As prices fall, smartphones make consumer gains

Lost in Apple Inc.'s unveiling Monday of the latest, faster version of its iPhone was the price cut of an older model to $99 US with a two-year contract with AT&T.

Lost in Apple Inc.'s unveiling Monday of the latest, faster version of its iPhone was the price cut of an older model to $99 US with a two-year contract with AT&T.

The drop in price, announced at Apple's Worldwide Developers Conference in San Francisco, was expected, in one sense, as technology companies typically offer better deals on older models to get rid of excessive inventory and make way for pricier products, said Philip Redman, an analyst with Gartner.

But in making a mobile handset with internet capabilities available for $99, Apple could also be signaling a shift in the mobile phone market, as smartphones move from a niche product to consumer mainstay.

Market analyst IDC Canada said Tuesday mobile phone shipments in Canada are expected to decline 3.8 per cent in 2009 compared to last year as a result of the economic recession. Those numbers also indicate that the makeup of the mobile phone market is in the midst of a transition to smartphones, IDC said.

IDC said the sale of traditional mobile phones without high-level operating systems fell 37 per cent in the first quarter of 2009, compared to the same period a year earlier while smartphone shipments rose 38 per cent during the same time frame.

Smartphones are still a small part of the overall market — about 27 per cent of mobile phone shipments — said IDC Canada analyst Kevin Restivo, but faster wireless networks and better handset capabilities have spurred greater adoption.

"These are still early days for smartphones," said Restivo. "In terms of functionality, they are only now starting to do what people expect them to do. For a long time, smartphones meant wireless email, and that was it."

Apple announced the price drop for the older phone to make way for the iPhone 3G S, which will sell for $199 US for the 16 GB version and $299 US for the 32 GB version. for American customers who sign a two-year contract with AT&T. Canadian pricing will be announced on June 19 when the phone becomes available, the company said in a news release.

The news of the new handset comes as Apple begins to face fierce competition in the smartphone market. Palm's well-received Pre phone debuted on Saturday. Waterloo-Ont.,-based Research in Motion has launched a number of consumer-friendly BlackBerry's in the last year, and Google Inc.'s Android operating system is now available on phones in Canada and around the world.

Restivo said it's too early to say whether Apple is hoping to segment the smartphone market with a lower-end phone or if it's simply clearing inventory. But either way, he says, the cost of the handset accounts for only a small portion of the price of the phone for consumers, as the voice and data plans on the phones accounts for most of the revenue.

Redman says pricing of data and voice plans is slowly going down on smartphones as competition increases, but he said there will be limits to how low carriers will be willing to go, as increased data and voice usage could tax a carrier's network and lead to slower service for customers.

He said a switch to Long-Term Evolution (LTE) technology, the successor to the Global System for Mobile communications (GSM) standard used by more than 80 per cent of cellphone carriers, including Rogers, could lower those rates and spur further consumer adoption.