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Grim prospects for cellular handset makers

According to the Ericsson Communications Director Rajeev Kapoor, during the current financial year so far only 300,000 new handsets have been sold by all manufacturers put together.

T O D A Y

• pre·var·i·ca·tor • ISP strategies • Comet threat • Cellular trouble

The revised estimates by the handset manufacturers put the total sales potential at the same level as last year where a total of about 550,000 handsets were sold in the country.

While the current financial is most likely to witness zero growth in the sales of handsets, the prices have come down by 25-30 per cent on an average.

Going by these statistics handset manufacturers are set to witness 25-30 per cent loss in revenue.

However, market players say revenues are likely to drop by over 30 per cent because of the total sales this year, over 60 per cent have been cornered by grey market operators.

According to the manufacturers, during the previous financial year grey market accounted for a little less than 50 per cent of the total handsets sold last year.

In the current financial year, the share of grey market has gone up to nearly 70 per cent. Evidently, established companies like Nokia, Ericsson. Motorola and Siemens have lost 20 per of their market share to grey market operators.

Since the handsets sold in the grey market are non-premium products carrying a thinner profit margin, the loss in revenues of established players would not be directly proportional to the loss in market share, handset manufacturers say.

The increase in the share of grey market would, however, push the revenues down by about 5 per cent.

Handset manufacturers attribute the stagnant growth in subscriber base to the overall economic slowdown that has driven away the customers from expensive services like cellular telephones.

Adding to this is the saturation in the high-end cell phone users segment.

The entire segment of business customers in the country has by now acquired cell phones, putting an end to the possibility of exponential growth as witnessed during the previous year.

This has left the handset manufacturers with a potential market that is constituted by highly price-sensitive middle class.

Though the handset manufacturers have been trying to tap low-end users segment by reducing the prices of handsets and introducing low priced products, the customers have kept away from cellular services companies because of high tariffs.

The low-end users are also prone to resort to the grey market for handsets because of the price differential that ranges between 20 and 30 per cent.

The service providers, on their part, have added to the woes of handset manufacturers by withdrawing the subsidy.

Earlier, the service providers had subsidised the cost of handsets by offering free calls amounting to almost 50 per cent of the handset costs.

However, subsidy to the low-end users proved costly to the service providers as 15 per cent of those customers turned into zero users.

Another 30 per cent generated revenue barely sufficient to make up for the cost of service provision.

- Compiled from the Indian media

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