Global Economics

An Indian Novelty: Cheap Cell Phones


Companies like Nokia and Indian-based Reliance are aggressively reaching out to consumers in a rapidly expanding market

Handset consumers in India never had it so good. First, Motorola (MOT) launched a $32 cell phone last November. And on May 2, Reliance Communications, India's largest CDMA player, rewrote the rules of the game by launching a Classic brand of phones ranging from $19 to $22 with a color screen. Just a day later, world champ Nokia (NOK) unveiled a new entry level product range in New Delhi, with phones starting from $40.

There's a good reason so many companies are rolling out phones for Indian users. India is one of the fastest-growing mobile phone markets in the world. There are about 6 million new subscribers a month, and 135 million phones already in use. By 2010 this number is expected to triple, to 450 million.

Handset makers like Nokia, Motorola, Samsung, and LG have set up manufacturing operations in India. They are now focused on penetrating the country's rural market, where 75% of India's 1 billion-plus population lives. Because success in the hinterland means lowering the cost of ownership, players have been constantly redesigning handsets to bring down prices.

Unique Phones for India

Nokia is aggressively reaching out to Indian consumers. On May 3 the company unveiled a range of 7 new handsets. With price tags ranging from $40 to $100, the phones offer many voice and data features, and user interfaces in 75 different languages. The Nokia 1200 and 1208 come with a flashlight, localized languages, and a teaching mode.

Since many people in India's countryside often need to share one phone, Nokia's new models include features enabling multiple users for each handset. For the first time, the phones have a call-tracking application and a multi-phonebook to make phone sharing simpler for customers at the bottom of the pyramid.

The sharing of the mobile phone allows many consumers in entry markets to experience the benefits of mobility firsthand, bringing down the cost of ownership, says Soren Petersen, Nokia senior vice-president in charge of emerging markets.

Reliance Reacts

Reliance execs believe they can match Nokia in appealing to customers with lower incomes. Unveiling the phones at a press conference in Mumbai, S.P. Shukla, president for the personal business division at Reliance Communications, said: "We are confident of extending the benefits of mobility to an entirely new segment of population in metros, small cities, and the rural hinterland."

For Reliance, this push into ultra-low-cost phones is a strategic move. Unlike the GSM handsets sold by its rivals, Reliance's CDMA phones come bundled with air time, making them more accessible to the masses. Reliance's new offering does come with a caveat: It is only an introductory offer, and the company warns that the low-cost handsets are "valid for a limited period till stocks last."

Reliance has been integrating its technology with handset makers like LG, Samsung, and UTStarcom (UTSIE). In December, Reliance teamed up with XL telecom to provide cheap CDMA phones. At that time the handset manufacturer admitted to working on an order of around 25,000 phones. Telecom analysts say Reliance has also placed a huge order for handsets with LG Electronics.

It won't be easy for companies to make a lot of money on these low-cost phones. They have margins of just 2% to 3%, which means that selling cheaper handsets is really a volume game.

Lakshman covers India business for BusinessWeek.

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