Demand For Cheap Handsets Grows
By Carlo Longino, Mon Nov 29 23:15:00 GMT 2004

While handset vendors roll out models with advanced features and higher price tags, calls for cheaper handsets get louder.

It's not just low-income users in emerging markets that want cheaper phones, it's also from users in developed markets looking for simpler devices. But with average selling prices used as a key measure of vendors' financial performance, how interested are they in selling cheap handsets, even though ASPs are generally sliding 10 to 15 percent a year?

Vendors respond by saying there are plenty of areas where retailers and carriers can cut costs, including distribution, packaging and promotion, and fire back by saying that calling costs are just as much a barrier to poor users as the cost of handsets. But just as network equipment makers have had to come up with innovation in their equipment that lets networks run profitable with very low ARPUs, handset vendors, too, must find a way to straddle both sides of the gap.

One approach is to make cheap, low-margin products and focus on selling them in extremely high numbers. This can be used to work alongside carriers -- ones that will order large amounts of the devices -- and cut back on things like packaging and distribution. Indeed, emerging markets like Latin America and Asia have provided much of the growth for handset vendors lately, and the bulk of sales there aren't pricey devices.

But another problem is one of perception: the mobile phone is still a status symbol around the world. In emerging markets, having any phone may convey enough status to satisfy users, but very quickly, the type of handset becomes important, just as in developed areas. The challenge for vendors here is to have enough models with incremental advances in both features and price to let users work their way up the product line and price range.

Just as carriers have thrown their weight around and forced handset manufacturers to accede to their wishes on the branding and customization of devices, it's likely they'll win this battle, too, and force the vendors to offer a wider range of cheap options. Given the importance of emerging markets -- and the large number of users carriers in many of these areas offer -- vendors may not have much choice.

But what about users that don't want to pay high prices, or aren't interested in so many features? There's a growing backlash among some users that the extended capabilities of new handsets are impeding their basic functionality. Perhaps the solution here is to offer flexible handsets that can be used in conjunction with specialized, function-specific add-ons, or even standalone units geared toward a particular task.