Happy days ahead for cellular handsets in India: IDC

NEW DELHI: The cellular handset market in India is poised for healthy growth

in the coming years after an initial sluggish start, according to a study

conducted by IDC India. The study estimated the handset market in the year 1999

to be 394,100 units, valued at Rs 426.3 crore. The estimates are exclusive of

the business in the gray and secondhand market, which is expected to account for

around 50 to 60 per cent of the total market. Nokia, Motorola and Siemens were

the top three players in 1999 and constituted about 70 per cent of the market in

the white channel. The market size for the year 2000 is expected to be 492,600

in terms of units and Rs 541.8 crore in terms of value. The overall cellular

subscriber base stood at 15,99,364 as of December 1999 (COAI estimates) and is

expected to grow to 24,57,300 by the end of the year 2000.

Introduction of value added services like SMS has been profitable for

cellular service operators. The CPP regime and other services like Internet

access from handsets through WAP would be the drivers of growth in the cellular

industry in the coming year. The majority of cellular customers today are at

entry-level, where the most frequent use of the cell phone is for voice

communication.

Generally, entry-level handsets offering a good combination of features have

sold well in the market. Reduced airtime and falling handset prices are the main

reasons behind the spurt in demand for cellular handsets. Net reduction in

handset prices during this year has been about 10-15 per cent, which could have

been higher had the increase in sales tax not offset the reduction in customs

duty. The price difference between gray and white channels is still around 30

per cent on an average. In the gray market, a handset is available for as low as

Rs 5,000 to Rs 6,000.

The two major channels for handset distribution in the Indian market are the

cellular operators and the vendor''s own distribution channels. But with the

recent changes in the telecom policy, wherein handset sales by cellular

operators form a part of the revenue and has to be shared as operating license

fee, the operators’ interest in selling handsets has gone down.

After the changes in the telecom policy, many players are setting up

distribution channels at a rapid pace. Another trend that has emerged is that

market players are laying greater emphasis on retail. Handset vendors are going

in for exclusive shops and are also setting up separate retail counters in other

shops where they would provide merchandising, POP and training support.

IDC has predicted that the emerging channel structure would remain a mix of

the vendor''s own distribution set-up as well as the cellular operator''s channel

structure. With cellular handsets becoming more of a utility product rather than

a lifestyle product (their initial positioning), certain changes are expected to

occur in the handset channel:

• Most of the brands of handsets and SIM cards would be available under one
  
  roof. These shops may not stock all the models of a particular brand. For
  
  that purpose, there would be exclusive company owned shops that would
  
  display the entire range.
• Handsets would become more of a consumer electronics product and would
  
  also retail from high-end consumer electronics shops, high-end office shops
  
  etc., apart from their existing channels.
• Cellular operators and handset vendors channels will merge in the long run
  
  as it makes good business sense and provides an one-stop solution to the
  
  customer.