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Reuters/Jason Lee
Xiaomi the money!
CATCHING UP

By 2017, smartphones in America will finally be as cheap as they were in China in 2010

By Leo Mirani

It can sometimes feel like smartphones have been ubiquitous for years. But even as recently as five years ago, only 300 million smartphones were shipped—just one in five of all mobile phone shipments globally.  In 2014, device makers shipped 1.3 billion smartphones, accounting for two of every three new phones.

As shipments exploded, prices declined.

There are a couple of obvious reasons for this. One is Moore’s law, which dictates that prices halve (or processing power doubles) every 18 months. The other is basic economics: You benefit from economies of scale when you’re selling 2 billion of something. A volume business is not a premium one.

But unpack the numbers—which come from a Citibank research note—and something remarkable emerges. The average selling price of a smartphone in China more than halved between 2010 and 2014. But in North America, prices declined by only 25%. Indeed, it is not until 2017 that the average price of a smartphone in North America will be on a par with what it was in China five years ago.

One simple explanation is that the more expensive iPhone skews the numbers and rich countries have more iPhone buyers than poor countries. Moreover, Apple did not have a deal with Chinese state telecom operators until last year, so even the people in China who might have wanted Apple’s shiny devices would have had a difficult time getting hold of them. Indeed the average selling price of a phone in China went up 5% after the iPhone was introduced.

The other reason for the big difference in average prices is the proliferation of cheap smartphones in developing countries. In China, Xiaomi sells its high-end phones for less than $400 and its entry-level devices for $130. In India, you can buy  phones for as little as $30. In Africa, Orange is selling a 3G smartphone for $40, which includes voice calls, text messages, and data for a six-month period. Meanwhile, in the United States, 43% of smartphone owners buy Apple devices with a starting price of $450.