The Nexperia cellular system platform — including integrated hardware and software constituting the electronics needed in a mobile phone — should drive GSM handset costs below $20, according to Thierry Laurent, Philips Semiconductors' executive vice president of business development. The long-term goal, said Laurent, is to drive down total handset cost to below $15 by 2008.

The company said "ultra low-cost" handsets will fuel fast-growing demand in regions like China, India, Africa, South America and Eastern Europe.

The initiative will be based at Philips' facility in Shanghai, China.

Earlier this year, at the 3GSM World Congress, the GSM Association kick-started an effort to develop mobile phones that would retail in emerging countries below $40. At the event Motorola launched the first such phone, which the group said represented the first step towards a sub $30 handset target.

Motorola said it would develop a range of handsets built on its C114 platform that is optimized for durability and long talk time. It committed to start delivering the handsets during the second quarter of 2005.

"Right now, 77 percent of the world's population lives within range of a mobile phone network, but only 25 percent of the world's population subscribes to a mobile phone service. All around the world operators have the infrastructure in place for mobile services, but the relatively high cost of mobile phones is holding back potential subscribers," said Laurent.

The sub-$5 package spearheading the initiative will be a GSM device capable of making calls and sending SMS messages. It will have a monochrome screen and will be able to play polyphonic ringtones.