Operators to drive expansion of low-cost handset space

Network operators increasingly will partner with small handset vendors to offer low-margin, ultra-low-cost handsets, particularly in emerging markets where new subscriber growth remains strong, according to ABI Research.
Nokia Corp. and Motorola Inc. currently dominate the sub-$50 handset space, in part due to their ownership of intellectual property, which reduces their overall costs. ABI forecasted that more than a dozen vendors would be offering ultra-low-cost handsets by next year and one-in-four handsets sold in 2011 will fall in that category.
Large operators such as Vodafone Group plc have been cutting deals with smaller vendors eager for volume deals to sustain their handset businesses. Earlier this year, Vodafone announced deals with Chinese vendor Huawei for Vodafone-branded, low-cost handsets and with ZTE Corp. for low-cost 3G phones, for example.
According to ABI analyst Shailendra Pandey, the list of vendors eyeing the ultra-low-cost space include the balance of the top-tier handset vendors such as Samsung Electronics Co. Ltd., LG Electronics Co. and Sony Ericsson Mobile Communications, but also includes a long line of challengers such as ZTE, Kyocera Wireless Corp., Huawei, Haier, Sagem, Ningbo Bird, Philips and Rose Telecom.
Small handset vendors will manufacture locally in emerging markets and partner with large operators to cut the cost of marketing and distribution, according to Pandey. But smaller vendors must also pay IP-licensing fees, a factor that poses difficulties in competing with Nokia, for example, which owns considerable IP, manufactures locally in India and has spent years building distribution channels there.
Pandey cited India as a prime market for small vendor-network operator deals and said that in India, the ultra-low-cost segment will grow from 9 million such handsets sold last year to more than 116 million in 2011.
Still, small vendors’ imperative to thrive and the desire of operators to control and profit from their device portfolio will within four years lead to nearly one in four handsets sold globally being ultra-low-cost, according to ABI.