Cell phone users: Make 'em simpler

This realization is dawning across the cellular supply chain, generating debate on everything from silicon integration to system design and service strategies for the world phone.

The GSM Association fueled the discussion earlier this year when it announced that the sub-$40 Motorola C114 phone had won its tender for an estimated 6 million ultralow-cost handsets from eight operators serving countries such as Bangladesh, India, Malaysia, the Philippines, Turkey and Russia. The GSMA expects to issue a follow-on bid in September in an effort to attract more handset makers and cover more emerging markets.

The move signals a design shift that aims to help bridge the digital divide, "but it has to be a sustainable business," said a GSMA spokesman. "This is about designing out costs but maintaining margins" — a departure from the current approach of "designing in costs, with MP3 players and digital cameras and so on," he said.

The seismic shift has prompted debate among chip makers about feature sets and integration. The GSMA "got a lot of people looking at the requirements of entry-level phones," said Doug Grant, director of business development for the wireless group at Analog Devices Inc. (ADI). "Their stated target was to get to $30 [bill of materials], and no one could do it."

Looking at that trend, product-analysis company Portelligent Inc. announced last week that 80 percent of 81 chip and handset makers it surveyed recently thought they could get to a $25 complete BOM for a finished handset by the first quarter of 2007. Fifty-one percent said they could do it by early 2006.

"The $25 phone is a question of when, not if," said David Carey, president of Portelligent (Austin, Texas).

Feature story
In its survey, Portelligent detailed a $25 voice phone with SMS text messaging, but some think that's not the right target. "The debate is hot right now as to whether the low-end phone is black-and-white or color, will it support data, and if it supports data it might download music, so does it support good audio?" said Herbert Vanhove, vice president of product management for the chip group at Qualcomm Inc. "Some emerging markets are talking about data and color screens for entry-level phones."

"The key burning question today is what does that phone do," agreed Berardino Barrata, director of strategy for the mobile-system group at Freescale Semiconductor Inc. To design a $25 GSM voice-only phone using about $12 in silicon is fairly easy, but adding data capabilities and applications will add costs quickly. Freescale already supplies handset makers in China a sub-$10 chip that combines an ARM7 and single-MAC digital signal processor for low-cost phones with simple slab enclosures and black-and-white LCDs, Barrata said.

Integration at the chip and package level is one road to cheaper handsets. For example, Texas Instruments Inc.'s recently announced Digital RF Processing technology moves most of the RF function into digital processing on the baseband. "This is probably one of the most important techniques, especially in the low-end area," said Bill Krenik, manager of advanced wireless architectures at TI.

More integration and finer process geometries will also speed the trend, he added. "There's a lot of miscellaneous integration in the cell phone with regulators, power supply decouplers and so on, and we're cleaning up all those loose ends," Krenik said.

Freescale has made advances in both RF CMOS integration and packaging, recently demonstrating a module the size of a postage stamp that could power an $80 3G phone. For its part, Qualcomm has announced a so-called single-chip family that combines a CDMA baseband, transmitter, receiver and power-management device in one package. The company would not comment on how many dice are inside the package or the cost of the chip. It will sample early next year.

"There are a lot of ways of skinning that cat. We are not trying to put everything in a single chip," said Grant of ADI. The overall silicon die area, not the number of packages, determines chip costs, he said. And even "single-chip" solutions typically use external memory, power amplifiers and other components, Grant added.

In fact, digital logic is one of the least troublesome factors in hitting the $25 phone, said Carey of Portelligent. He assumes a low-end digital baseband will continue to cost about $6, but will increasingly fold in more analog and other capabilities.

The display is one of the trickiest components to reduce in cost. It would have to be cut from an estimated $2.50 bargain-basement price today for a 96 x 64-pixel monochrome dot-matrix LCD with icon capabilities to an estimated $1 calculator-like LCD in the $25 phone.

Embedded software and royalties on intellectual property are other troubling costs. Vendors do not even discuss the price tags of such items. Thus, Portelligent left that category open-ended in its analysis.

Likewise, memory and RF costs are hard to gauge. The amount and type of memory are constantly changing, and RF continues to be implemented in a variety of digital, analog and discrete components.

Even if they hit new lows in hardware costs, chip makers wonder what heights the emerging markets realistically might reach. "This market is going to amount to no more than 10 to 15 percent of the total phone market, even several years down the road — even with lower-cost phones," said Grant of ADI.

The GSMA disagreed, estimating that 80 percent of the world's population is covered by wireless services, but only 20 percent actually subscribe to them. Handset costs are the biggest hurdle, according to the group's research. GSMA estimated that low-cost phones ultimately could open the door to an additional 100 million new subscribers a year.

Much of that market could be served by two-generation-old handsets from the likes of Motorola and Nokia that are now selling in emerging markets for as little as $40, said Barrata of Freescale. "There's quite a large volume of these refurbished phones moving around, and that's the biggest challenge for this market," he said.

Beyond the handset
The handset is just part of the equation, and a small part at that, some say. Service may be a bigger issue. "The key to getting services to developing markets is through pursuing lower costs of ownership," said a spokesman in Finland for Nokia. "Our magic number is not the $30 phone, it's the $5-a-month service fee."

The handset represents only 20 percent of total services costs, said the spokesman. Lower-cost, simpler-to-manage infrastructure gear and lower government tariffs also play a role in making it profitable to offer services at $5/month, he said.

"To make this really take off, operators will have to be creative about how they service a subscriber like this so they can keep the cost of ownership on the service side down," said Ted Dean, managing director of market researcher BDA China Ltd.

Some operators in Asia are lowering the bar for selling blocks of minutes in prepaid cards. In the Philippines, for instance, there are schemes in place that allow one person to buy a $10 credit and then resell smaller blocks of time to others for as little as $1. In other markets, cell phones may require removable SIMs so that several users may share a single, low-cost cell phone.