With cell phone saturation so high in developed nations, there isn't enough consumer need to drive market growth, said iSuppli principal analyst Scott Smyser. To attract customers in less-developed nations, such as China and India, cell phone companies must offer "ultra-low-cost mobile phones."
"Service providers are pushing to get the price below $30," Smyser said.
The average wholesale price of a mobile phone, the price paid to the manufacturer, will slip to $129 in 2006, a 9 percent drop from $142 in 2005, iSuppli said.
Falling handset prices, combined with declining sales, means an industry slowdown.
The global mobile phone market is expected to rise to a staggering 850 million units, roughly double 2002's level and up 5 percent from the 810 million shipped last year.
This compares to a television set market of 200 million units a year, with handsets the single biggest consumer electronics category in the world.
But this year's shipment increase is not enough to offset the price decline, the research group said. As a result, annual worldwide revenue from production of mobile phones will drop to $109.7 billion in 2006, down 4.7 percentof $115.1 billion, according to the iSuppli report.
Revenue won't return to last year's level until 2009, when iSuppli expects that consumers will opt for more sophisticated and expensive phones that can play video, music and snap pictures. These third-generation phones will make up 40 percent of the market by then, Smyser said.
Reuters contributed to this report.