Cheap Handsets For "The Next Billion"
By Carlo Longino, Thu Apr 28 21:45:00 GMT 2005

Motorola plans to sell sub-$50 handsets in China in hopes of fueling deeper penetration there.

Back at 3GSM, the GSM Association announced Motorola would supply the first handsets for its "Ultra-Low Cost" segment, targeted at users in emerging markets who can't afford expensive handsets. The company said this week it would soon begin selling handsets in China for under $50 -- a bold move to win market share there, and a marked difference from its recent strategy of focusing on high-margin products, a strategy that appears to be succeeding.

Moto CEO Ed Zander says the company can still make money from the cheap handsets. "Please do not confuse low price with profitability," he's quoted in The Wall Street Journal. "We know that we can make money on these devices....We can be profitable [and] we can grow market share." Motorola got knocked off its top perch in China a couple of years ago, with Nokia, whose results are being driven by strong sales in developing markets, now top dog there.

Handset vendors, operators and infrastructure vendors all see handset prices as the biggest obstacle to expanding mobile penetration to "the next billion" -- pretty much all of whom are in emerging markets and developing nations, and analysts say it's a significant factor. But one potential problem is that vendors must be careful not to make these low-cost handsets feel "cheap". Trade-offs are impossible in getting the cost down to such a low level, so don't expect these phones to have 2-megapixel cameras and color screens. But vendors, like Motorola are adding other -- less expensive -- features to make sure these phones aren't "no-frills" models.

It's an interesting design and engineering stance, because they're adding features that might not mean much to mainstream Western buyers, but are almost essential to these new markets: ruggedized exteriors, strong RF performance, long battery life and so on -- features appealing to, say, rural users who may not have consistent access to electricity to charge their batteries.

Of course, service prices must fall too, for users to be able to buy in. Infrastructure vendors are working with operators to implement new systems to permit profits on ARPUs as low as $5 per month.

Clearly, applying developed-nation business models and unadapted technologies limits the depth to which mobile technology can reach in emerging markets. Mobile technology has a lot to offer these parts of the world, and it's going to take a little bit of innovation for the mobile industry to figure out how to serve them profitably.