costs. That observation was simply based on the inexorable declining cost curve for new technologies. Volume and chip level integration do a lot for costs. PCs, notebook computers, and flat screen TVs are all proof. Why should smartphones be different?

As this discussion demonstrates, they aren’t. New chips from Broadcom and the no-cost Android mobile operating system will wildly democratize smartphones globally. And it could also change how customer acquire phones. Rather than getting locked in to a two year subsidized contract, a consumer could own a smartphone outright for $100 and move it from carrier to carrier as new month-by-month deals come out. For the consumer, the ROI on the price of freedom is easy to calculate. And that changes carrier economics.

Why’s this relevant to payments? If consumers own their handsets outright, they should have access to all of the capabilities of the device, including NFC. Elsewhere, we’ve written about our concerns for NFC as a balkanized technology, controlled by fiefdoms made up of carriers or handset manufacturers. Un-subsidized smartphones would make that level of control much harder. At the $100 level or less, smartphones will quickly replace today’s low end feature phones as well. NFC ubiquity could happen within three to four years.

Perhaps more importantly, at $100, many first-world shoppers will forgo the subsidized two year contracts and instead choose month to month plans. That price point takes the power away from the carriers. If T-Mobile is having a special and I can just take my AT&T phone over without being hit with early termination fees, the carriers are much more likely to compete for customers.
That, in turn will likely push data prices down. We are already starting to see this happen. Virgin offers a $25/month unlimited data plan off contract. T-Mobile offers a limited $10 date plan off contract. AT&T has tiers that start very low.

Consumers used to feature phone monthly costs of $30/month may even opt to forgo wireless data altogether, instead choosing to use the smartphone’s built in Wifi radio to surf near-ubiquitous Wifi in homes, at work and about town. To entice low end smartphone users away from just using Wifi, carriers will have to make affordable data plans.
Cheap smartphones could change the way carriers price contracts here in the U.S.

Read the post at Fortune:
http://tech.fortune.cnn.com/2010/12/22/2011-will-be-the-year-android-explodes/