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Cell phones your wallet will love

Image: Nokia 1200
This $55 Nokia 1200 cell phone has a flashlight, a phone book that supports multiple users and a program that tracks call duration. The drawback? The screen is limited to black and white, but a color version is available in North America for an additional $9.Nokia
/ Source: Forbes

The Nokia 1200 will never win a beauty contest. Slightly clunky, with a basic candy bar shape, the phone is pure practicality, from its monochrome black-and-green screen to its plastic one-piece keypad. Industry commentators have been catty, describing it as "plasticky" and "sad-looking." But to Nokia, last summer's release of the 1200 has been one of its most important new launches.

Welcome to the era of the budget phone. From the vantage of phone companies, building low-priced phones has been a ticket to nontraditional markets in Latin America, Africa, India and Asia. But those markets may also turn out to offer clues about the future of phones in developed economies as well.

It's possible to find bargains in the U.S. So-called prepaid phones like the $29.99 LG Flare offered through Virgin Mobile forgo advanced features for affordability.

But traditionally, U.S. carriers have subsidized the price of higher-end cell phones and so dangled tempting handset deals before customers, aiming to coax them to sign up for multi-year service plans. There's no predictable rhyme or reason to those offers, which include deals like a BlackBerry Curve smartphone for $150 from AT&T or a $400 Palm Centro — and $300 rebate — from Sprint, for customers agreeing to a two-year service contract.

Operators in emerging markets tend not to underwrite phones, however. That's why most handsets from major manufacturers end up selling for $50 or more in developing economies, says Steve Lalla, Motorola's vice president of mass market products. (The prices quoted in this story are independent of subsidies and service contracts.)

And as U.S. wireless networks open up, prodded by the Federal Communications Commission's recent spectrum auction and open-source mobile platforms like Google's Android, the U.S. mobile market will look more like the rest of the world. That will mean more freedom to move between carriers, but also fewer carrier subsidies, which may make the price of phones more relevant to U.S. consumers.

What you can get for $50
As a result, emerging markets — and the phones popular there — are attracting more attention than ever. Nokia already racks up more than half its annual sales in emerging markets. Its weapon of choice? Phones like the 1200, which retail for as little as 35 euros or $55. "We believe people who earn less than $5 a day should be able to own a mobile phone," says Heikki Koivu, director of Nokia's entry products group.

Around the world, $50 typically buys a sturdy, mostly plastic phone that makes and receives calls and text messages and has decent battery power. Manufacturers carefully weigh the cost of each feature. Cell phone makers will save a few pennies on materials by building phones out of sturdy plastic instead of metal.

But low cost doesn't mean the phone will fall apart. If anything, low-cost cell phone makers figure their products will have to last even longer than luxury phones, which may get tossed aside as consumers spring to buy the latest model. Koivu says Nokia tries to build phones that will last at least three years by using dust and moisture-resistant keypads and avoiding cheap ink on the keys — it rubs off too quickly. Shaping the phones in the simple candy bar or block form is easier to manufacture than phones with hinges and moving parts — but also makes the device hardier.

Battery life is key, too, because customers in emerging markets might not have regular access to electricity. "Many of [these customers] are out and about somewhere," says Koivu, adding that he's spotted people charging their phones using car batteries. Some low-cost phones, such as Samsung's B100 and C188, will last more than 400 hours in standby mode.

Beyond the basics
Traditionally, the lowest cost phones have scrimped on extra services such as access to the Internet or e-mail. But increasingly, manufacturers are taking advantage of falling component prices to pack even low-priced phones with fun features. Jeff Brown, a principal analyst with Portelligence estimates that phone component prices have fallen 10 percent to 15 percent annually in recent years. That means manufacturers can add extras, such as games and dictionaries and, in some cases, even FM radios and cameras.

Sony Ericsson sells two "radio-centric" phones, the R300 and R306, that have built-in radios and pre-set station buttons. "In Latin America and India, especially, radio is a really compelling feature," says Jon Mulder, product marketing manager for Sony Ericsson North America. "You can plop the phone down and listen to a cricket match."

Ringtones are another cost-efficient way to deliver music. "Many people literally listen to the ringing [the way] young people gather around stereos," says Koivu. Nokia and Samsung include mp3-grade ringtones in their entry-level phones.

Those who prefer a "clamshell"-shaped phone can opt for the W270, which is sold in India, Hong Kong, Taiwan and Brazil, and will soon be available in China and Spain. This model is priced from $50 to $100, depending on the region.

The trend has helped Motorola offer an mp3 player phone for under $100. The company also upped the memory in some of its budget phones. Some can now store up to 750 text messages — an important feature in countries like the Philippines, where the average phone user sends 12 to 15 text messages a day.

Nokia says its phones support more than 80 different languages. Even its least expensive phone, the 1200, is packed with useful features. It houses multiple phone books that allows several people to share the phone and keep separate contact lists; a flashlight for blackouts; and a call duration trackers, so users — who typically pay for a set number of minutes — can see how much airtime they have at a glance.

Even budget phones can look cool
Budget phones are getting a bolder streak of fashion, too. Flip and slider-style handsets are becoming more common, as are models with snap-on colored plates. To give a phone a more expensive air, manufacturers are using plastic that resembles metal, adding metal details, and adopting technology originally developed for higher-end devices. Sony Ericsson, for instance, modeled its sleek T280 on its $300 T650 phone. The T280 packs fewer features and costs half the price. "Even a relatively basic phone can look cool and feel nice in the hand," says Sony Ericsson's Mulder.

Replacement purchases are also changing the look and feel of budget phones. Consumers who bought their first phones a few years ago are now shopping for their next handset. These "replacement buyers" often have more money to spend, plan to use their phones differently and want new features — perhaps a bit more style or a camera. Phones aimed at this market are more likely to have cameras, mp3 players, Bluetooth connectivity and expandable memory for storing music and photos. Nokia says that replacement purchases are now on par with first-time sales across emerging markets as a whole.

"Four to five years ago, we wanted to offer the 'best of the basics,'" says Motorola's Lalla. "That's evolved to bringing in more experiences, features and capabilities on top of [that] platform."

Fresh challenges await. Asia has long represented the largest market for budget handsets. Now Africa is largely fueling sales. A few weeks ago, Nokia launched four low-cost handsets in Johannesburg. Says Koivu: "The boom is moving there."

Soon, the only people who don't have cell phones will have significant reasons — beyond cost — for not signing on to the cellular revolution. They may be illiterate or have impaired hearing or vision with few tools at their disposal. Those next, say, billion and a half users, might need phones with jumbo text, more finely tuned speakers or icon-centric software — still at a low price. "To get to 5 billion phone owners, like we are targeting, you need to do more," says Nokia's Koivu.

Will prices continue to fall? Analyst Brown muses that a phone propelled by kinetic energy could bring down costs by eliminating the battery. So could a screen-less phone. "Do you need a display?" asks Brown. "What if it were voice-activated?"