If Nokia's chief executive had a crystal ball, what he would be most anxious to witness ahead of time would not be the millions of Western customers flashing about his company's latest paper-thin handset, but the scene inside the home of an agricultural worker north of Shenzen, in southern China.

There, in what the mobile industry refers to as 'tier 3 and 4 towns', the future of the handset market is being determined, and Nokia, as the world's biggest manufacturer, is adamant it will be sitting at the table.

The figures alone speak volumes. In its quarterly earnings statement this week, Nokia reported that the number of handsets shipped to China was 15.7 million - an increase of 43.4 per cent year on year.

The Asia-Pacific market - which incorporates nearby India - grew by 44.7 per cent to 23 million, as compared with Europe which was up a modest 17.7 per cent, and North America, which slipped by more then 40 per cent.

It is not in the larger 'tier 1 and 2 towns', like Beijing and Shanghai, however, that the battle is being fought, but the 'smaller' manufacturing areas of the South and their surrounds - where populations still number in the millions, and many customers are buying handsets for the first time.

"With first time customers it's important that you hook them early. That way they'll come back," Carolina Milanesi, a research director in mobile devices at Gartner, said.

The major hurdle for manufacturers in this new geography is distribution. Nokia's channels are increasingly well established, with stores even in the lesser known southern Chinese towns "about as frequent as Starbucks shops in New York ," according to one analyst.

Motorola, its nearest rival, is still a way behind, but a shift in distribution strategy over the past couple of years - bypassing

regional re-sellers to target sellers in smaller districts directly - is beginning to pay off.

"It's their best hope for penetrating rural areas," Ms Milanesi said.

Another is price. The phones being sold into emerging markets now make up more than 50 per cent of global shipments, but the vast majority are sub-$100 models, in many cases $50 or less, meaning that margins are much lower.

"With a $50 phone there's very little room to play with, plus there's great pressure not to compromise on quality, so these customers enjoy their first experience of the brand," Ms Milanese said.

There have also been unexpected cultural problems. Motorola had hoped that its Motofone - the first $30-40 handset - would be popular in India, but because the marketing used images of rural workers, many city customers wouldn't but it.

"It was a slick phone, but the ads associated it with fisherman and workers growing vegetables," Ms Milanesi said. "The city folk didn't want to be part of that."

According to Daryl Armstrong, an analyst at Citigroup, Nokia is the better equipped of the two companies to enter emerging markets, firstly because it handles larger volumes, but also because there is greater consistency in the parts across its range - in particular speakers and keypads - which helps reduce costs.

The Finnish company has also been experimenting with reducing the size of its manuals - printing them in only one, relevant language, and dispensing with thicker, cardboard covers in favour of cheaper paper.

Winnning over new customers with low cost phones is only the first part of a long term strategy, however, with the eventual aim being to sell higher end models In Shanghai and Beijing, which three years ago were where the 'tier 3 and 4' towns are now, rising income levels have meant that the handsets are identical to those on the streets of London or New York.

"The long term prosperity of the handset manufacturers depends on having brand loyalty as the population becomes more affluent - that's the true prize," Mr Armstrong said.

The other great 'inflection point' in the emerging markets, Mr Armstrong said, woud come when new customers begin replacing their handsets.

"If you consider there's 300 million subscribers in China, now, and they each get a new phone every three years, then that's 100 million phonesjust in replacements - and on top of that you've got the overall growth in the subscriber base."

The pattern in all emerging markets - be they in rural China, India, or South America - was the same, Mr Armstrong said. 'Tele-density', as the growth in network-connected devices is known, would happen "wirelessly, rather than with wires."

In other words, the talk is of mobile phones, rather than computers. "And the handset manufacturers want to make sure they're a part of it," he said.

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