What's Hotter Than Samsung's Galaxy S5? Cheap Phones That Do Less

Photographer: Simon Dawson/Bloomberg

Stephen Elop, head of devices at Nokia Oyj, announces the Nokia 220 low cost budget smartphone during a news conference on the opening day of the Mobile World Congress in Barcelona, Spain, on Monday, Feb. 24, 2014. Close

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Photographer: Simon Dawson/Bloomberg

Stephen Elop, head of devices at Nokia Oyj, announces the Nokia 220 low cost budget smartphone during a news conference on the opening day of the Mobile World Congress in Barcelona, Spain, on Monday, Feb. 24, 2014.

Mobile World Congress, like any trade show, is an annual exhibition of one-upsmanship. Last week's conference in Barcelona was no exception, but it wasn't all about fingerprint sensors and 4K cameras. Many companies were competing on which smartphone could leave the most features out.

At least a half-dozen of the world's most recognizable technology brands spent the week highlighting their low-end smartphones targeted at emerging markets. Smartphone growth is expected to slow this year as the devices start to reach saturation in developed countries in North America and Europe, according to research firm IDC. So the mobile industry is looking toward China, Latin America and other underdeveloped parts of the world for more headroom.

The premium market wasn't overlooked entirely at Mobile World Congress. Samsung Electronics debuted the fingerprint-secure, water-resistant Galaxy S5, and Sony showed off the Xperia Z2 with a camera that can record video in 4K high-def resolution. But you practically couldn't walk 50 feet through the convention center without passing a booth hawking cheap phones.

Microsoft is struggling to recover from a late start in smartphones. So it's focusing some of its efforts on places where people are expected to soon buy a smartphone for the first time. Microsoft teamed up with Qualcomm to design inexpensive components that can be used to make Windows phones for emerging markets. That effort, along with an update to its operating system that should allow the software to run more efficiently on low-end hardware, were on display at Mobile World Congress.

"Microsoft can be more healthy by widening our ecosystem," Joe Belfiore, a Microsoft vice president, told Bloomberg News in an interview in Barcelona. "We care a ton about emerging markets."

Nokia, soon to be owned by Microsoft, was also showing off some low-cost phones last week. The Nokia X line runs a version of Google's free operating system, which helps reduce the final cost of the device but probably isn't winning fans at the Finnish company's new overlord. Microsoft isn't planning to keep the Android phones around for long after the acquisition is approved, a person familiar with the matter told Bloomberg News last month. The company may be planning to use the Nokia Android phones to bolster sales in the lower end until it can produce Windows phones for that market segment, the person said.

"The new Nokia X smartphones offer a desirable alternative to cheap Android devices for consumers in both mature and developing markets," Tony Cripps, an analyst at Ovum, said in an e-mailed statement. "Nokia's strength in developing markets will be a major catalyst for sales of Nokia X, which brings a level of design and build quality to the low-price smartphone segment that is largely lacking today."

Facebook CEO Mark Zuckerberg spent much of his keynote talking about how to connect the Third World. He'll need help from mobile carriers, which is probably why he hosted about 20 of their executives for dinner in Barcelona, people familiar with the matter told Bloomberg News last week. Zuckerberg's plan for offering free Internet to emerging markets likely won't be profitable for years. The carriers may have trouble trusting Zuckerberg after Facebook agreed to pay $19 billion for WhatsApp, which is sapping their profits from text messaging. WhatsApp antagonized them further last week with promises of an Internet calling feature.

"If we do something that’s good for the world, we’ll eventually come up with a way to make money from it," Zuckerberg said on stage at Mobile World Congress. "I want to show that this model works; that’s why we’re looking for partners who are serious about this."

One software company that carriers do like is Mozilla. Deutsche Telekom, Sprint and Telefonica are among those supporting the development of Firefox OS, which aims to challenge Android.

Last week, Mozilla showed it was serious about undercutting everyone with a $25 smartphone. (That's the price without a service contract.) The company behind the Firefox Web browser demonstrated the prototype device in partnership with chipmaker Spreadtrum Communications. Mozilla plans to add 12 markets in Asia, Latin America and Africa this year to the 15 markets it entered by the end of last year, Jay Sullivan, Mozilla's chief operating officer, said during the introduction.

The Firefox "reference device," a model that hardware makers can base their smartphone designs on, has been written off by gadget enthusiasts who tried it at Mobile World Congress, but someone living in a Brazilian favela probably doesn't have the same bar for quality as a tech blogger. Roi Carthy, a managing partner at Initial Capital, said in an interview in Tel Aviv that he's optimistic about the prospects for Firefox phones in emerging markets.

"Latin America is probably going to be the main target for Firefox OS," Carthy said. "Brazil is going to be massive."

Emerging markets are one of the few bright spots BlackBerry has left. The Canadian company is going after Indonesia in April with the Z3, a new phone also known as Jakarta that will sell for less than $200 off contract. BlackBerry expects to expand Z3 distribution to other southeast Asian countries later and then the rest of the world. The production deal with Foxconn Technology Group that was signed in December should help cut costs and reduce BlackBerry's inventory risk.

Even though HTC executives have said that building a premium brand will be key to getting back into the black, the struggling Taiwanese smartphone maker went after the low end last week. HTC CEO Peter Chou said the cheaper Desire 816 will be available in China this month and in other countries next month.

"There's a huge opportunity in the middle of the market," Chou said. "Many people want to have an affordable smartphone that does not compromise."

Surely, the profit margins aren't as attractive, but companies often look at emerging markets as an investment in the future. The thinking goes: If your brand becomes big in, say, Indonesia, those people will be willing to pay more for your phones when they have the money.

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