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Motorola to sell cheap phones

The goal: to sell the handsets to 3 billion customers in emerging markets--people who can't yet afford to make wireless calls.

Motorola will enter emerging markets with ultra low-cost mobile phones aimed at 3 billion consumers who cannot yet afford to make wireless calls, the U.S.-based handset maker said Monday.

The phones will be available for less than $40, and the company aims to sell 6 million units in the six months from April to September, according to the GSM Association.

The GSM Association led a tender among 18 mobile phone makers fighting for the order from a group of mobile operators in emerging countries, including Singtel, Smart, Telenor and Globe.


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The GSM Association is an interest group of mobile carriers that operate a GSM mobile network. Two-thirds of the world's 1.7 billion mobile phone service subscribers make calls on GMS.

"Some 80 percent of the world's population has mobile phone coverage, but only 25 percent have a mobile phone. That is 3 billion people who have coverage but cannot afford mobile communications," said Ben Soppitt, project manager of the emerging-market handset program at the GSM Association.

The cheapest phones today sell for around $50, but they are typically offered in limited volumes and include mostly old models. Mobile operators need a more steady supply of less expensive phones to address potential market demand.

Motorola is not known for its focus on low-priced phones, an area that Nokia and Siemens dominate.

The chief executive of Motorola's handset division, Ron Garriques, told Reuters in an interview that he started planning to produce mobile phones cheaper than $50 some two and a half years ago. He aims to dip below $30 per handset some time by 2006, "while achieving industry average (profit) returns".

Analysts said the price breakthrough would send a shockwave through the industry, which has suffered from fierce price competition and falling profit margins in recent quarters.

"By promising sub-$40 phones, Motorola have put a peg in the ground that everyone else will have to beat. This is going to take mobile phone pricing to new low levels. It could put some players out of business," said analyst Ben Wood at research group Gartner.

A second tender for the period after September will start later this year. The 6 million phones that Motorola will produce would represent almost 1 percent of the total market in 2004, when 684 million phones were sold around the world.

Motorola will continue to compete for orders.

"We have a long history in paging and walkie-talkies, which are produced in very high volumes at low cost. We leverage a lot of what we learned there in this business," Garriques said.

"If you want to be in this (mobile phone) game for the long term, you have to play in the low, the mid and the high end," Garriques said.

Under new Chief Executive Ed Zander, Motorola turned around its handset operations last year. It raised its global market share to 15.3 percent, from 14.5 percent, and more than tripled operating profit after introducing popular new models that it could make in sufficient quantities--putting behind it a series of logistics and manufacturing problems.

The project to create cheap phones for emerging markets was initiated at last year's 3GSM conference to address a major issue among operators in emerging markets that was holding back market development.

"Even a $50 phone can be a huge chunk of disposable income in emerging markets, and it's an upfront cost," Soppitt said.

Motorola was selected because it was prepared to build a serious and long-term business around phones priced below $50.

"Operators told us Motorola showed clear strategic intent in the ultra low-cost segment, and offered a brand, a global reach and a commercial framework that was market-beating," Soppitt said.

Motorola's phone will be part of the C11x series of phones.

Story Copyright © 2005 Reuters Limited. All rights reserved.