By Reuters

AMSTERDAM (Reuters) - LG Electronics has won a contest organized by the GSM Association to produce a low-cost handset for third generation mobile phone networks, a source close to the contest told Reuters on Tuesday.

The winner of the contest, which is expected to receive orders for several millions of these handsets by as much as a dozen mobile carriers, will officially be announced next week at the 3GSM mobile communications trade show in Barcelona.

The handset will cost around $100, breaking through an important price barrier which is expected to boost sales of 3G phones. Most 3G phones are currently much more expensive. Slow sales of the devices have held back usage of 3G network services, such as mobile Internet, email, and video.

Operators which participated in the selection of the winning handset include Cingular, Globe Telecom, Hutchison 3G, KTF, MTN, Orange, Smart, Telecom Italia, Telefonica, Telenor, T-Mobile, and Vodafone. These operators together have 620 million subscribers, the GSM Association said in a statement in October.

The handset will be available to all members of the GSMA, which is most of the carriers around the world.

LG, the world’s No. 5 mobile phone maker trailing Nokia, Motorola Inc., Samsung Electronics Co. Ltd., and Sony Ericsson, has been trying to regain its share in the global market after a sluggish year in 2006.

But it has so far focused on premium models and been careful with low-cost phones.

A spokeswoman for LG Electronics in Seoul declined to comment. A spokesman for GSMA in London, which groups the world’s GSM mobile carriers, also declined to comment.

Following Motorola’s Lead

The GSMA previously initiated cheap GSM handset contests and Motorola won both contests. The Motorola phones set new benchmarks for entry-level phones to less than $30.

One of the cheapest 3G phones so far is offered by Chinese telecommunications equipment maker Huawei, which offers a 3G phone for £72 ($140.9) in Britain, including an operator subsidy.

“This news will be greeted with dismay by most of the [mobile phone] manufacturers as it sets the benchmark price for entry level 3G devices in the same way that the [GSM] emerging market handset resulted in price erosion in the entry level GSM market,” said Ben Wood, a consultant at CCS Insights.

“This just accelerates profit margin erosion on 3G products,” he added.

Choi Hyun-jae, an analyst at Tong Yang Investment Bank in Seoul, said, “Despite the cheap price, LG would benefit from increasing 3G phone supply. To eventually succeed in the open market, it needs to aggressively boost its exposure in the European 3G market.”

(Additional reporting by Rhee So-eui in Seoul)