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Mobile Phone's Role in Economic Development

The global market for sub-$20 ultra low cost handsets (ULCH) will be over 330 million units in 2011. A new study from ABI Research finds that over 50 percent of these handsets will be shipped in the emerging markets of Asia Pacific and the remainder in markets of Africa, Middle East, Latin America, and Eastern Europe.

According to research analyst Shailendra Pandey, "The growing demand for ultra low cost handsets has provided mobile operators and handset vendors with a quick route to a greater share of the emerging markets. The downside is that they are manufacturing and shipping a greater proportion of low-cost handsets, which can adversely affect their profits."

Nokia's profits in 3Q06 were down compared to the same quarter the previous year, because a greater portion of its sales came from low-cost handsets. Mobile operators will also see declining ARPUs because ultra low cost handset users are mostly from the low-income communities in the emerging markets. Their monthly spending will usually range from $2 to $5.

Nevertheless, ABI Research believes that addressing the ULCH market is important for handset vendors and mobile operators to establish their brand and gain long term growth and profitability in emerging markets. Frankly, I believe that it's an essential first step in market development.

The ultra low cost handset marketplace is currently dominated by Motorola and Nokia, but other handset manufacturers including LG Electronics, BenQ, Samsung, Philips, Ningbo Bird, Haier, and Kyocera have also started to introduce handsets for this segment.

As the winner of GSMA's tenders for the "Emerging Markets Handset Program," Motorola has already shipped six million sub-$40 handsets and another six million sub-$30 handsets to key emerging markets including India, Pakistan, Bangladesh, Indonesia, Philippines, Malaysia, Thailand, Turkey, South Africa, Nigeria, Egypt, Algeria, Russia, and Ukraine.

ABI Research expects that by 2011, almost one out of every four handset shipped globally will be an ultra low cost handset. The research shows that India will be the biggest market in the next five years, growing from a little over 9 million handsets in 2006 to more than 116 million handsets in 2011.

It's imperative to comprehend the long-term essential role of these ULCH devices, as a tool to drive local economic development around the world. We know from prior studies that mobile phones, combined with creative micro-loans, can seed new service businesses in developing nations. As these small businesses and their newfound entrepreneurs prosper, they are able to move up to more capable and higher-cost devices.

Seeding the market with entry-level products is an intelligent act of service provider strategic foresight that must not be overlooked by financial analysts who are predisposed to a short-term view of these introductions. I commend these seeding efforts, because they demonstrate an awareness of thoughtful market analysis and associated needs-based segmentation.

There is much to be learned from the 'cause and effect' of these market seeding activities that can be carried over into the computer and consumer electronics sectors. When viewed in isolation, low cost devices appear like low margin mistakes. However, when viewed as the catalyst within a broader economic ecosystem, the true value comes through -- that is, to all but the most myopic financial analysts.

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