Chief Executive Philipp Humm said in an interview that many of his smartphones will eventually be made up of Google-powered phones costing less than $100, half as much as the smartphones typically available at U.S. carriers. In October, to lower the cost of monthly bills, Mr. Humm introduced a limited data plan that costs $10.
The move acknowledges the reality of the market, where larger rivals Verizon Wireless and AT&T Inc. dominate the high end with devices like Droids and the iPhone. Mr. Humm is targeting lower-end contract and prepaid customers. But it is also the latest sign that carriers have to bring down prices to expand smartphone use.
"We are working with our vendors on this one to drive the price of smartphones down," Mr. Humm said. Not every customer is going to want or need the premier high-end handset, he added.
Smartphones turned mobile phones into minicomputers with better software, bigger screens and greater processing power. High-end devices like the iPhone contain just under $200 worth of parts, according to tear-downs by iSuppi Corp.
Their retail prices started dropping almost immediately after they were introduced. Apple Inc. cut the price of its top iPhone by $200, to $399, about two months after its June 2007 launch. Carriers have continued to cut the price of devices and service plans in an effort to expand their appeal.
Earlier this week, Sprint Nextel Corp. rolled out a new phone for its fast, next-generation wireless network and priced it at $149, $50 lower than the price of a similar 4G phone. "We just felt that it made sense and we need to break past that $200 barrier for 4G devices," said David Owens, Sprint's vice president of consumer acquisition. "It is an incredibly aggressive price point."
During the holidays, Verizon Wireless offered a cheaper smartphone data plan — $15 for 150 megabits a month—to lure in new users. The offering followed AT&T's move to tiered pricing over the summer, when it rolled out a plan charging $15 a month for 200 megabits. T-Mobile's plan is even cheaper — $10 for 200 megabits.
Google Inc. has made it easier to produce competitively priced smartphones by giving away its Android operating system. Cheaper smartphones may have slower processors or less advanced screens and cameras, but a lot of the basic functions are similar to those on top phones.
Getting manufacturers to bring down the price is important if carriers are to cut the retail price because they subsidize smartphones heavily. Apple's most expensive iPhone retails for $299 in the U.S., but Apple said in October it collected an average of about $610 a phone in the third quarter. Carriers make up much of the difference.
T-Mobile, the fourth-largest U.S. carrier behind Verizon, AT&T and Sprint, says it won't gear its lineup exclusively to the low end, but it will offer a range of smartphones, including high-end devices.
T-Mobile USA's third-quarter results showed improving performance, but a bulk of the growth came from less profitable prepaid customers. In November, the company said it was having trouble holding on to its most valuable customers, in part because it doesn't offer the iPhone. Mr. Humm, in an interview at the Consumer Electronics Show in Las Vegas, acknowledged that the likelihood Verizon Wireless getting the iPhone as well could affect his subscriber numbers.
Mr. Humm, who introduced the iPhone to T-Mobile in Germany, declined to comment on whether T-Mobile USA would get the device. T-Mobile is a unit of Deutsche Telekom.
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