If you’re in the market for a connected tablet and you haven’t taken investigated Verizon’s(s vz)(s vod) new Ellipsis 7, the slate is definitely worth a look if only for its price tag: $250 without contract. While there are inexpensive 7-inch Android tablets out there like Google’s(s goog) Nexus 7 and the Amazon(s amzn) Kindle Fire HDX, their $229 price tags are for Wi-Fi only versions. When you start adding 4G connectivity those sticker prices jump $100 or more.
Verizon Wireless has kept the tablet cost low without sacrificing mobile broadband connectivity. You can explain this in part by the fact that Verizon is in the business of selling connectivity, not hardware, so it has no vested interest in charging a premium price for LTE capabilities. But there’s also another economic consideration at work here: Verizon has managed to sidestep Qualcomm(s qcom) and its expensive radio chips by going with an LTE module from Israeli 4G silicon specialist Altair Semiconductor.
To say Qualcomm is the dominant maker of LTE silicon would be an understatement. It has not only built a considerable lead in making LTE radio chips, it’s the only chipmaker with an integrated baseband chip and applications processor, and for the longest time was the only vendor supplying multimode 4G chips, which support 2G, 3G and LTE in the same module. Its influence is even greater when it comes to CDMA technologies, for which Qualcomm holds all of the patents. As you can imagine, this gives Qualcomm enormous pricing power.
But in creating the Ellipsis, Verizon decided to leave its nationwide CDMA 2G and 3G networks at the curb. The device sports just a single LTE radio so there’s no 3G support when outside of an LTE area, which gave Verizon a much broader choice of radio silicon vendors and also a means of lopping off some of the cost of connecting the slate.
How much? Altair co-founder and VP of marketing and business development Eran Eshed told me that a typical Qualcomm multimode module costs from $65 to $80, a price Altair can halve with a single-mode LTE chip. That cost is reflective elimination not only of radio interfaces, but also the intellectual property licensing fees Qualcomm charges for any device supporting 2G or 3G connectivity, Eshed said.
An additional $30 to $40 in savings may not have been much when tablets were priced north of $500, but now that tablets are coming down to the $200-$300 range we’re talking about a considerable percentage of device’s retail manufacturing costs. A lot of silicon vendors, from Intel(s intc) to Broadcom(s brcm) to Nvidia(s nvda), make an LTE-only chip (Intel recently starting shipping its first multimode 4G chip as well). If you’re designing an LTE-only device, you’ll find a lot more choice in the market and a lot more price competition.
Of course, Verizon is in a position few other global operators can maintain when it comes to 4G. It wrapped up its initial LTE rollout over the summer with nearly 300 million in 500 markets covered. Verizon’s 4G footprint isn’t as pervasive as its CDMA footprint, but it figures it’s close enough it doesn’t have to mess around with backwards compatibility on a data-only device like the Ellipsis.
As LTE networks become more widespread, we’ll start to see a lot more LTE-only slates from other carriers. And while cellular tablets will probably never achieve price parity with Wi-Fi only tablets, that gap is definitely going to shrink.