While 80% of the world’s population lives within range of a cellular network, only 25% of it subscribes to a mobile phone service. This means there are upwards of three billion potential customers for cellular. That, says Alan Varghese, ABI Research’s principal analyst of semiconductor research, is the good news. The bad news is that the majority of this segment lives in the “emerging” economies of the world, and finds the cost of a mobile handset prohibitive.

The GSM association has set a target of less than US$30 for an Ultra Low Cost (ULC) handset. The first question that each semiconductor and handset vendor will probably ask is, “Why play in the ULC segment at all, since it is clear that profits are going to be very compressed in this space?” Secondly, the low end is all about cost, which means there will be very little opportunity to differentiate. Finally, there is no certainty that once ULC handsets are built, there will be assured sales.

Perhaps this explains why some top tier handset and semiconductor manufacturers are absent from ULC discussions and claim that they want to focus only on the high end. But ABI Research believes that could be a dangerous strategy.

“For the handset manufacturer,” says Varghese, “the ULC market’s high volumes imply supplier pricing and market leverage. And the pricing leverage may apply all the way to the top handset tiers, where profits are high. Semiconductor vendors’ interest should center around fab utilization, and around amortizing the cost of innovation. Single-chip technology, advanced power management and signal processing, which are necessary to enable ULC, will also be necessary for the high tiers, so the costs of R&D can be recouped.”

ABI Research’s new study, “Ultra Low Cost Cellular Handsets for Emerging World Markets” discusses these issues in detail, examining market drivers and inhibitors, business models, technology trends, forecasts and much more.