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Mobile market expanding rapidly in India
India's rise as a mobile phone megamarket also comes at a time of market saturation in Europe, Japan, and the U.S. Global handset makers such as Nokia, Motorola and LG Electronics all see emerging markets such as India as key revenue drivers for the industry in the years ahead. The trick in India is positioning stellar brands at the low end of the market. Nokia, for instance, sells about 45 models in India. Yet its biggest seller, accounting for 15 percent of sales in India, is the basic 1100 model for $44 that is turning heads in villages like Latur. Motorola will launch a handset for under $30 in October.
Nokia has established a big, early lead in India with a dominant 63 percent share, followed by LG (13 percent), Motorola (8.5 percent) and Samsung (3.5 percent), which may have made a strategic mistake globally by sticking to high-end, feature-loaded handsets (see BusinessWeek.com, 6/13/06, "Samsung's High Design, Lower Profit Cell Phone Strategy").
There could be rollicking good times ahead for handset makers with the right business model in India. Analysts think there is a replacement market in the 85 million range (mostly better-off urban dwellers) already in place. Moreover, India's relatively young population—it is home to the biggest under-25 age cohort on the planet—suggests a steady stream of first-time subscribers. Early in 2006 Nokia opened a handset factory in Madras that is churning out one million handsets a month, and company executives think they could eventually sell 400 million mobile phones in India.
Hooking up the hinterland
That said, there are huge challenges that, if unresolved, could disrupt the India growth curve. To really develop India's full potential, local telecom providers will need to spend massive amounts of money to expand coverage to the country's sprawling rural regions. "A lot depends on how fast the players roll out their networks into the rural hinterland," says Kuldeep Goyal, a general manager with the government-owned telecom carrier BSNL.
That's key because growth is starting to become less stellar in big urban centers such as New Delhi and Mumbai. "With the metros stabilizing, growth has to fan out to potential rural markets," says Srinivas Rao, telecom analyst at Enam Securities. A bigger market would also presumably help lift a key metric like average revenue per user. The dominant Global System for Mobile (GMS) mobile phone averages $14 per user in India vs. nearly $20 in China. For mobile handsets using Code Division Multiple Access (CDMA) technology, the revenue per user in India is only about $5.60, compared to $9.31 in China.
The good news is that sizable investments are underway. BSNL is spending around $4 billion over the next three years on rural coverage as well as broadband and optical fiber network expansion. In its largest markets, such as the states of Maharashtra and Goa, it will increase its 1,200 base stations to 3,000 by March of 2007. Another major India telecom, Reliance Infocomm, is expected to invest around $550 million through the end of the decade, mainly outside of major urban centers.
Tata Teleservices will spend $214 million this year on infrastructure, network expansion, and transmission, according to CEO Darryl Green. On top of that, Bharti Airtel, India's largest wireless player, will devote $1.8 to $2 billion in 2007 on similar expansions. "It will be commensurate with our strategy on aggressive expansion plans to capture the first mover advantage," says Manoj Kohli, president of Bharti Airtel.
Qualcomm's cut
And for foreign players hoping to break into India, keeping the government happy isn't always a cakewalk. The San Diego wireless technology powerhouse Qualcomm has managed to irritate both the government and the powerful telecom player Reliance by refusing to lower the royalties it charges Indian companies using its CDMA technology. Tata Teleservices' Green says Qualcomm charges Indian players 7% of handset costs compared to 2 percent in China. It is a disparity that enrages India.
Qualcomm CEO Paul Jacobs, who recently visited India, thinks the real issue is working with phone manufacturers to lower costs, not cutting its company's royalty fee, and for the government to get more enlightened about allocating radio spectrum. "CDMA is better for data delivery, but these things are getting somewhat minimized by the way the government is allocating spectrum," says Jacobs. Reliance has threatened to drop its CDMA phones and shift to GSM if Qualcomm doesn't budge.
These problems aside, though, it is hard to argue that India's mobile-phone industry isn't destined for big things later in the decade. India knows its economic future, not to mention the living standards of hundreds of millions of rural citizens, depends on a societal embrace of wireless technologies. The potential demand is there and so is the commitment from global handset makers and domestic telecom players. Right now, owning a mobile phone in rural India is a big deal. Five years out, with any luck, it will elicit yawns.
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