Emerging markets fuel cell phone growth

The GSM Association, which represents GSM wireless providers, has a program to get low-cost 3G phones in the hands of consumers in the developing world. This week, it announced that South Korean handset maker LG has won a deal to supply 3G products to 12 operators that have committed to buying the phones.

The idea is to help manufacturers produce more cost-effective handsets by getting a band of operators to commit to selling large volumes of the phone. LG said that its KU250 is expected to cost roughly 30 percent less than typical entry-level 3G phones.

Profit in pennies
Even with all the financial constraints, the sheer volume of subscribers in poor and underdeveloped regions of the world has allowed carriers to make money on services, even if these cost just a few dollars a month.

And in turn, these services are having a profound impact in the regions where they are offered. There are signs that cell phone penetration is reflected in gross domestic product, a measure of a country's economic health: For every 10 mobile phones per 100 people, GDP advances 0.6 percent a year, experts estimate.

As penetration increases in developing areas, some carriers are creating services with specific importance to the people who live there. For example, they are introducing services such as mobile banking, which enables people who don't have bank accounts to use cell phones to transfer money. Operators in the Philippines and in Africa have already begun experimenting with such a business model.

Earlier this week, the GSMA announced a partnership with credit card company MasterCard to begin a pilot program of a cell phone banking service. In the program, cell phone subscribers will have a special chip embedded on their SIM card that will allow them to send credit over the mobile phone network via a text message. Recipients take their phone with the text message to a retailer or similar outlet to pick up their cash.

The service is likely to become hugely popular among migrant and foreign workers in countries such as the United States. More than 200 million people have left home to work in other countries, according to W. Roy Dunbar, president of global technology and operations at MasterCard International.

And those people very often send money home on a regular basis. Over the last several years, money transfers to developing nations have increased from US$147 billion in 2001 to US$268 billion in 2006, according to the World Bank. But transferring money via wire services or other means is expensive, particularly where the sums are small. For example, someone sending 500 pounds (US$982) from the U.K. to India could pay between 1 percent and 8 percent in transfer fees. But if the amount being sent was 100 pounds, the transaction fee could cost the sender up to 40 percent.

Transferring money via mobile phone could greatly reduce these costs, the panel said. It could also cut the transfer time to minutes rather than days. Last, it could be more convenient for senders and recipients, who may live far from a bank or money-wiring office. The end result could mean more cash in the hands of individuals living in poor regions of the world. These individuals might then spend that money locally, helping to fuel a cycle of economic development.

"Throughout history, communication technology has equaled commerce," Dunbar said during the panel discussion. "And now mobile telecommunications plus financial services will equal economic development."