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Follow UsBANGALORE: The difference in price of a cellular handset purchased in unauthorized channel to an authorized dealer is atleast 25 percent to 35 percent. This is revealed by a recent study by research group IDC India. It also says that the difference in price arises due to high level of duties like customs, sales tax and octroi paid by the vendors selling in the legal market.
The difference in price has increased the share of the unauthorized market in India from 74 percent, in 2000, to 86 percent in the first half of 2001. It is expected to touch an estimated 89 percent in second half of 2001.
Inspite of a heady growth in the cellular services market, the legal market for cellular handsets has remained very small. A large percentage of the handsets sold in the country are sold through the unauthorized or the grey channel, which includes smuggled handsets, parallel import and handsets brought by people traveling abroad.
Another reason for flourishing grey market is that the handset vendors are not investing much in setting up extensive after sales service and support infrastructure because of small size of the Indian legal cellular handset market and therefore absence of economies of scale. Without any supporting infrastructure buyers do not feel any need to spend extra as there is no incentive or value proposition for him.
However, the market outlook is definitely changing with handsets vendors coming together to form industry body viz "Indian Cellular Association" in 2001. They were successful in lobbying with the government for reduction in duties. The government has abolished the countervailing duty to bring down the customs duty to 10 percent with effect from April’2002.
The vendors are currently lobbying with various state governments to bring down the sales tax to 4 percent. They have already succeeded in some states. After the reduction in duties the price differential atleast in low end products have declined considerably.
All this augurs well for the fortunes of the handset vendors and the legal market is expected to witness a healthy growth in the coming years. This has resulted in a brighter outlook for the handset sales through the legal channel in 2002 with the market expected to increase by 2.5 times over 2001. In long-term also IDC expects the legal channel sales for cellular handsets to grow at a CAGR of 87 percent to reach 8.9 million units by the end of the year 2006. Though the unauthorized market will continue to affect the legal handset market and will still account for 55 percent of the handset market share in the year 2006.
The report also gives details of the factors affecting the purchase decision of handsets. According to resellers’ price, weight and appearance are the three most important factors influencing buying behavior of the consumers. Other important factors are battery life and clarity of voice. However, ease of use and features came last in priority.