In the wireless universe, one outstanding fact about India trumps its ancient history, heterogeneous society and complex political and economic mix: With more than 1 billion people, India is the second-most-populous country in the world, and with rising prosperity, its citizens are buying wireless phones and service at an unprecedented rate.
In December alone, more than 4.5 million Indians bought handsets and service, making India a fascinating case study for those who watch the global competition among handset vendors.
Thus India is a vibrant example of one of the world’s emerging markets, though it is not the homogenous developing country many would conjure in the mind’s eye. Major cities such as Bangalore in the south and New Delhi in the north are home to significant numbers of middle- and upper-class residents who have ignited the handset replacement market, in contrast to the vast numbers of simple workers who are snapping up entry-level phones.
“India is an intensely urban society,” said Carolina Milanesi, a Gartner analyst based in London, and lead author of the group’s recent report on handset makers’ global market share in the fourth quarter of 2005, the last quarter for which hard data is available. “We need to get away from the stereotype of `mobile phones have transformed the lives of Indian fishermen.”‘
“We think that everybody in India has a $30 phone,” Milanesi said. “But that’s not the case. In India, like China, mobile phones are status symbols. People there do want phones with bells and whistles. When you discuss mobile TV, for example, India is a market that comes up. They are soap-opera crazy. They want to get their show on mobile and they are willing to pay for it.”
While vendor market share in India roughly reflects global trends, it is affected by the domestic carriers’ air-interface technologies and retail reach. CDMA network operators such as Reliance India and TATA Teleservices Ltd. are primarily the vendor’s “face” in India, while on GSM networks run by Bharti Tele-Ventures and Hutch Mobile, operators and handset vendors tend to do business independently. CDMA handset vendors with strong brand names typically co-brand with operators, while lesser vendors must cede branding to the operator, further hindering their foothold in the market. Growth of service subscriptions is fueled by the fact that India has one of the world’s lowest average costs per minute of airtime.
The rapid sales pace in India is due to new product introductions and aggressive pricing, according to Gartner, which projects that 55 million handsets will be sold this year in India. According to Milanesi’s India-based colleague, Kobita Desai, about half of those handsets fall below $100 in cost, the other half cost more than $100. Ultra low-cost handsets (ULCH)-defined as a sub-$40 handsets-likely comprise about 15 percent of the 55 million handsets selling this year.
This more nuanced picture of the Indian market-plus the fact that Indians are known to be brand-conscious-may help explain the current market shares held by the biggest handset vendors. And well-defined differences in strategy have become apparent, according to Milanesi, since an expensive market shakeout in China in 2001 when some vendors simply bailed out of the market. “Vendors are becoming smarter in the way they address certain markets,” Milanesi said. “They really have to go after well-defined niches.”
Nokia Corp., a well-recognized brand in India-has succeeded in grabbing a 70-percent market share with its 1100 and 1110 family of entry-level handsets that sell for perhaps $60 or $70 at retail. (Nokia held a 35-percent overall global market share last year on sales volume of 82.2 million handsets.)
“Nokia decided not to go after the sub-$30 and sub-$40 handsets, but offer the next level up,” Milanesi said. “Because of economies of scale, Nokia can be very aggressive in its pricing. These are entry-level products, just not ultra low-cost products.” Beyond price point and brand recognition, Milanesi credits Nokia’s efforts to expand its distribution channels in India for its success.
Motorola Inc. and Samsung Electronics Co. Ltd. were neck-and-neck in India last year. Numbers available for the Asia/Pacific region gave Motorola a slight edge. Sales of Motorola’s Razr V3 and Slvr L6 and L7, and aggressive pricing gave Motorola a boost in market share in the Asia/Pacific region as a whole. In India, Motorola’s sales of ULCH were based on its C115 handset, issued under arrangement with the GSM Association’s Emerging Market Handset Programme (EMHP), which had endorsed Motorola’s ULCH efforts in its first phase, which extends through this year.
While that endorsement and subsequent sales may have helped Motorola’s stated goal of achieving the global lead in handset shipments-and therefore gains in market share in its battle with Nokia-Milanesi said in her report that given Nokia’s more functional and stylish offerings in the next higher-priced tier, Motorola would need to “position its brand as inspirational, so that people continue to perceive that they are getting more than just an aggressively priced phone.” Informa Telecoms and Media suggested that meant adding radios and color screens to low-end offerings.
“The reality is,” Milanesi added, “[the ULCH] doesn’t help Motorola a great deal in India, in particular”-though she added that analysts are watching Motorola’s first-quarter results in the region in anticipation that the Schaumburg, Ill.-based vendor’s pricing strategy could pay off.
This view is bolstered by demographics. Despite the dual, urban/rural nature of Indian society, Informa’s analyst Gavin Byrne pointed out in his report on the ULCH space that 70 percent of India’s more than 1 billion people live in rural areas and penetration is only at 3 percent. Informa projects that India will reach 100 million subscribers by next year, fueled in part by the sales of ULCH.
In contrast to Motorola’s strategy, Samsung has emphasized maintaining its profit margins over securing market share by slashing prices in emerging markets-a strategy that slowed its growth in the Asia/Pacific region as a whole, Milanesi said. Samsung’s lack of compelling new products or offerings in the entry-level tier contributed to the vendor’s lackluster showing.
LG Electronics Co. Ltd.’s relationship with Indian CDMA carrier Reliance and the carrier’s promotions are credited for making India a key market for the South Korean handset maker, which garnered the fourth-best market share in India and the Asia/Pacific region as a whole. LG’s sales of handsets that run on Reliance’s network accounted for nearly two-thirds of phones sold by the carrier. LG’s new handset models were well-received, boosting sales, according to Milanesi. LG also has cut its prices on mid-tier offerings in emerging markets and analysts are watching to see if the company carries through on its previous statements that it would offer ULCHs too.
Sony Ericsson Mobile Communications L.P., despite slight gains in global market share due to its Walkman family of products, remained in fifth place globally as well as in India. On some products, however, including the vendor’s multimedia handsets that have been well-received in the Asia/Pacific region, demand exceeded supply. Milanesi suggested that Sony Ericsson will need to expand its low-end portfolio and improve its retail channel in order to grow. The analyst suggested that Sony Ericsson’s mid- to high-tier phones were positioned for the first cycle of replacement phones in India, which could produce solid profits, if not capture significant new market share.
The aggregate picture for the “other” handset vendors remained precarious as the top five vendors grew their combined market share from 78 to 84 percent over the course of 2005, favoring size and its attendant economies of scale. This represents a hostile landscape populated by relatively behemoth vendors covering all price points for contenders such as Taiwanese BenQ Corp., which has placed emphasis on profit margins after taking over Siemens AG’s handset business.
Milanesi discounted any strong advantage to vendors with manufacturing facilities inside India, though such facilities are given tax incentives and offer slight benefits in transportation savings. But India’s low import tariffs reduce the advantage. Nonetheless, LG has a factory operating in India, Nokia and Samsung are pursuing one and Motorola is weighing such a move.
