Commentary: Disposables may spur market

By Paul Dittner, Gartner Analyst

New low-end, low-cost disposable wireless phones coming onto the market likely won't hurt established manufacturers and service providers. In fact, they could expand the market as a whole, by increasing wireless penetration into areas that the major players have ignored as unprofitable.

The market for these phones isn't the seasoned business traveler or the tech-savvy young professional--the sort of consumer who wants lots of bells and whistles and doesn't mind paying a premium for them. Instead, the disposable offerings are targeted at very cost-conscious market segments that the major wireless players have traditionally chosen not to address, because they don't offer sufficient revenue or profit potential.

The disposable cell phones aren't intended to compete with full-featured wireless phones, but they could challenge other inexpensive communications options, such as prepaid wireless or phone-company calling cards.

	See news story: Tossing cell phones in the trash

They could prove particularly attractive to individuals with poor credit ratings, no credit histories or transient lifestyles (students, for example), or to people such as seniors and vacationers, who simply want to have a phone available for emergencies.

These offerings may have their greatest potential outside the U.S. market. In Latin America and other parts of the developing world, wireless phones already provide an important alternative to fixed-line service that is often both woefully inadequate and prohibitively expensive. A low-cost wireless option could be an important means of extending not just wireless service, but indeed basic phone service, to large numbers of people who otherwise couldn't afford it.

Despite the promise of these market segments, the manufacturers of the new disposable cell phones face serious challenges. Their profit margins will certainly be razor-thin, which means they'll have to sell huge volumes--and keep their manufacturing and service costs lower than any other manufacturers have been able to do to date. A particularly significant market obstacle is the phones' inability to receive incoming calls--a key factor in limiting the manufacturers' service costs.

Roaming charges--the additional fees consumers ordinarily must pay for service outside their local calling areas--will be another obstacle. Since buyers of disposable cell phones cannot be billed for additional charges, the manufacturers will likely have a hard time persuading wireless service providers to support their offerings and give them nationwide coverage at prices the manufacturers can afford to pay.

It is not clear that the disposable cell phones can overcome these problems and achieve long-term viability. The wireless market is ruthlessly competitive--not only for newer players, but also for the established manufacturers such as Ericsson, Motorola and Nokia--and is becoming more so all the time. Consequently, Gartner's assessment is that the manufacturers of disposable cell phones will not have an easy time.

Nonetheless, if they can succeed in reaching new markets, they may cause the established heavy hitters to take a second look at the potential market for low-cost, "no frills" wireless communication.

(For related commentary on a feature of next-generation cell phones, location awareness, see gartner.com.)

Entire contents, Copyright ? 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.