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02:06 PM

Smartphones Getting Less Expensive

Within 5 years, 45% of smartphones will hit the market for less than $200 with a new contract, according to data from ABI Research.

It may soon be easier for consumers and businesses to buy smartphones, according to a study from ABI Research that said the retail cost will continue to go down.

The report, "Smartphone and OS Markets," said only 18% of smartphones in 2007 were commercially available for under $200, but this year that number has grown to 27%. The report also estimated 45% of smartphones will be priced below $200 by 2014.

The original Apple iPhone was a hit with reviewers, but its high initial price tag meant it was a relatively niche device. The iPhone 3G became a massive sales hit partly because its $199 entry price-point was more affordable to a wider audience. ABI also said the iPhone spurred overall interest in other smartphones because it raised awareness about what these devices were capable of.

"Nearly all consumers used to choose handsets based on the physical characteristics of the hardware, not the software inside," said Kevin Burden, ABI's mobile devices practice director, in a statement. "The iPhone changed that: more users are now shopping for their handsets based on the operating system and software, which is something once thought to be very unlikely."

The downward pricing pressure is also a competitive response to the iPhone, as marquee handsets like the Motorola Droid, BlackBerry Storm 2, and the HTC Hero will all be released for less than $200 with rebates and a new contract. While the report said there may never be a $30 smartphone, ABI expects the greatest increase in smartphone shipments over the next few years will be in the $100 to $200 range.

The wireless carriers will play a large role in the widespread adoption of smartphones, as the mobile operators' subsidy dollars are vital to get these devices to the $200 price point. With limited subsidy dollars to go around, the downward pricing pressure may make royalty-free operating systems like Android or the open source Symbian more attractive, and it may open the door for low-cost handset makers like INQ Mobile.

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