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Ultra-low cost mobiles to steal thunder of the ‘$100 laptop’

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Comment The much hyped project to create the '$100 laptop' for poor communities, spearheaded at the Massachusetts Institute of Technology, has come under fire in the past weeks, first from Microsoft’s Bill Gates and now from the GSM Association.

Both are suggesting alternative ways to get internet access and other digital functionality to a larger proportion of the world's population. While the rhetoric is all about social justice and economic regeneration, both these critics clearly have a commercial interest in ensuring that their own preferred platforms are the main engines of these changes.

Gates slammed the $100 laptop prototype as a tool for developing nations, claiming for real progress in underserved areas, a more sophisticated product would be required (involving Windows-style interfaces and software, of course).

The MIT product delivers networked applications but cuts costs by avoiding hard drives and other elements, and can be crankpowered in areas where there is no electricity. o

The weaknesses in the theory are not those touted by Gates, but rather the opposite – in a community with no electricity, will internet access really be a priority? Therefore Erlich’s objections are more realistic than Gates’s, as he points out that even $100 will be too expensive for many applications and user bases. Naturally, this leads him to promote the handset, which is being driven down to sub-$20 price tags, as a better route – though those ultralow cost devices are basic GSM phones at this stage, and a product with the real data capabilities required for social and economic change will come closer to the MIT price level.

"The eye-catching price tag of $100 is going to be too expensive for the 2.5bn people worldwide living on less than $2 a day," Ehrlich said. "Thankfully, there is another hi-tech tool, which is already low cost, robust and frugal with electricity - the mobile phone."

The London Business School has estimated that a 10 per cent increase in mobile penetration in a developing country can boost that country's economic growth rate by about 0.6 percentage points a year, which can make a major impact in a slow growing economy.

The GSM Association has led an industry-wide initiative, the Emerging Market Handset Programme (EMHP), that has reduced the wholesale cost of entry level mobile handsets from about $100 to below $30 within 18 months, and which is on target to fall even further to $20 before the end of next year.

It is also advocating projects designed to encourage entrepreneurs in the developing world to set up 'mobile payphone' businesses for people who cannot afford even a $20 handset. It recently extended its endorsement f Motorola as the EMHP vendor for a further six months from this July. This will help Motorola dominate the ultralow cost segment until 2007, according to new research from Informa, and could have a significant impact on its market share, if not its margins.

Motorola CEO Ed Zander recently set a 1,000 day target for the company to usurp the number one market share position of Nokia, which has shown less enthusiasm for very cheap cellphones because of the impact on margins.

Informa’s Gavin Byrne believes that if the industry selects the right combination of ex-works cost levels and feature sets, then ultra-low cost handset shipping prices will reduce from $40 in 2005 to $28 in 2010. That would equate to sales of new ULCH models of over 36m in 2007 and almost 48m in 2010, representing 5.3 per cent of total new device sales by 2010. In Africa and India these sales will be about 10 per cent of new shipments.

However, the biggest challenge will not be down to cheap devices, but to finding a business model for service providers delivering voice, data and multimedia to this massive new base of users with low budgets. Like free access for poorer citizens in advanced economies, the technology choice – in that case, Wi-Fi mesh – is not the problem, but how providers can make any money from the network, and if they cannot, whether governments or development agencies will prioritise funds to bridge the gap.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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