By Sven Grundberg and Will Connors
High-end smartphones from Samsung Electronics Co. and Apple Inc.
tend to hog the spotlight, but a host of smaller companies eager to
capture growth in emerging markets are working off a new benchmark:
which phone is cheapest.
At the annual technology show Mobile World Congress in Barcelona
this week, several established companies have been showing off
phones priced below $200.
Nokia Corp., which for years dominated the so-called feature
phone market, this week introduced a new line of phones running on
Google Inc.'s Android operating system, starting at around $122.
BlackBerry Ltd., having lost its once-strong position in the high
end smartphone market, on Tuesday unveiled the Z3, which will
retail for less than $200 and will go on sale this spring first in
Indonesia, before expanding to the rest of Southeast Asia.
But other companies are already moving the low end further down,
below $100.
China's ZTE Corp. introduced a phone running on Mozilla's
Firefox operating system that will cost $80. Later this year,
Mozilla says it will introduce a phone made in conjunction with a
Chinese chip maker that will cost just $25.
Higher-end phones from Apple and Samsung will continue to
dominate in developed markets, but distinguishing those phones from
each other is getting more difficult, and the developed markets are
nearing saturation, analysts say.
A feature phone--sometimes called a dumb phone--is a basic phone
with generally more limited functionality than a smartphone. About
800 million feature phones were sold in 2013 globally, according to
Rajeev Chand, a managing director at boutique investment bank
Rutberg & Co., and that figure will go to zero in coming
years.
"The lower end of the segment is where all the growth is," Mr.
Chand said.
Nokia, for one, agrees.
"The fastest growth really is in the affordable smartphone
space," Nokia's head of mobile phones, Timo Toikkanen, said.
"Something that's not fully appreciated in the Western world is
that a couple of bucks makes a huge difference on developing
markets."
Nokia now has some limited-capability, Internet-enabled phones
that cost as little as $40. For its new Android-powered Nokia X
line, which starts at about $120, the Finnish company has
emphasized that it will charge consumers for applications and
content in its Nokia app store. The low credit card penetration in
places like India and Indonesia means Nokia will be charging for
content directly through consumer's phone bills or prepaid
contracts.
The company most aggressively pushing prices down, however, is
Mozilla, best known as the maker of the Firefox Internet
browser.
"We're targeting people who never had this kind of Internet
access before," said Johnathan Nightingale, who heads Mozilla's
Firefox browser and operating system business. "Maybe they had a
basic feature phone before, and for them even a $70 smartphone is a
substantial investment. As close we can get that to zero dollars
the better."
Mozilla's $25 phone, which it is building together with Chinese
chip maker Spreadtrum Communications Inc. and is expected to be
available later this year, will have just 128 megabytes of random
access memory, or RAM, a far cry from the 2 gigabytes found in
Samsung's latest Galaxy S5 flagship phone. Its low-resolution
screen size will be just 3.5 inches, measured diagonally. Samsung's
latest phone features a high resolution screen sized above 5
inches, for comparison.
"Our prototype doesn't feel like a Galaxy S5, and it's not
supposed to either," Mr. Nightingale said. "But it has apps, it can
use the web."
Mario Zanotti, head of operations at Millicom International
Cellular SA, a Stockholm-listed carrier that operates in Africa and
Latin America, is seeing "decent" Android-powered smartphones made
by white-label Chinese companies often unheard of in the West that
are selling for around $45, and that prices continue to push
lower.
Mr. Zanotti added, however, that for an operator in Africa and
Latin America, cheap phones is just half the answer. "The key in
all this is making sure our data charges are affordable too. A
smartphone without data is like a car without an engine," he
said.
Millicom has seen a rapid adaptation of mobile data in recent
years. By the end of 2013, 20% of the company's 50 million
customers were subscribing to data, a 50% increase over the year.
Some 70% of its subscribers are prepaid customers, paying in the
range of $3 to $5 a week for data and voice services.
And it's not just small companies racing to meet demand for more
affordable phones.
When Google last fall launched its newest operating system,
KitKat, a large part of the update was an initiative engineers at
Google dubbed Project Svelte. It was an effort to reduce the memory
needs of Android so that it can run on a broader range of devices,
including entry-level devices with as little as 512 megabytes of
RAM.
In Barcelona this week, Microsoft Corp. said it would lower the
hardware requirements for its Windows Phone operating system, to
support cheaper internal chips, fewer buttons and less built-in
memory, enabling cheaper devices for emerging markets.
The trend toward cheaper phones may soon even take root in the
U.S., where telecommunications carriers have been pushing against
the long-held practice of subsidizing smartphone purchases in
exchange for locking customers into long-term contracts.
Last year, T-Mobile US Inc. dropped subsidies altogether in
favor of lower-priced plans paired with customers paying full price
for the device. AT&T and Verizon recently began offering
service discounts to customers who bring or buy their own
device.
As subsidies drop, prices will likely come under pressure as
consumers take a bigger hit to their wallet when they buy a new
device, Mr. Chand, the Rutberg analyst, said.
The new crop of lower-priced phones also come as premium phone
makers struggle to differentiate new products from each other. The
new Samsung Galaxy S5 was widely cited by analysts as an
incremental improvement on the previous model, the S4.
"How do you get someone to buy your product?" Mr. Chand said.
"You lower the price."
Thomas Gryta contributed to this article.
Write to Sven Grundberg at sven.grundberg@wsj.com and Will
Connors at william.connors@wsj.com
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