Falling smartphone prices = problems for operator control?

Conventional wisdom has it that operators are looking forward to smartphone prices dropping, and it means they will need to spend less on subsidy to acquire and retain customers.

Leaving aside the likelihood of iPhones continuing to stay at the top of the range, it's certainly becoming true that the lower end of the Android device range, as well as Symbian, Bada and BlackBerry, are falling precipitously, already in some cases to below $150-200.

Now while there will always be the tech enthusiasts wanting the ultimate 2GHz, super high-res screen, OS version 9 smartphones, it's possible that Joe or Joanne Average will be happy with something with a decent browser, fairly responsive screen, OK camera, good Facebook client and a screen big enough to watch kittens doing backflips on YouTube. Some will want a QWERTY

That price point is likely to reach $100 in the not-too-distant future. At that point, the world changes a bit. It's a discretionary purchase, like a new shirt or a pair of mid-range trainers, or a nice meal. It becomes subsidisable down to zero by a whole host of companies, not just mobile operators who want to pad out their ARPU with repayments from a thinly-disguised consumer credit loan.

And this will bring some interesting issues - especially whether  people continue to opt to buy the "operator-ised" version of phones, or end up getting them "vanilla" via Amazon or (almost) free with their breakfast cereal. You'll certainly get smartphones given away free with other purchases - maybe "Buy a new Samsung TV and get a Samsung Android Remote Control Smartphone free!!!".

At the moment, about 50% of the world's phones go through mobile operator-controlled channels. But a higher % of smartphones take that path, because they tend to be predominantly bought by post-paid customers, often bundled with a subsidy or a fixed "plan".

As smartphones become more accessible to prepaid users or basic SIM-only conract customers (who usually buy phones for "full retail" price, or re-use an old handset), there becomes less incentive to get them through the operator channels.

This then means less incentive to get the operator software-load (own-brand apps, appstores, connection manager / offload client etc). Coupled with Apple's reluctance to let operators customise iPhones, this is likely to mean that operator "control points" will, in a growing % of smartphones, be relegated to the SIM card or the network, unless the telco can persuade users to download their branded clients and install/configure them.

As I'm writing this, I just received a  press release from ST-Ericsson about hardware platforms for the growing demand for dual-SIM phones. They will *obviously* be sold as vanilla devices as well.

At the moment, most of the world's unlocked phones are low-end devices for voice/SMS customers.

What's unclear is what happens when there's a large enough population of unlocked smartphones as well, with 3G and WiFi and lots of memory. What applications and user experiences go viral? Will we see auto-tethering and connection-sharing emerge? Wide use of a cool new VoIP service? Content-sharing? Applications which work out how many minutes / GB you've got left at the end of the month, so they can resell them or share them with your friends?

The bottom line is that lower phone prices might lead to a reduction in subsidy expenditure by operators. But ultimately this may just further erode control over the user as well. If a phone only costs $100, why would you buy it from someone who takes a strict line in telling you how you may use it?