By Seth Weintraub
January 8, 2011

…and Google is well positioned to get this un-tapped market.

The talk this week will be of AT&T (T) iPhone users moving over to Verizon (VZ), but the bigger trend for 2011 will be the migration of featurephone users to inexpensive smartphones with cheap, limited data plans.  Along with inexpensive phones, data plans need to drop.

The WSJ caught this trend at CES:

During the holidays, Verizon Wireless offered a cheaper smartphone data plan — $15 for 150 megabits[sic] 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.

(note: the plans obviously call for megabytes, not megabits)

We know that Google’s (GOOG) Android phones are quickly heading below $100 retail (unsubsidized) but how the carriers choose to sell these phones will be the biggest factor in adoption.  Luckily, the major carriers are starting to offer cheap data prices.

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.

A carrier doesn’t need to subsidize the cost of a $75 smartphone much (<$5/month) so customers are just paying for data, bringing costs down even further.  T-Mobile’s $10/month for 200 megabytes of data may be the price point which gets a lot of featurephone users to upgrade to smartphones.

Alternatively, T-Mobile’s pre-paid phone plans are its biggest growth mover.  Perhaps the carriers should start to look at the model Virgin is following.  Virgin offers the Samsung Intercept for around $200 unsubsidized (that will come way down in 2011).  After that, users can buy unlimited plans for $25/month after taxes.

Cricket and other smaller carriers are experimenting with this model as well.

For me, that is the model that works best.  Customers strapped for that unsubsidized phone initial cost can ‘subsidize’ it themselves with their own credit cards if they can’t cover the initial cost.  With technology moving so fast, it seems shortsighted to sign up for a two year plan.

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