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$199 Unsubsidized Verizon LTE Tablet Changes the Game

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NEW YORK ( TheStreet) -- Thanks to near-universal coverage of 700 MHz LTE networks, primarily from Verizon (VZ) but soon also from AT&T (T) , dramatic price drops will hit the tablet/smartphone market in 2013 and 2014.

The purpose of this article is to show why this is different than "the usual" Moore's Law technology progression in these markets, and why it will yield a 33% or more price drop in 2013.

The crucial background is this: Over the last 20 years, most new U.S. cellular data networks were typically launched on a higher frequency than before. From 800 MHz to 900 MHz, 1700 MHz, 1900 MHz, 2100 MHz and 2600 MHz -- more often than not, the new faster network launched on a higher frequency than the previous one.

A higher frequency means higher capacity to transmit bits over the air nearby, but it also reduces the range. Instead of going through 10 walls, a signal would go through only five. Instead of reaching one mile, the signal only reached half a mile.

Once you move beyond very dense deployments very close to the cell sites, the superior range of the lower frequency trumps the superior capacity of the higher frequency. Why? Because getting any coverage is better than getting none.

The implication from this is if you launched a new network, you needed backwards compatibility to the older data networks. For example, if you launched HSPA ("3G") on 1700 MHz, you also needed to support EDGE ("2.5 G") on 900 MHz. Otherwise, a user would drop coverage traveling between two cell sites.

Pretty much the only company that had the ability to support all of the older networks, while still staying on the cutting edge on the new technologies, is Qualcomm (QCOM) . This is why Qualcomm dominates the so-called "cellular baseband" industry. Whether you're Apple (AAPL) , Google (GOOG) , Microsoft (MSFT) or BlackBerry (BBRY) , you pretty much must base your products on Qualcomm. If you don't, your products simply won't maintain a signal as you travel between cell sites.

This is what will start to change very soon.

In 2007, the Bush Administration auctioned off spectrum located close to 700 MHz, yielding over $10 billion for the U.S. Treasury. Verizon and AT&T are now the dominant operators in this spectrum. Verizon is almost 100% done with its build-out, and AT&T is said to get there in the second half of this year.

Once you have deployed LTE at 700 MHz on the same cell towers as the old technologies at 800, 900, 1700, 1900, 2100 etc. MHz, there is no strong need to maintain backwards compatibility for those higher frequencies, for coverage reasons. Why? Because there are no longer any "gaps" between towers reachable only by the older, lower frequencies.

This has huge implications for Qualcomm, and for the cost of building devices such as smartphones and tablets.

What can you do now, with 700 MHz LTE, that you couldn't do before? You can launch products with so-called "single-mode LTE," which is an LTE chip without any backwards compatibility with the older 3G technologies such as EV-DO and HSPA. It may even operate at a single frequency, e.g., 700 MHz, in some cases.