The Future of Cheap Androids Begins Now

The arrival of low-priced smartphones is an event many have been waiting on for some time. Sure there are often buy one, get one deals or one-day specials where you can find a smartphone for as little as a penny, but in most cases, such deals are tied to expensive plan commitments that last for two years. For a real paradigm shift, we’ll need to see unsubsidized handsets priced at or under $100 that can be used on a month-to-month basis. We’re inching closer to that shift.

Take the LG Optimus V, for example. Virgin Mobile just began selling this Android smartphone for $149. Since Virgin Mobile is a pre-paid operator, there’s no contract involved. That means the company is selling the handset at full-price; there’s no subsidy, no contract cancellation fee and no commitment. You pay $149 and the phone is yours. Monthly plans that include unlimited mobile broadband access with Virgin Mobile — which uses Sprint’s (s s) network — start at $25 with a limited amount of minutes.

Think about that for a second. With a $149 initial investment and then an ongoing cost of less than $1 per day, someone can have a basic, but useful, smartphone in the U.S., with the flexibility of upgrading to a better phone or different carrier at any point in time. Granted, the Optimus V doesn’t compare to the high-end specifications of the latest and greatest Androids (s goog), Apple’s iPhone (s aapl), or other currently popular devices, but I’m not sure that matters.

I reviewed the LG Optimus T handset back in November, and it’s essentially the same phone as the Optimus V; LG is rebadging the basic design for different carriers. For a long-time mobile device user that values high performance, the Optimus may not be as fast or as feature-packed as what I’m used to. But that doesn’t mean it won’t provide value to those currently on feature phones or other low-end smartphones. In my review, I noted:

This handset does just about everything that my more expensive phone can do. You can install mobile apps from the Android Market (yay Angry Birds!), share pics on Facebook (taken with a decent, but not high-end camera), browse the web over 3G or Wi-Fi, manage email on the go, check-in on Foursquare, use Google’s Navigation (s goog) and use Google Voice services. The phone uses the latest version of Android, which helps boost performance. Plus, the 1500 mAh battery paired with a slower processor makes for an all-day device.

All of the essential functions are there: 3G, Wi-Fi, Bluetooth, a touchscreen display, GPS, a 3.2-megapixel camera and more. Plus, the handset can run a myriad of software found in the Android Market. Would I like to see the device have more guts than the 600 MHz processor provides? Sure I would, but each improved feature boosts the costs and puts the device out of reach for more consumers on a tight budget, and besides, I’m not in the target audience for this device.

The Optimus handset line, especially when paired with a low-cost pre-paid plan, represents the coming wave of cheaper smartphones: a slowly rising tide that will bring additional challenges to companies such as Nokia (s nok) that sell more feature phones than any company in the world today. Indeed, outside the U.S., where Nokia is a popular brand, such cheap smartphones may even greater risk to Nokia. Why? Because here in the U.S. our handsets are generally tied or locked to a carrier and we have two different network technologies. But in Europe and elsewhere, it’s not uncommon to buy a phone, then purchase a SIM card from whichever carrier is currently offering the cheapest voice and data rates. A cheap, no-contract handset can run on any number of networks in that case, making the device an even more appealing alternative to a feature phone.

Adding additional pressure is the likelihood of these Android handsets getting cheaper in the future. Brian Modoff from Deutsche Bank Equity Research yesterday issued this note:

By 2013, we expect 1 GHz smartphones to be available for $100. The combination of a $0 license for Android and the steady march of Moore’s Law could translate into $100 smartphones by late 2012 or early 2013. At that point, we think even the average emerging markets’ consumer shift their purchase sharply away from feature phones to smartphones, posing a serious challenge to companies such as Nokia without a clear strategy for low-end operating systems.

I agree with Modoff in principle, but I suspect the timeline he presents for a $100 smartphone is too conservative. By the end of this year, I expect to see no-contract Android devices costing $99 or less, paired with reasonably priced pre-paid plans. There may be a question of exactly when that will happen, but there’s no question that it will happen. And when it does, it will open up the floodgates for upgrades to those on feature phones and kick smartphone adoption into an even higher gear.

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