The Era of the sub-$100 Smartphone

In the tech industry, the $100 price point is something of a holy grail. For almost a decade now, philanthropists have been talking about developing a $100 laptop that will close the digital divide between the computer haves and have-nots.  The cost of laptops and netbooks is falling steadily, but it will be the smartphone and, perhaps the tablet, that will really bring the world online.

 We are nearing the point where sub-$100 smartphones, complete with mobile broadband connectivity and touchscreens, will be widely available, enabling many more people to access a vast array of online services, content and information.  Early this summer, international mobile operator Vodafone, for example, plans to begin selling an own-brand smartphone on a prepaid subscription for 90 euros (about $125) in Europe. Running the Android operating system, the Vodafone Smart 858 sports an HSPA modem enabling it to access the Internet at broadband speeds. In the U.S., the T-Mobile Comet smartphone, also equipped with HSPA and running Android, is available for $125 with a prepaid subscription or $99 for a refurbished model.

These are just two of the hundreds of HSPA smartphones worldwide competing for consumers’ attention. The global reach and scale of HSPA, which now accounts for almost 500 million connections worldwide, is attracting a host of device manufacturers from across the mobile, consumer electronics and computing sectors, driving fierce competition, low prices and strong sales in the smartphone market, in particular. Analyst firm Gartner reported in May that consumers bought more than 100 million smartphones in the first quarter of 2011, accounting for nearly one quarter of all handsets sold.

While the smartphone is a great device for many services, some people will want a bigger screen to surf the Internet, read newspapers or books and watch video. That is where the tablet computer comes in.  As Apple’s breakthrough iPad has demonstrated, the touchscreen tablet is the ideal device for consuming content.  And many consumers, at least in the developed world, are adding the tablet to their shopping list.

But can tablets be made cheap enough to become a mass-market Internet access device used by hundreds of millions of people across Brazil, Russia, China, India and other developing countries?

There are already 27 HSPA-enabled tablets available, according to the Global mobile Suppliers Association (the GSA)., but most of these likely cost about $500 unsubsidised at retail – more than most netbooks.  Tablets’ price tags reflect the fact that the market is still very young and has yet to see the full benefits of competition and scale.

Some industry experts believe tablet prices are going to fall dramatically in the next 12 months and that they may eventually hit the $100 price point that would open up the mass-market across the world.  Richard Kramer of Arete Research told a recent conference in London, hosted by the Telco2.0 initiative, that he believes that $99 tablets could become the predominant computing platform in India and other developing countries.  These tablets could be connected to mobile broadband networks using shared HSPA dongles or so-called Mi-Fi devices (a standalone modem that uses HSPA as the backhaul to create a WiFi hotspot).

Eventually, it may even become feasible to sell sub-$100 tablets with embedded HSPA connectivity. The cost of GPRS modems fell dramatically as the technology became a standard feature in mobile handsets and HSPA modems are also now being produced in very large volumes, enabling manufacturers to lower their cost per unit.  The mobile industry is on track to hit one billion HSPA connections by the end of 2012.

But large touchscreen displays are still expensive, keeping tablet prices high.   Ironically, these touchscreens are also the key to taking tablets to the mass-market. For computer novices, a touchscreen is a far more intuitive interface than the mouse and keyboard offered by laptops and netbooks – toddlers can pick up an iPad and start playing with it. Moreover, a tablet’s graphical user interface can help overcome the many language and literacy barriers in the developing world.

Tablets’ ease-of-use is already fuelling strong demand and rising sales will soon help touchscreen manufacturers achieve greater economies of scale and lower prices. But low cost tablets and smartphones will not be enough to bring the world online. We also need ubiquitous, high-quality networks.  

Sceptics argue that HSPA networks don’t have the capacity to serve large numbers of tablet computers simultaneously. Today, that is probably true. But mobile technology isn’t standing still. Some 93 operators have deployed HSPA+, an upgrade to HSPA, which makes more efficient use of the available spectrum.  These HSPA+ networks deliver peak throughput speeds of up to 42Mbps.

LTE, which has already been deployed by 21 operators worldwide, also offers a step-change in performance and capacity over vanilla 3G networks. U.K. regulator Ofcom said in May that its research had found that LTE and similar technologies will deliver more than 200% of the capacity of existing 3G technologies, using the same amount of spectrum.

However, Ofcom acknowledged that more spectrum is also needed to meet booming demand for mobile broadband.  Other regulators are coming to the same conclusion and I expect far more spectrum to be allocated to mobile broadband services over the next decade.

As HSPA+ and LTE networks proliferate, smartphone and tablet manufacturers will increasingly add these technologies to their devices and economies of scale will kick-in. The first HSPA+ and LTE smartphones are now appearing on the market and tablets won’t be too far behind. The GSA recently reported that there are now 144 HSPA+ devices available, a threefold increase year-on-year.

While the first HSPA+ and LTE smartphones are clearly going to be premium products, priced accordingly, they will eventually reach a tipping point and economies of scale will kick in. In time, HSPA+ and LTE smartphones will also surely fall towards the $100 mark as large numbers of suppliers compete vigorously on price and features.  Isn’t global competition a wonderful thing?