InterDigital Inc (IDCC)

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GSMA to reveal results in Barceloma 3GSM World

Low cost 3G phone might be a lost cause




Motorola bails out early from GSMA*s low cost 3G program. The GSM Association could be struggling to gain the support of tier 1 handset vendors for its 3G for all program, following the decision of Motorola not to take part. The U.S. vendor should have been a major supporter of the latest program, having won both tenders in the GSMA’s Emerging Mobile Handsets initiative in 2005.

“Motorola’s strong support for the EMH initiative means its decision not to take part in 3G for All is a major blow to the GSMA’s ambitions for the project” comments Michael Carroll, editor of Mobile Handset Analyst.

MHA estimates the U.S. vendor could have generated profits up to US$32 million through sales of its EMH handsets, but the high cost of producing a 3G terminal means there is little benefit for tier 1 vendors to produce a similar low-cost terminal for 3G networks. Margins on low-cost 3G terminals will remain low until 2008, when the cost of production will fall from US$150 at present, to US$55. However, the GSMA has not set a target price point that the device which wins the most votes must meet, meaning it is hard to see what level of profit vendors could achieve.

An additional burden could come in the form of the high cost of 3G IP. “The majority of tier 1 vendors can negotiate favourable license rates by using their own IP as a bargaining chip, but lower-tier vendors may struggle because they don’t have IP to bring to the table,” Carroll says.

Many industry insiders believe the market for 3G still needs to be proven before attention is given to low-cost 3G devices. Brett Simpson, a director at Arete Research, says. “The 2G-lowcost effort was about making mobile voice more affordable in emerging markets. For 3G, I am still struggling to find proof points around where 3G is adding value to consumers.”

The winning handset is due to be unveiled at the 3GSM World Congress in February.