As Nokia Knows, Low-Cost Mobile Phones Are Pushing Growth

Juniper Research reports that keeping the monthly total cost of ownership of entry-level mobile phones to $5, as handset makers such as Nokia have learned to do, is critical to encouraging growth in developing markets.

As the mobile phone market continues to grow on both the highest end and most entry level, opportunities for operators and handset vendors will depend on their ability to keep low-cost models' total cost of ownership to a minimum, according to new report from Juniper Research.
Juniper forecasts that between 2009 and 2014, annual sales of low-cost mobile handset sales will grow by 22 percent, to over 700 million units. Further, over the next five years, it expects the mobile market to grow by approximately 1.5 billion subscribers, with the majority of these new subscribers hailing from "markets where discretionary spend on perceived -luxuries' such as mobile phones is likely to be very small," writes analyst Andy Kitson, in an Aug. 17 post on the Juniper blog.
Consequently, Kitson recommends that operators and handset vendors invest in hardware and software that can be created and delivered at minimal expense, in order to keep handset TCOs low and so attract new subscribers.
Nokia has been a leader in this regard, and advocated a monthly handset TCO of $5 or less. Penetration in these new markets, which Kitson describes as among the world's poorest but most populated, is less than 10 percent, suggesting considerable room for growth "for those players willing to forgo the tried and tested business models," writes Kitson.
By the end of 2008, only four countries-India, Pakistan, Bangladesh and Sri Lanka-had reduced handset TCO to $5, though Ghana may soon join them. This feat, Kitson writes, was accomplished by "countries, governments, operators and vendors [working] closely to lower license fees and reduce or abolish sales taxes and import duties on handsets, as well as taxes on value-added services including SIM card activation fees."
Juniper expects Africa and the Middle East to account for the largest annual shipment volume by 2014, with the 166 million low-cost handsets headed to the region accounting for 24 percent of all sales that year-a number expected to grow to 54 percent by 2014.
Kitson adds that pre-pay services are another key to attracting these new consumers, and that while revenues will initially be low, users' consumption will increase as they become more comfortable and reliant on the devices.
"It's a long game," writes Kitson, "but operators must be prepared to play it in order to win."
In May, Nokia introduced three 3G-ready handsets with prices between $75 and $124. In addition to the more expected features, among them they offered FM radio, access to Nokia Life Tools-which farmers can use to, for example, check crop prices before heading to market-and Contacts folders with room for 1,000 entries, as in some regions it's common for multiple users to share a phone.