A recent article in Fortune Magazine, 2011 will be the year Android explodes – Google 24/7 – Fortune Tech, discusses the imminent collapse of the floor from under the prices of Android-based smartphones.
The writer postulates that one of the results of such collapse in the developed countries, especially in the US, is that it will kill the need for carrier subsidies for the cost of smartphones, which have been the main generator of 2-year contracts for carriers. Subscribers will be able to buy an “unlocked” smartphone and have month-to-month contracts with their carrier of choice.
Carriers whose networks are based on standard other than GSM have multiple reasons to worry:
1. The fact that most of the world uses the GSM standard means that GSM-based smartphones will become cheaper than CDMA-based ones. As a large number of users from emerging countries enter the smartphone market, the prices of GSM-based smartphones will drop as companies compete to cater to emerging markets. On the other hand, CDMA-based smartphones will become a niche market that may not see the benefits of such price drop.
2. As smartphone become affordable to buyers without a contract, American carriers that use the GSM standard (AT&T, T-Mobile, Virgin Mobile…etc.) will have compete to attract and retain consumers who are not contract-bound. This means that carriers who use the CDMA standard will have to drop their prices while subsidizing their own, more expensive smartphones.
3. Unlocked GSM smartphones may become more attractive to consumers because they allow them to switch carriers without changing devices. This may not be possible for CDMA phone users since it is not easy to change carriers.
Having said this, it is important to note that such dynamics didn’t play a role in the traditional cell-phone market in the US. Will smartphones be different as the market matures? It remains to be seen.