The world’s largest underserved markets for mobile communications are in developing nations and regions. Asia, Africa, Latin America all have vast potential, but formidable barriers stand in the way. Among the most immediate: the low disposable income of most of the population. Low cost and ultra-low cost (ULCH) handsets are seen as part of the solution to that problem, and according to a new study from ABI Research the two categories together will see a compound annual growth rate (CAGR) of 24% over the next five years.

“The price of a ULCH handset is widely seen as critical to the tipping point for mass adoption in emerging markets. Handsets are rarely subsidized in emerging markets. The GSM Association has pegged the maximum desirable ULCH handset price at $25 through next year and at $20 for 2011-2012. I believe in 2013-2014 the top price for a ULCH phone will be no more than $15, which is feasible because some handset models are hitting that price today,” said ABI analyst Michael Morgan.

Other inducements fostering uptake of mobile services in emerging markets include value-added data services using locally relevant content. Also helping: more enlightened attitudes among government regulators towards reducing taxes and tariffs on handsets and services.

However, emerging markets do present significant challenges. For handset vendors, the low prices mean margins so thin that profitability demands major economies of scale. Vendors must also control a wide IP portfolio and manufacture locally to control royalty, import and labor costs. The research shows that on all these counts, Nokia is the out-and-out market leader.

“Entry level handsets must deliver high value to low-income emerging market consumers who want good quality at low cost,” the analyst said.