NEW DELHI, India—Handset manufacturers worried about the disturbing trend of low sales in European and U.S. markets can take comfort from emerging trends in the Asia-Pacific region. All research findings and market conditions in the region point to robust growth in handset shipments during 2002 and beyond. Although the Asia-Pacific region is a diverse set of markets, overall signals are positive for the handset industry.
The global shipments of handsets during 2001 showed a decline for the first time in the history of the industry, as recently reported by Gartner Dataquest. But the Asia-Pacific region did not contribute significantly to this decline; instead the markets in this region continued to increase. Of nearly 400 million units sold in 2001, the region accounted for 33.5 percent (134 million). In 2002, global sales are expected to increase to 440 million, and the Asia-Pacific region will account for 160 million units, according to a Gartner forecast.
“China, Japan and Korea account for nearly 80 percent of the AP market, but the prospects in other emerging markets in the region are also very good,” said Bryan Prohm, U.S.-based senior analyst in the mobile communications worldwide research group for Gartner Dataquest, in a Global Wireless interview. “India will perhaps record the highest growth rates in the region. Indonesia and Malaysia are other high-growth markets.”
Analysts at the Yankee Group also share this positive outlook, although their predictions are more liberal with total handset shipments in Asia Pacific to increase from 171 million in 2001 to 292 million in 2005. “Subscriber growth in the region is not uniform. While most of the ‘developed’ markets have definitely slowed down, new growth is coming from China, and from India and Indonesia in the coming years,” commented Shiv Putcha, wireless/mobile Asia-Pacific analyst at the U.S.-based research firm.
Every market in the region has its own peculiar situation. Because of the duty structures, “gray” markets are a thriving part of the handset business. A classic example is India where until recently there was 5-percent basic duty plus 16-percent countervailing duty on all foreign-made handsets. In addition, states levy local sales tax up to 12 percent. Even after the recent tax breaks, there is still a differential between legal and grey markets of at least 20 percent, which is significant in a price-sensitive market. The decision last week by Total Access Communications (TAC) in Thailand to allow its customers to buy handsets from the open market versus only from its mobile service DTAC-designated distributors is expected to bring in smuggled handsets in a big way.
“The main drivers of growth in the region—barring Japan and Korea—are going to be new users who have little exposure to wireline, and they will be using mobile as a primary communication tool in the next five years. So low-end use will proliferate in Asia, as it is doing in other markets like Africa and Mexico,” said Prohm.
And that is the reason replacement rates will continue to be low. “The main reason for low replacements is definitely low purchasing power, but also the huge gray markets for handsets in emerging markets,” said Putcha.
In such a scenario, demand for third-generation (3G) handsets is not likely to be high, with the exceptions of Japan and Korea. “It will be a function of the overall value, in terms of applications and content, that the consumer experiences in 3G. The price points of the 3G handsets, relative to the 2.5 and 2.75G (2.75-generation), and the application costs will all play an important role,” said Percy Batlivala, director of PCS Asia strategy for Motorola based in Singapore.
And because there is significant uncertainty in these factors and variability in each country, it is difficult to predict the demand for 3G services across the entire region.
In view of the emergence of local competition in handset manufacturing, it is being asked if regional manufacturers—Samsung and LG—will give the big three—Nokia, Motorola and Ericsson—a tough time in Asia Pacific. “The price-to-feature ratio offered by them is very competitive. Even in developed markets, their handsets are most competitive. Samsung and LG are offering diversified products, and there is no reason they won’t be in the top five manufacturers globally,” said Prohm.
“Regional players are not doing as well on a global front as the big three. But they have effectively cornered the PDC and CDMA markets, and are very well positioned to take advantage of the emerging markets for W-CDMA and cdma2000 1x technologies,” said Putcha.
Motorola’s Batlivala said: “Manufacturers that can successfully ‘partner’ with operators will ultimately serve the needs of the consumer by offering a total package. Asian manufacturers have brought forth their expertise in multimedia and miniaturization skills, just as European manufacturers and Motorola have unveiled their strengths in offering technologically advanced products.”
Encouraged by the success of China in rolling out wireless services, developing countries in the region are trying to create conditions where mobile phones can emerge as economically viable substitutes for fixed-line service. Such markets are looking for feature-free handsets—be it GSM or CDMA—and that is where the bulk of the growth will take place in the near future. GW
