The study, ‘The Adoption of High-End Phones: A Forecast for Multimedia Phones Through 2005,’ provides a comprehensive analysis of the handset market, as it makes the transition to 3G technologies, from 2002 through to 2005.

According to Shosteck, handset sales are determined by two factors: subscriber increases and replacement sales. With annual subscriber growth peaking at 250 million during 2000 and 2001, and with a gradually decline to 100 million expected by 2007, or earlier, handset sales will, therefore, be driven by replacement sales, the study said. By 2005, 77 percent of the total handset sales will be from users replacing their existing devices.

Total handset sales, including replacement, will reach 455 million by 2005, up from 427 million in 2002.

The challenge for mobile handset makers now is to convince users to replace their old phones with next generation devices.

The study noted that major mobile phone manufacturers are divided into two strategic camps: Motorola, Sony Ericsson, and Siemens are betting that consumers will be drawn to low-end devices, whereas Nokia and Samsung are attempting to capture attention on the strength of their brands and high-end devices, with greater functionality.

Shosteck analysts believe that the validity of these strategies will determine which handset vendor dominates in 2005. In addition, the difference in price between old and new devices will be key in determining the adoption rate of new technologies.

The study noted that image-capable handsets, with high-saturated color displays, built-in digital cameras and greater memory, together with imaging software, will motivate mobile users to pay mid- and high-tier prices.

However, the critical question still remains how much more, if any, will end-users pay for the next generation of handsets?