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2013: Google Leads a Phone Price War

Tickers in this article: AAPL GOOG MSFT S T VZ
NEW YORK ( TheStreet) -- One year from now, we will sit right here and ask: What was the most important thing that happened in the smartphone world in 2013?

Here is the good news: You are about to get the smartphone news of 2013, right now, at the end of 2012.

Smartphone advancements will be made on three fronts in 2013:

1. Smartphones will see little in terms of actual improvement, but they will be cheaper to assemble and fall in price a lot.

2. The new service to be launched on cellular networks is VoIP, and Google(GOOG) may end up leading this revolution in price: Zero or near-zero.

3. The price of cellular service will plummet as carrier voice and SMS revenue disappear from carrier columns, focusing competition on simple data plans.

Let us take these three factors in turn, in more detail:

Cheaper Smartphones

The only incremental "feature" for which smartphone users are screaming is better battery life. The current typical battery life is abysmal, and all smartphone makers will view this as a priority in 2013.

However, the displays are large enough, and thin enough, for our hands. The typical high-end resolution close to 720x1280 is more adequate for our eyes. In 2013, the change will be on the inside -- not the outside.

The components inside the smartphone will become smaller and draw less power. They will be more integrated. Manufacturing methods will refine, and the result will be much cheaper prices.

Let's take Google's flagship phone, the Nexus. In 2013 we should expect more than the one annual Nexus product cycle. We should expect a Nexus 5 on May 15, and another refresh cycle in time for the November holidays.

The Nexus line may also fork into a lower-end device and a higher-end line. What would this look like?

The lower-end Nexus would be introduced to meet the $199 unsubsidized price point. It may have only 8 gig worth of on-board storage. The processor would be less expensive, the camera a bit simpler, and it wouldn't have LTE.

The higher-end Nexus would continue to be near the pinnacle of what Android can offer. It would have 16-, 32- and even 64-gig storage in order to match the iPhone. The camera would be fancier, the processor the fastest in the market and it may have LTE. Unsubsidized prices would start at $299 and up.

With a Nexus starting at $199, the price between totally constricted contract phones -- requiring laughably expensive monthly plans -- would be blurred with a SIM-unlocked, contract-free Nexus enabling a user to cut the monthly expense by two-thirds.

It's easy to dismiss competition against the outstanding iPhone 5 but, at some level, price does matter. If an iPhone 5 will cost three times as much to own and operate over two years, it has to impact market share.

Finally, Mobile VoIP