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The critical technical factors in the future development of cellular mobile handsets are batteries, semiconductors and operating voltages, according to a recent study by BIS Strategic Decisions of Norwell, Mass. Titled "Digital Cellular Handset Evolution: Components & Power Developments," the study notes that the current "smaller, lighter and cheaper handsets...have been primarily achieved through the advances in semiconductor integration levels aided by some progress in battery technology.

"As the level of integration increases, the feature size of the semi-conductors will decrease in order to accommodate the additional functionality on each chip. A 5-volt supply is fine for channel lengths down to around 0.5*m. A reduction in voltage to around 3.3 volts for digital cellular chipsets is expected to occur around 1996, with a further reduction to around 2.4 volts between 1998 and 2000."

BIS says improvements in "talk-time" will be achieved through more power-efficient components. It notes that the "transmitter power amplifier" consumes the largest proportion of handset power and that gallium arsenide components, which are superior to silicon components, are being used in greater quantity. "The use of more efficient batteries and components, coupled with the probable trend toward smaller cell sizes, will result in a doubling of handset talk-time in the next few years," BIS predicts.

It expects digital terminal shipments to Western Europe to increase from 1.17 million units in 1993 to 1.75 million units in 1998, representing a compound annual average growth rate (CAAGR) of 49 percent over the five-year period.

Further, demand for semiconductor components for digital mobile terminals in the United States and Western Europe is expected to increase from $120 million in 1993 to $272 million in 1998--a CAAGR of 18 percent.

GSM Could Be Consumer Item in Europe

Global system for mobile communications (GSM) is expected to be the "dominant standard for chipset supply over the next five years, particularly when demand from other regions is taken into account," according to BIS.

The consulting firm predicts that digital cellular handsets based on GSM and its DCS-1800 derivative are poised to become mass- market consumer items in Western Europe. In the United States, on the other hand, time division multiple access (TDMA) and code division multiple access (CDMA) technology "ultimately" will realize their potential as a mass-market item, BIS says.

The company notes a rapid decline in GSM handset volume-- approximately 70 percent, or almost twice the rate of volume decline for analog phones. "The smallest GSM phone currently available is the Ericsson GH337, with a volume of 153 cubic centimeters (cc). The Nokia 2110 has a volume of just 190 cc. This compares startlingly with the largest GSM hand-portables, with volumes of approximately 607 cc."

In addition, BIS notes that GSM handset weights have declined rapidly. Early products such as the Motorola International 3200 and Ericsson GH172 weighed 560 grams and 420 grams, respectively. Recently, however, both Motorola and Nokia introduced GSM handsets weighing below 200 grams.

Prices for GSM handsets also have declined. At the end of 1992, the average retail price was $1,898. A year later, this had declined 55 percent to $836. By the end of 1998, BIS predicts that the price will decline to $456.

"This trend is particularly evident in countries where the operators are keen to aggressively price and market their GSM network vs. the analog network. The primary reason for this price decline is due to handset subsidization. However, component development and reduced component costs have also had a significant impact," BIS explains.

"The semiconductor content of a GSM phone is estimated to account for approximately 27 percent of the total terminal manufacturing cost, excluding the power amplifier. Including the power amplifier, this increases to about 35 percent. The battery represents around 10 percent of the cost," BIS says.

Future Trends and User Requirements

Pointing to an increasing emphasis on the consumer market, BIS notes that consumers tend to "need their mobile phones for a wider variety of reasons than the traditional business user." Today, 60 percent of U.S. cellular subscribers are consumers; by 1998, this figure will rise to 85 percent, according to BIS. It says its research shows that the primary consumer application of a mobile phone is for emergency or safety use.

Currently, there are more than 11 million cellular subscribers in Europe. Approximately 8 percent of them are consumers. By the end of 1998, BIS predicts there will be 23 million cellular subscribers, of which 5 million (23

percent) will be consumers. "Over 50 percent of these consumers are likely to be connected to a GSM network," BIS says.

In 1993, the market share for GSM manufacturers in Europe was: Motorola (27 percent), Nokia (20 percent), Ericsson (19 percent) and others (34 percent), according to BIS.

Vendors Must Target Both Markets

BIS says manufacturers must develop phones to meet the requirements of both the business and consumer markets. "Increasingly, a manufacturer must ensure that its complex product is low-cost, easy to use, compact, lightweight and a good design. For example, Motorola, Nokia and Ericsson have developed a family of products across all technologies. Each model within the family has a common look, feel and brand name despite the technology it supports.

"A good example here is the Motorola flip-phone, where the analog, GSM and PCS versions all look the same and have the same brand name. This allows a manufacturer to adopt one design. The only difference is in the components, batteries and software required."

BIS research identified the following "main influences" on choice of a cellular phone for businesses and consumers:

* Business users in Europe indicated that speech quality is the most important factor in their purchase decisions. This is rated above cost. With hand-portable purchases rising, the duration of the battery life is considered very important. Consumers, meanwhile, rated low cost as being the factor most influencing their choice, although speech quality, battery operating power and weight also rated very high.

* Conversely, in the United States, geographic cover is by far the largest concern of cellular subscribers. Fifty-six percent of BIS's sample reported poor coverage as a major source of concern. Almost one quarter (24.1) percent of customers were dissatisfied with billing/business practices. Voice quality was viewed as a problem for 20.7 percent of the sample, and the cost of service for 18.6 percent.

(BIS Strategic Decisions, 617/982-9500.)