Reaching out

By Stephanie N. Mehta, Fortune senior writer

(Fortune Magazine) -- PROBLEM: Cellphones are too expensive for the people who need them most.

SOLUTION: Cheap, simple handsets.

A few years ago many of the world's poor couldn't get phone and Internet services because telecom companies wouldn't build lines near them. But as wireless networks have spread, the issue isn't access. It's the lack of cheap mobile devices.

Now the semiconductor industry is developing technologies that should help manufacturers make simple phones that wholesale for $40 or less. (Basic cellphones can wholesale for as much as $100. Telecom companies often subsidize phones, retailing them to customers at a loss or even giving them away.)

Texas Instruments (Charts) and Qualcomm (Charts), for example, have found ways to consolidate the functions of multiple microchips--the brains of these devices--into a single chip. Motorola (Charts), which introduced a sub-$40 handset two years ago, is about to launch a new low-cost phone, the MotoFone F3, using TI's chip. Such phones can be a lifeline for entrepreneurs in developing countries. A farmer, say, can get prices for his goods and decide whether to make the trip to market. "There is a correlation between teledensity and the economic well-being of a country," says Sanjay Jha, president of Qualcomm's chip business.

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