Editor's Corner

Sony Ericsson raised some eyebrows last week when it announced manufacturing agreements with Flextronics and Foxconn to make mobile phones in India. Did it signal a shift in the joint venture's strategy? Last year, Sony Ericsson's profit more than tripled year-over-year as the company maintained its strategy of pursuing profit over market share and staying out of the low-cost handset marketing wars prevalent between Nokia and Motorola. But now it appears Sony Ericsson is looking to accelerate efforts to gain market share, which stands at about 9 percent.

Emerging markets can't be ignored. India has overtaken China as the world's fastest growing mobile market in terms of net additions every month, while emerging markets in general are making up the bulk of the world's net additions. Vendors, however, should learn a lesson from Motorola, which was hit hard in the fourth quarter by falling average selling prices and its apparent willingness to sacrifice profit for market share with some really cheap basic phones in emerging markets.

It's become clear that cheap phones aren't cutting it in emerging markets. One of the biggest misconceptions about these customers is that they are willing to accept any basic cheap phone. As it turns out, they want data-enabled phones with color screens, not monochrome screens on candy bar phones.

Just look at Qualcomm's recent estimates about 2007. It expects CDMA phone ASPs at $210 in 2007, higher than an earlier estimate of $205. The driver is data-featured phones, which tend to increase the selling price. And in emerging markets like India, CDMA phones are priced a bit higher than GSM handsets, but they have data capabilities.

Sony Ericsson's manufacturing agreements focus on making basic color phones and mid-level music-enabled phones with some customized features like local content for the Indian market. The handset maker plans to manufacture 10 million phones in India every year by 2009. It's a smart strategy as it's clear the key to driving growth is making feature-rich handsets more affordable, not offering bland handsets at a lower cost.

This past summer the Yankee Group noted that the lowest-priced handsets can drive customers away. When PC penetration is low, the handset is going to be the Internet experience for customers, the firm noted.

It would be wise for handset makers to focus on driving down costs to enable cheap 3G phones for developing countries. Just think of what that would mean for uptake. The GSMA will make an announcement in this direction during next week's 3GSM World Congress in Barcelona by choosing a tender winner for its "3G for All" campaign, which is designed to drive down the cost of WCDMA handsets to spur adoption in both developed and underdeveloped countries.

A "3G for All" handset should, according to the GSMA, be able to enable higher end applications "that can support advanced services, such as high-speed Internet browsing, mobile TV and instant messaging while costing significantly less than a low-end 3G handset today."

Will Motorola be in the running for the "3G for All" tender? You can bet Motorola is now kicking itself for its aggressive involvement in the GSMA's Emerging Markets Handset Initiative in 2005, when it won two ultra low-cost handset tenders from the association--one for a sub $40 phone and another for a sub $30 handset.-Lynnette