FIXED PHONES: The Thin Silver Lining

There is no doubt that the explosive growth in the mobile telephony market
has hampered the growth of fixed phones. The GSM-CDMA onslaught has resulted in
a negative growth of direct exchange lines (DEL). Particularly, fixed wireless
phones have been gaining ground forcing some manufacturers of fixed phones (like
United Telecom) to revamp their strategy in favor of fixed CDMA sets. The major
consumers of push-button telephones -BSNL and MTNL-have been hardpressed and
have joined the mobile bandwagon to maintain their market share.

VOICE&DATA estimates that the total market for fixed phones has gone down
both in terms of number of units sold and sales revenue. While the number of
units came down from 6.6 million in FY 2002-03 to 6.2 million in FY 2003-04,
sales dipped to Rs 269 crore as against Rs 270 crore in the last financial year.
This loss is mainly because of the reduction in demand from the Department of
Telecommunication.

The fixed phone market is heavily tilted towards the operator-supplied phones
and occupies almost 75 percent share. The remaining 25 percent goes to the
replacement (retail) market. Stagnation in new connections and growth in the
one-line-many-phone setups (as in EPBAXs and institutional segments) has boosted
the replacement market. In fact there was a hike of more 5.5 lakh phones here.

The biggest loser in the market has been Indian Telephone Industries (ITI).
According to VOICE&DATA estimates, the company has halved its supply of
fixed phones to almost 48,000 sets annually. ITI has now rolled out plans for
contract manufacturing of WLL-CDMA and GSM phone, in collaboration with
companies like ZTE of China.

The Players

Bharti Teletech has emerged as the market leader with more than two million
phones in the private service provider segment. The company also emerged leader
in the replacement market with almost 40 percent share. The company sold phone
sets worth Rs 124 crore in last financial year. They did particularly well in
the CLI and cordless phone market. This year, Bharti Teletech exported five lakh
phones and is targetting one million units in 2004—05.

Panasonic sold eight lakh units in the corded and cordless segment combined.
Their sets are priced 20-25 percent higher than other brands as they do not have
manufacturing base in India and import phones either as semi-knocked-down units
or finished sets.

BPL has its manufacturing plant in Palakkad and sold 4.68 lakh units.
Crompton Greaves sold around one lakh units. The replacement market has been
growing very fast due to the flooding of market by low-priced, low-end phones
from Orpat, Samay, Pretel, Pacetel and the Chinese companies.

Demand for Better Phones

The hitherto price conscious Indian customers are asking for better designed
phones and also want mobile-phone-like features in their fixed phones. Caller ID
phones have been gaining popularity. Although there has been a rising demand for
speakerphones, phones with answering machines may find it difficult to survive
with operators now offering voice mail services. With the data applications
gaining momentum, two-line and data-port phones are more in demand.

Future Trends

The slump in fixed phones is temporary and the market will rise, as there is
still a very large population in India without phones. With rural areas having a
tele-density of less than two, basic telephony cannot be written off so easily.
In markets like the US and China, fixed phones and mobiles coexist.

Anurag Prasad