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Mobiles Provide Attractive Margins 

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DQC Bureau
New Update

With margins ranging from 10 to 15 percent, partners find business in mobiles an attractive proposition in Bangalore. Comparatively, the earning potential is high because hardware offers only wafer-thin margins. The mobile business can only grow with cellular user population exceeding two million in the country and the number rising sharply on a day-to-day basis. 

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The sharp rise among cellular users was hardly spectacular. The fall in price tags of entry-level cellular phones and dropping rates of rentals and airtime have made mobiles affordable to a vast population, providing a wide spectrum of opportunities for vendors as well as channel partners. Several major vendors including Nokia, Philips, Motorola, Samsung, Siemens and Ericsson are looking at the cellular market to garner greater revenues and market share. 

Says Joel P, Area Sales manager of Agrani Convergence Limited, "The need for mobile communication is doubling every six months with entry-level models costing anything up from Rs 3500. The purchases of high-end functionally-rich cellular phones is doubling every year and this is largely driven by the emerging technologies like WAP and Bluetooth." According to him, reduction of taxes have also played an important role in accelerating sales in this segment.

Cells gather steam 

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The cellular industry in India has finally gathered steam in the country. According to the Cellular Operators Association of India (COAI) the countrywide subscriber base has increased by 2.1 lakh in 2000 over the recorded figure of 1999. It also says that the cellular market grew at the rate of 23.2 percent in the first four months of fiscal 2000-01. The number of subscribers has increased by 7.42 lakh since January 1, 2000. 

Among the regions, the metros continued to lead in the numbers game with a subscriber base of 9.32 lakh. Among the metros, Mumbai with 3.75 lakh subscriber base continued to rule the roost, following closely is Delhi with a recorded figure of 3.69 lakh cellular users. 

Surprisingly, the buying pattern has also witnessed an upsurge during the last few months of 2000. The recorded subscriber figures of COAI reveal an average hike of 8,000 users per month, during the period between September to December 2000, which is phenomenal. 

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What's up the sleeves?

Looking at the growing cellular market, Ingram Micro and Tech Pacific have signed-up alliances with handsets manufacturers in recent times. Reportedly, Ingram Micro is said to be in talks with couple of more handheld device vendors and would be introducing several mobile devices in the market shortly. 

Zee's Agrani Convergence Limited, with its series of Switch showrooms across India has also entered into this space. Agrani claims to be offering TIME (telecommunication, information technology, media and entertainment) products under one roof. Like several other cellular channel partners in the white market, Agrani has on its shelves models of Nokia, Philips, Motorola, Samsung, Siemens and Ericsson. According to several channel partners, the most popular handsets in the entry-level are Ericsson A1018 and Motorola T180, which are priced at Rs 3500 and Rs 3995 respectively.

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Attractive margins

Channel partners are in a position to earn anything from 10 to 15 percent in mobiles while distributors' margins are close to five percent. Currently, the cellular service providers are also rolling out special deals, which are both channel and user-friendly. The new scheme in Bangalore, which offers Motorola T180 bundled with Spice connection, is proving to be a success among legitimate channel partners as well as end-users. This provides channel partners with a basic margin of Rs 1000 per deal, which is unique. Some believe that this scheme, to a certain extent, will eliminate the sales of handsets in the grey market.

Fighting gray market sales

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Among the several factors hindering the revenue flow to channel partners, the foremost is the gray market. Says Jayakumar AG of ADS Marketing, "More than half of the market share is captured by the gray market. Currently the white business in this space is about 30 to 40 percent. Out of this about 15 percent of the channel partners are from the IT background." 

Several channel partners believe that vendors are working towards taking effective steps to check gray market sales. The fact that the entry-level handsets today come with a very cheap price tag is a result of this initiative. Vendors on the other hand, are working towards strengthening their brand equity in the mobile market by enhancing the presence of channel partners in this space. 

Several vendors believe that focusing on legal channel partners and enhancing their presence is the only way to counter the gray market. Though sales in the illegal channel have seen a sharp fall in the entry-level handsets, its strong hold in the higher-end product segment seems to be unaffected.

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Bottomline

All said and done, while the growth of the cellular market looks very tempting, the traditional channel network has to fight several factors like gray market, stiff competition in terms of dropping prices and the changing cellular regulations, which at times seems to hinder the market growth. 

On the other hand, service providers in the cellular industry are playing a very important role to popularize the mobile usage, fuelling the demand. The cellular business does look lucrative with comfortable margins to be earned with the demand surging from all sections of users. 

Sunila Paul in Bangalore

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