February 16, 2005

The GSM Association has set its sights on signing up the next billion GSM users, and with help from Motorola and nine GSM operators plans to find them in emerging markets with handsets priced at $40 and under.

With developed markets close to saturation but only 25% of the world population using a mobile phone despite population coverage of around 80%, GSMA research last year found that the single biggest barrier to the other 75% adopting mobile tends to be handset price.

The trouble is that while operators in emerging markets need handsets in the sub-$30 range to grow beyond the high-end market, many big-name handset vendors have been holding back in developing handsets at price points even below $100, having traditionally seen emerging markets more as a place to unload surplus handsets.

Aiming to leverage GSM’s economies of scale to produce a handset for the “ultra-low-end” market, the GSMA developed a set of requirements for a low-cost handset in the $30 range, then issued a tender to 18 vendors to come up with one.

Motorola got the nod, and on Monday launched its C114 family of handsets that will go for about $40 within industry-level margins. Motorola says it can get that to $30 by 2006, and possibly lower in the coming years.

GSMA chief Rob Conway said the GSMA went with a tender process rather than simply putting all vendors on the case because it wanted the handset to be developed as an economic and social development tool and not just as a low-cost handset.

“The object of this wasn’t just to get a handset to a certain price point. We wanted to engage the operators in a way we hadn’t done before, and ask them what they want in a phone that they could sell in emerging markets,” Conway said at a press event Tuesday at 3GSM in Cannes. “Then we decided to identify the requirements that would be the most common to operators. Then we thought, wouldn’t it be best to put it as a tender to vendors? The tender approach is more sensible, and it allowed Motorola to meet the requirements we set forth.”

The tender arrangement also allows Motorola to level-load its factories and have steady rather than uneven demand and keep economies of scale intact.

The demand has already been arranged by the GSMA via a special procurement initiative from nine GSM operators – AIS, Bharti Televentures, Globe Telecom, Maxis Mobile, Orascom, SingTel Mobile, Smart Communications, Telenor Mobile and Turkcell – who will create critical mass for the Motorola handsets.

Motorola is expected to ship six million handsets in six months starting in Q2 this year, after which other vendors and operators will be brought into the project.

Conway also said that regulators have a role to play in making sure handsets can be affordable to end users.

“We will encourage and engage with governments in emerging markets to work out what they can do to make sure this phone reaches consumers,” he said. “It defeats the point of the program if taxation, for example, keeps people from getting this phone.”

The GSMA collectively bristled at the description of the new handsets as “cheap”, pointing out that the handsets don’t skimp on features.

“The GSMA wants vendors to innovate on the low end as well as the high end,” said GSMA spokesman Mark Smith.