GSM group creates low-cost 3G phone contest

IDG News Service - This weekend, the number of GSM mobile phone users worldwide is expected to reach 2 billion, and the GSM Association is making plans to ensure that a healthy portion of the next billion customers will use third-generation phones, the organization said today.

The GSM Association (GSMA) will launch a contest  where mobile phone makers will compete to develop a low-cost 3G (third-generation) handset designed for customers in both mature and emerging markets. GSM is the specification for Global System for Mobile Communications.

The phones must meet a set of requirements that operator members of the association will define over the next few months.

The idea is to define a low-cost phone, but it's up to the operators whether they want to set a firm price goal, said David Pringle, a spokesman for the GSMA. The winner will be endorsed by the association and operators that are involved in the program will sell the phones.

The program is similar to one the group executed recently for a handset that would wholesale at less than $30. Motorola Inc. won that contest and has said that it expects to sell 20 million of the phones, which hit the market in 2005, by the end of this year.

The 3G phone project is unlikely to be as appealing to emerging markets as the original project for a couple of reasons, however. "I'm skeptical about demand in emerging markets," said Ben Wood, a consultant with Collins Consulting. Most operators in the new markets aren't even discussing building 3G networks, which would be required for customers to use the capabilities of the phones.

If the operators creating the requirements for the 3G phone program decide to set a price goal, they won't be able to get near the $30 phone, another reason that the 3G phones may be less appealing in emerging markets. "There's a fixed cost that goes into these devices that will keep the cost at a certain point," Wood said. "Prices can only go so low." That's because to offer features like video, the phones must include certain technologies that manufacturers must license from the developers. Licensing the 3G standard is costly as well due to its many intellectual property contributors.

"More interest around this would be from network operators looking for low-cost 3G in the prepay market," he said. Operators have been hoping to reach a wider audience for 3G offerings but prepay users, who make up the bulk of mobile customers in many parts of the world including Europe, expect a very low-cost or free handset. So far, 3G phones have been too expensive for the operators to give away.

The 3G phone contest may be an effort to ensure that vendors can continue to attract new users in emerging markets, which make up the bulk of recent mobile growth. In a related announcement, the GSMA said that by this weekend, 2 billion people around the globe will be using GSM services. The GSMA said that emerging markets including China, India, Africa and Latin America accounted for 82% of the second billion mobile subscribers.

In September of last year, the number of mobile users around the world, including GSM and other technologies, reached the 2 billion mark. Late last year, Nokia Corp. pushed up its prediction of when the 3 billionth mobile user would sign on from 2010 to 2008.