Mobiles Offer Opportunities

Mobile phones are no longer status symbols, they have become a commodity today. The proliferation of mobile phones in the country started just a few years ago, when air-time rates and handset prices started to drop. And with prices still slipping, it is not surprising to see that the handset business is rocking and rolling.

IDC (India) estimated the handset market in 1999 to be 3,94,100 units and Rs 426.3 crore in terms of value. Nokia, Motorola and Siemens were the top three players in 1999 and constituted about 70 percent of the market in the white channel. The market size for the year 2000 was expected to be 4,92,600 in terms of units and Rs 515.8 crore in terms of value.

The overall cellular subscriber base stood at 15,99,364 as of December 1999 and was expected to grow to 24,57,300 by the end of the year 2000. As no official figures are available, hazarding a guess, sources say that the current subscriber base could be around five million and it is still rising.

Talking about the mobile handset business in the country, KY Ng, CEO of First Mobile Group, says, "At the moment India has a penetration rate of only 0.5 percent, which is very low. This means that the market holds a very high potential. Industry figures suggest that by 2005, there should be a total of 15 million subscribers in the country up from a present estimated figure of 4.5 million."

Where the channel fits in

Like any other mass-market product, these handsets too have to be distributed through a channel network. And distribution houses like Ingram Micro and First Mobile Group India Ltd,and an IT company like HCL Infosystems have already got into the fray.

Ingram distributes Samsung mobiles, while HCL sells Nokia. First Mobile has tie-ups with Panasonic, Siemens, Motorola, Alcatel, Philips and Samsung worldwide, though it is yet to decide which brands it will introduce in the Indian market.

Stepping into a new business

According to IDC, with recent changes in the telecom policy -- wherein the cellular operator pays a share of his revenue, which includes that earned from selling handsets as well -- the operator's interest in including handsets in the package has gone down.

This is why distributors are now setting up channels at a rapid pace. Says PG Kamath, VP-Marketing, Ingram Micro India, "The cellular business in the country is growing at a rate of 100 percent. Even our business has experienced a healthy growth in terms of volume."

Says Kailash R, Proprietor, KGR Enterprises, a Mumbai-based distributor of Samsung mobiles, "We sell over 500-600 handsets a month."

But why should the channel consider entering into this business? For starters, the margins available in this business are robust, considering there are not many authorized channel partners.

Says Sanjoy Roy, CEO (India), First Mobile Group, "Dealers can enjoy anywhere between 10 to 20 percent margins, while distributors get 2.5 to five percent." Agrees Gaurang Damania, MD, Compunics, who sells handsets, "We enjoy margins between 8-10 percent."

As a distributor, Kailash of KGR Enterprises says that his margins are just four to five percent. But he adds that his units turnover is high and therefore he manages to earn good profits.

And the other goodies

There are other benefits that a handset dealer or retailer can look forward to. After-sales services is one of them. Distributors realize that they can use it as a USP for their business. Says Kamath, "We are trying to get our channel and customers to understand that even if our prices are 10-15 percent more than the gray market, they get an upfront warranty from us in terms of replacement."

HCL has set up nine authorized service centers in different parts of the country to provide after-sales service. It has employed Nokia-trained engineers and certified tools and diagnostic equipments, to ensure world-class service and customer satisfaction.

Gaurang also points out that while repairs are definitely an important revenue stream in the mobile phone business, he gets additional income from selling mobile accessories, like hands-free mikes, pouches, batteries and flaps, amongst other products.

Kailash agrees with him. "We are also dealers for Orange SIM cards. When a customer walks in for a card, we entice to buy a latest hand-set as well." He adds that while he earns Rs 200 - Rs 300 on a handset, he can easily earn another Rs 100 by selling a pouch and battery for the same handset.

The channel as it exists

According to IDC, the handset vendors are going in for exclusive shops and are also setting up separate retail counters in other shops. They would provide merchandising and training support apart from being a point of purchase. Ingram, for one, is working with Samsung to set up retail plazas for handsets.

But despite these opportunities, channel partners have shied away from getting into this business. This could be because at time when more and more partners are concentrating on value-add products, a handset is still a box product. Therefore this product genre had primarily clicked with the retail segment.

But this state of affairs is expected to change. "Once we see more value-adds to the usage of cell phones, like WAP, we will witness more channel partners getting into the fray," says

Kamath.

Another reason for apprehension among channel partners is the widespread presence of the gray market. There is a price difference of almost 30 percent between a white channel and the gray market for mobiles. Partners are wary that they will lose their sales to this alternative market.

While admitting that the gray market is widely spread, Sanjoy Roy expects the sale to shift to the legal channel soon. Drawing a parallel to China, he says that five years ago, 80 percent of China's market was gray. But now 80 percent of the sale is legitimate.

The only way to counter the presence of the gray market is to come up with strategic pricing. Kamath puts the entire scenario succinctly, "As volumes go up, a lot of vendors will increase their focus on the market bringing down the handset prices. And once prices fall, the legal channel will gain prominence." He adds that once the convergence takes off with the resolution of bandwidth and infrastructure issues, the IT channel will be more enthused to enter this market.

VINITA SUVARNA-BHATIA in Mumbai