Motorola Inc. leapt into the high-volume, low-cost mobile phone business-a space dominated by the likes of Nokia Corp. and Siemens-with plans to sell millions of new phones in emerging wireless markets like India, Turkey, Pakistan, Thailand and elsewhere. The company said it will sell 6 million sub-$40 handsets in such markets this year-a number the company pointed out comprises about 1 percent of the worldwide phone business.
Motorola’s effort is part of a GSM Association program to break open new markets. The trade association worked with carriers including Bharti Televentures, Globe Telecom, Turkcell, SingTel Mobile and others to develop a high-volume phone-buying program to entice willing handset suppliers. The group evaluated 18 different phone makers to settle on Motorola. The GSM Association said it plans to hold a new round of bidding for the potentially lucrative sales contract at the end of this year.
“One of our key goals as a global trade association is to help connect the `unconnected’ people of the world, a mission that is critical to the social and economic development of many emerging market countries,” said Craig Ehrlich, chairman of the GSM Association. “By directly addressing the cost of handset ownership, we believe that we can unlock the new `ultra-low cost’ market segment.”
The GSM Association said 80 percent of the world’s population are covered by wireless service but only 25 percent are wireless subscribers. The group said the low-cost handset effort could help spread wireless penetration with affordable handsets.
Brad Akyuz, a handset analyst with research and consulting firm Current Analysis, said Motorola’s sub-$40 handset effort could help propel the company ahead of Samsung Electronics Co. Ltd. The two companies have been battling for the world’s No. 2 phone maker slot. Both Motorola and Samsung have mainly been focusing on mid- to high-end phones, which typically carry much greater profit margins. Motorola’s move into emerging markets could give it a leg up on Samsung.
Indeed, the move could put pressure on industry leader Nokia Corp., which owes its success to high-volume, low-cost handset sales. However, some believe Nokia will be able to retain its mastery over the low-cost market.
“Given Nokia’s existing strength in that area of the market, we would expect it to continue selling well through existing channels,” wrote Lehman Brothers in a research note to investors.
Current Analysis’ Akyuz said Motorola’s sub-$40 handset will serve to speed a decline in handset selling prices. Indeed, Qualcomm Inc. executives said prices for third-generation mobile phones could drop to as little as $50, according to reports. And phone distribution company Hop-on has promised a $36 handset.
“The prices will go down,” Akyuz said. “I think that’s where the market is going.”
Although the world’s major handset players will continue to put pressure on each other, Akyuz said the real losers will be smaller handset players. Such companies will lack the scale to play in the high-volume, low-cost game.
The GSM Association said its goal is to provide emerging markets with a sub-$30 handset. Worldwide average selling prices for mobile phones are around $100. Motorola’s new line of super-cheap phones will be built on its C114 platform. The company said it would sell the phones starting in the second quarter.
