Competing With Apple’s iPhone Price Cut

Apple’s credited with helping to kick-start the popularity of mobile apps. Now, the iPhone maker is triggering another mobile trend: the $99 smartphone.

Verizon Wireless, along with some online stores who are selling Sprint’s Palm Pre, are cutting smartphone prices to $99 in the wake of Apple (NASDAQ: AAPL) and AT&T’s move to slash the price of its older iPhone 3G to $99, after it debuted the newer 3G S model last month. AT&T (NYSE:T) is the exclusive carrier for the iPhone series.

The nation’s largest mobile carrier, Verizon (NYSE: VZ), quickly cut the BlackBerry Storm to the $99 price point a few weeks ago. Now, it’s dropped the price of most of its handsets to $99 as well — including the HTC Touch Diamond, Touch Pro and Samsung Omnia.

Its most recent models, however, such as Research In Motion’s (NASDAQ: RIMM) BlackBerry Tour and the Samsung Saga, still bear the traditional $199.

The phone prices all require signing a two-year Verizon contract.

Verizon’s not the only one dropping its prices. Starting today, the Palm Pre (NASDAQ: PALM) is being sold at some online stores for $99. For instance, while mobile vendor lists the Pre at $299, it’s offering an “instant discount” of $100 along with a mail-in rebate for the same amount — bringing the price to $99, in line with the 3G.

“Apple’s influence is clearly felt with the $99 price point,” Avi Greengart, analyst at Current Analysis, told “The iPhone 3G 8GB is a tremendous value at $99, and AT&T’s competitors have to react.”

However, Palm and Sprint, currently the Pre’s exclusive U.S. carrier, haven’t made a $99 price tag standard for the Pre: The webOS-based smartphone went on sale at (NASDAQ: AMZN) this week, but it still carries a $199 price with a two-year contract. At press time, Sprint’s Web site was still selling the Pre for $199.

It’s unclear whether they might follow the lead of some of their retailers in dropping the price. For the present, both Palm and Sprint made made it clear that their priority is broadening the Pre’s distribution — a pledge both made during their second-quarter earnings calls.

For Verizon, the move clearly puts the No. 1 U.S. carrier in the running with consumers eyeing the iPhone 3G at $99, but it could also be a way for the carrier to clear inventory channels as it preps for the much anticipated update to RIM’s BlackBerry Storm.

“These are all older models, and several of them are clearly being prepped for replacement,” Greengart said. “For example, the Touch Diamond 2 and Touch Pro 2 are both available in Europe already, so dropping the price on the existing models is less a competitive reaction than an inventory one.”

Verizon and RIM are partnering up to launch a mobile app store later this year, with both companies saying at Verizon’s developer conference that smartphone sales now comprise about 40 percent of handset sales, up from single digits a few years ago.

Smartphones continue to outsell other cell phones amid a wider mobile phone slump and analysts remain bullish on future sales — Goldman Sachs sees smartphone sales growing 12 percent in 2010, 22 percent in 2011 and 29 percent in 2012.

Meanwhile, reports are surfacing of Verizon’s first Android smartphone, dubbed Sholes, from Motorola, which may come out in October. The carrier is also expected to start selling either the Palm Pre and possibly a new webOS smartphone early in 2010 once the exclusive contract between Sprint and Palm expires.

Given that no one is certain exactly when AT&T’s exclusive deal with Apple for the iPhone will end next year — neither company will release any details on the deal, though the partnership is likely to run to some time in 2010 — Verizon will need to round out its portfolio to stay competitive, observers have noted.

Verizon did not return calls seeking comment by press time.

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