Motorola skips low-cost 3G handset tender

Analyst says the GSM Association's "3G for All" program may be less compelling this time compared to the earlier 2G initiative.

SINGAPORE--Motorola, which won earlier tenders in the GSM Association (GSMA) Emerging Handset program, is giving the "3G For All" program a miss.

Motorola spokesperson Natalie Harrison told ZDNet Asia that while Motorola has decided not to bid for the GSMA "3G For All" initiative, the company will "continue to explore and work closely with the association on other strategic projects". She did not reveal the reasons behind Motorola's decision.

Announced in June this year, the "3G For All" program aims to make 3G services more accessible in developing countries. The tender winner, to be announced in February 2007, will produce a 3G handset that supports advanced services--such as high-speed Internet browsing and mobile TV--and costs less than a low-end 3G handset today.

In 2005, Motorola won two earlier tenders for a similar initiative called the Emerging Handset (EMH) program, where the cellphone maker produced the US$30 C113 and C113a handsets for developing markets. By year-end, the company expects to ship more than 20 million EMH handsets.

GSMA media relations manager David Pringle told ZDNet Asia that "the '3G For All' and EMH programs are entirely separate, so what happens in one has no impact on the other". He declined to reveal the names of the vendors that submitted proposals, which were made on a confidential basis.

Aloysius Choong, senior market analyst at IDC's Asia-Pacific personal systems group, noted that Motorola's decision is a setback to the GSMA.

He said: "The GSMA has always stated that they are evaluating across multiple factors beyond price, including brand value and the ability to provide after-market services. In many of these areas, Motorola fits the bill, so I would say that this decision may well be a loss for GSMA."

Choong said earlier EMH tenders had created instant economies of scale for Motorola by consolidating operator demand for US$40 phones.

At that time, Motorola had the flagship Razr for developed markets, but its portfolio was fairly limited in emerging markets. The first EMH exercise thus coincided with a strategic need of Motorola's, and fed nicely into its drive for market share, Choong said.

"In comparison, '3G For All' is probably less compelling for Motorola. The program is unlikely to receive as much publicity as the US$40 handset initiative, and Motorola's 3G strategy is already in full swing," he added.

So, while "3G For All" is likely to help drive shipments for the winning vendor, Choong said, the benefits might be relatively incremental for Motorola, especially when the company needs to divert resources to the initiative.

Choong noted that there might also be lingering questions over the potential demand for low-cost 3G handsets.

"For the first [EMH] program, once you get a mobile phone into the hands of a new user, he will use mobile voice," he said. "But in the case of "3G For All", getting a 3G phone to a user does not necessarily mean he will start using a 3G service.

"In that sense, a much greater emphasis has to be placed on getting the price of 3G services down," Choong said. He noted that beyond voice services, an entire ecosystem--comprising handsets, services and content--needs to evolve.

"Ultimately, 3G-enabled mobile phones are but one small part of the equation," he said.

Mobile Handset Analyst (MHA), a research service of telecoms analyst company Informa Telecoms & Media, estimates that Motorola 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," MHA said in a statement Monday.

"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," MHA said. "However, the GSMA has not set a target price point [at which] the device which wins the most votes must meet, meaning it is hard to see what level of profit vendors could achieve."

On the contrary, Choong noted, the ability of the tier 1 vendors to manage their costs--both due to economies of scale and stronger IP (intellectual property) positions--means they are better placed to generate decent profit margins at low prices.

He said: "If cost was a concern, Motorola also had the option of putting together a bid with a higher price and let the GSMA decide if Motorola's other advantages can compensate for that."

"But they chose not to," he said. "So I doubt cost, or rather profit margins, is the main reason that Motorola isn't participating."