With over 7 million subscriber addtions a month and 200 million wireless subscribers, the Indian telecom sector presents a huge opportunity for handset vendors. In fact, India, which till four years back was the sixth largest mobile handset market in the world with sales of over 16 million units, has become the second largest market with total handset sales of 56 million in 2006, next only to China.
The handset market has been growing at a steady rate of 60 per cent over the past two years. In 2006-07, the handset market was valued at Rs 240 billion, up from Rs 144 billion in 2005-06, registering a growth rate of more than 60 per cent over the year.
The rapidly expanding subscriber base along with mobile penetration levels of only 14.62 per cent as of March 2007, vis? -vis penetration levels of over 50 per cent in most developed countries, has primarily fuelled the demand for handsets.
The regulatory environment has also contributed in large part to the maturing of the handset market in India. With duties on handsets being removed and only a countervailing duty of 4 per cent applicable currently, the grey market, which accounted for approximately 85-90 per cent of the total handset market till two years ago, is now limited to 10 per cent.
Capitalising on this huge demand potential and low-cost advantage, leading handset manufacturers such as Nokia, Motorola, Sony Ericsson and Samsung are not only increasing their presence in the Indian market in a big way but are also formulating plans to set up manufacturing bases in India. In fact, Nokia and Motorola have already set up manufacturing bases in the country.
Global scenario
Cellphone makers shipped out more than 1 billion handsets in 2006. Given the pace at which most handset manufacturers are increasing their sales, the number of shipments would be far higher in 2007. As of September 2007, more than 800 million handsets have been shipped.
Among handset manufacturers, Nokia has consistently maintained its leadership position with a global market share of about 39.5 per cent as of September 2007. However, in the US, Nokia’s market share considerably underperformed its global average.
In the April-June 2007 quarter, Samsung wrested the second position from Motorola, a position it had held for the past few years. In the July-September 2007 quarter, Samsung increased its market share to 15.1 per cent from 14.1 per cent in the preceding quarter.
Key trends
Given that the next level of growth lies in the rural areas and that a large part of the subscriber additions in recent months have been coming from Category B and C circles, there is clearly a huge demand for low-cost handsets. In 2006-07, the entrylevel segment in India, at Rs 144 billion, accounted for approximately 60 per cent of the handset industry. According to an ABI study, by 2011, 25 per cent of the handsets shipped globally will be ultralow-cost handsets and India will account for a significant part of it.
Vendors such as Motorola, Nokia, Samsung and LG launched a range of lowcost phones in 2006. For instance, Nokia’s 1100 and 1600 series are priced at about Rs 2,000 and Rs 2,500 respectively. LG’s entry-level phone, the B 2050, costs Rs 2,970 while Samsung’s entry-level phone is priced at Rs 2,899.
Service providers targeting rural customers are offering handsets bundled with connections and have tied up with various handset manufacturers for low-cost phones. Reliance Communications, for instance, has been pursuing a handsetdriven expansion plan. In May 2007, the company launched its Classic range of handsets starting at Rs 777 ($19.25) and sold over a million units within a week of the launch. Similarly, Tata Teleservices launched below-$25 phones, bundled with a mobile connection.
While low-cost handsets clearly account for the bulk of the demand in India, there is a market for top-end phones as well. In fact, India became one of the largest-selling markets for Research in Motion, the makers of the BlackBerry, after Airtel launched it in 2004.
Here again, service providers are gaining subscribers by offering connections with top-end handsets. Motorola’s V3M, the only CDMA phone capable of music downloads, will soon be available with a Tata Indicom or a Reliance connection.The HTC Touch, available with only Airtel, is equivalent to the next generation of smartphones that will come into India, especially the iPhone. Nokia too is in talks with Vodafone Essar and Airtel for the just-launched communicator Nokia E90.High-end phones increase ARPUs, especially if they include e-mail facilities.Moreover, usage among high-end phone users is two to four times higher than that among other customers.
According to the IDC India Mobile Handset Usage Satisfaction Study 2006, integrated digital camera phones and music-enabled phones are most likely to drive upgradation of mobile handsets along with MMS. There has been an increased demand for music-enabled handsets. In 2006, about 10 million handsets capable of playing music were sold in India, and this year the figure is expected to cross the 24 million mark. Given the huge demand for music-enabled handsets, manufacturers are tying up with music labels to enrich the content in handsets.
There is also growing interest in features such as tri-band, Bluetooth and infrared ports, but these are yet to find mass appeal. Such value-added handset features are yet to become part of the mainstream.
Key players
The major players in the handset market today are Nokia, Motorola, Sony Ericsson, Samsung and LG. Nokia is by far the largest player in the industry, commanding a 67 per cent share of the business. Its handset sales in India contributed $3.7 billion to its global turnover in 2006.It is followed at a fair distance by Motorola at 12 per cent and Sony Ericsson at 10 per cent, with Samsung and LG accounting for the rest.
One of the key reasons for Nokia’s success is the fact that the company has a huge variety of handsets for all price segments and is therefore able to appropriately scale down the prices of its older models as newer ones come in. On the other hand, while players like Sony Ericsson and Samsung have some models catering to the lower end of the market, their emphasis is on the midto upper-end customers.Today, Nokia has approximately 70 models available in the market, of which 30 account for 90 per cent of its sales. It invested $150 million in 2005 to set up a handset manufacturing plant in Chennai to meet the demand for lowand mid-end phones.
In line with the industry’s movement towards the rural regions, Nokia has come up with strategies to target the rural population. For instance, many customers set up informal buying clubs and pool their resources till the time everyone has a similar handset. The company is now looking for ways to encourage this form of self-financing. Nokia has branded vans that traverse the rural areas to educate users about the value of mobile phones and the features of their handsets.
Meanwhile, following the low-price paradigm, Motorola has succeeded in increasing its market share to 12 per cent.In December 2005, the company launched the C115. Priced at Rs 1,700, the handset was the cheapest to be introduced in the Indian market at the time.
Motorola’s share in the GSM handset market climbed from 2 per cent in August 2005 to 7.6 per cent in mid-2006 and 15 per cent in mid-2007, making it the number two player in India, a position it has since retained. The company competes heavily on the price front and has launched six models in the sub-$50 range. Low-cost phones account for almost 35 per cent of Motorola India’s sales. In the entry-level segment, the company competes with Chinese vendors Bird and Haier, which sell handsets for about Rs 1,200. Motorola’s mobile phone category is youth driven with 80 per cent of its handset buyers in the 16to 35-year age group.
Motorola has a strategic alliance with ITC’s e-Choupal and Hariyali Kisan Bazaar to extend its rural reach. It has a partnership with GE Money to provide India’s first consumer finance scheme.
Meanwhile, Sony Ericsson, which had been primarily associated with the midand high-end mobile handset segments in India, has now taken a mass market route to expand its handset business. It has decided to extend its product strategy into the mass-end as the volume driver for its handset sales in India. At the same time, the company continues to push its highand mid-end phones.
Over the past few years, Sony Ericsson has witnessed very encouraging growth in the Indian market and has more than doubled its market share. It is now amongst the top three GSM handset manufacturers in the country. With a product development site in Chennai as well as local manufacturing, the company is poised to further consolidate its position in the Indian market.
All these players are looking at India more seriously, not only as a key handset market but also as a production base.Given the promise of the Indian telecom sector, the handset demand is only going to head northwards.
