Motorola will sell more than 6 million mobile phones for less than $30 each in a new program to bring cheap handsets to developing markets, industry body the GSM Association said on Tuesday.
The cost per handset will dip below $30 from $40 in the first Emerging Market Handset (EMH) program awarded in February, which was also won by U.S.-based Motorola.
Ten operators in developing markets have promised to buy about 6 million of the two models Motorola will submit to the program, including the new C113a model which is exclusive to the program and the C113, which is available under the first EMH program and will be made cheaper.
“I think we’re going to exceed that 6 million by a significant amount,” said Ben Soppitt, program manager of emerging markets at the GSM Association, adding that demand for very low cost mobile phones has grown in recent months.
The GSM Association, which initiated the cheap handset program that is part of its aim to “connect the unconnected,” groups the world’s mobile telecom service providers.
Around 75 to 80 percent of the world’s population live in areas covered by mobile communication systems, but only 25 percent own and use a handset, largely because of the cost. Over 2 billion people around the world own a mobile phone.
The second EMH program runs from Jan. 1, 2006.
Motorola also introduced five other, more expensive handsets that are still intended to be affordable for low-income consumers.
Cheap handsets will generate single digit profit margins but will help grow the market share of the world’s No. 2 handset maker and close the gap with Nokia, which sells twice as many phones as Motorola and makes one out of every three handsets sold around the world, analysts said.
“You’re definitely looking at single digit margins, but Motorola will use the ultra low tier to attract consumers to its brand and eventually sell up more expensive models,” said Gartner analyst Ben Wood, adding that for instance in India, Nokia is the dominant vendor with some 70 percent market share.
In the second EMH program, Motorola beat many competitors all eager to expand in the high-volume segment of very cheap mobile phones, where most of the future growth of the sector is expected to lie.
“In the first program, vendors had to be persuaded to participate. This time, many volunteered. Fifty percent of the proposals were sub-$30 handsets. So the decision was based on quality, attractive design, brand, logistics, after-sales support and global service,” Soppitt said.
The GSMA commended a low-cost handset proposal by TCL & Alcatel Mobile Phones Ltd.. Other bidders were unnamed.
“We had anticipated pricing of $33-$35, and are surprised to understand that half of the 10 bids submitted were below $30,” analyst Alan Hellawell at Lehman Brothers said in a note, adding the low price would accelerate mobile growth.
The initial purchase of a mobile phone is the biggest barrier for most low-income consumers with no monthly salary who rarely have cash to afford models at $100 or more.
“The EMH initiative is a major step towards reducing the start-up price, and will fuel significant economic growth, as well as major social changes, when so many new people can communicate directly from their home or on the move,” said Erik Aas, chief executive of GrameenPhone of Bangladesh.
A 10 percentage point increase in mobile phone users in a country increases gross domestic product by 0.6 percent, the London Business School has found.
The GSMA program, chaired by Aas, is supported by some of the leading operators in emerging markets including AIS, Bharti , BPL, Globe Telecom, Hutchison Essar, IDEA Cellular, MTN Group , Orascom Telecom, Telenor and Vodacom.
