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Why Verizon’s Ellipsis could be the first in a new wave of cheap 4G tablets

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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.

silicon semiconductor super technology

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.

Verizon's LTE coverage in dark red
Verizon’s LTE coverage in dark red

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.

7 Responses to “Why Verizon’s Ellipsis could be the first in a new wave of cheap 4G tablets”

  1. I went to the Verizon store to buy a tablet, and I was greatly surprised with this tablet for under $50 bucks, which so far offers excellent service and has nothing to envy from the other big names.
    As a normal user and not a tech expert, I highly recommend it.

  2. Kevin, you should know better-

    1) Qualcomm collects royalties from the manufacturer also on LTE device sales (~3.5%).

    2) $65 – $85 for LTE MDM chip and device royalty is way overstated. Current MDM (year old) Apple is using probably in $15 – $20 range.

    3) “without sacrificing connectivity)…. 2G / 3G connectivity fall-back is not any sacrifice?

  3. Sorry but this is not cheap ,a Wi-Fi only tablet like this one is 100-120$ (see Asus MeMo Pad HD 7 for example ,the 8GB version) and no idea if the VZW one is not lower quality and with a lot of bloat on the software side.

    “Eran Eshed told me that a typical Qualcomm multimode module costs from $65 to $80,”
    Seems that he kinda doubled it ,maybe you should ask Qualcomm for a comment on that one.

  4. Kevin, you might want to speak to the folks at Qualcomm to better understand their IPR programs that apply to 4G single and multimode LTE devices. The pricing of Qualcomms LTE modules(article) seem excessive, perhaps Eshed is referring to one of Qualcomms SOC solutions.

    • Kevin Fitchard

      Hi Frank,

      Verizon has to get voice over LTE up first. According to the CTO, though, once VoLTE is live it could start offering one for business customers relatively shortly. The idea of focusing on business is that VoIP brings enterprise capabilities such as integrating with your PBX or automatic conference calling setup that its regular CDMA 2G voice services can’t provide.