MOBILE PHONE: A Ring-away Success

Fiscal 2003-04 belonged to the mobile handset industry, an industry which
showed an outstanding growth. The Indian mobile handset industry has broken all
records and achieved a growth of 568 percent in value terms. The industry has
recorded a turnover of Rs 8,344 crore ($1.85 billion). Just a comparison, the
handset industry in FY 2002-03 was around Rs 1,250 crore, of which GSM
contributed around Rs 727 crore whereas CDMA contributed around Rs 523 crore. In
FY 2003-04, CDMA contributed around Rs 4,153 crore whereas GSM contributed
around Rs 4,191 crore.

In value terms, GSM leads the way, but in volumes CDMA has a slight
advantage. The CDMA handset market in FY 2003-04 was estimated at around Rs
4,153 crore, registering a growth of around 694 percent on the other hand GSM
handset market in FY 2003-04 is estimated at around Rs 4,191 crore, registering
a growth of 476 percent. The GSM market leads CDMA by a narrow margin of around
Rs 38 crore.

In volume terms, CDMA leads the way. In FY 2003-04, the Indian market has
added around 16.46 million handsets registering a growth of 563 percent. In the
last fiscal GSM contributed around 8.21 million units. CDMA had a slight edge
over GSM and is pegged at around 8.25 million. Here GSM leads by 0.61 million.
In FY 2002-03 the Indian market had added 2.48 million handsets and this year it
is 6.89 times that number.

The Vendors

The main catalyst for this growth was the drastic cut in prices by service
providers both on the total acquisition cost as well as on services front. With
duty reduced to four percent, the cost of handsets has gone down significantly
in calendar year 2004, thereby driving volumes in the last quarter. Almost all
major vendors are present in GSM. Moreover, in the last fiscal, Chinese and
Taiwanese players have also entered the Indian market and so the market has
become very competitive. On the GSM side around 20 companies are present in
India whereas on CDMA it is around 10 companies. All this has resulted in more
choice for consumer both in terms of brands as well as model.

On the CDMA side, all the major players have launched their handset in the
Indian market. In the last fiscal there were two new entrants-Nokia and
Motorola-and they are giving some fight to established players like LG and
Samsung. On the GSM side, LG has lunched its model in the last fiscal and is
doing pretty well. LG is a company to watch out for in also in the GSM space.
Seeing stupendous growth, companies like Bird, BenQ, DBTel, and Kejian have
launched their products in the Indian market in the GSM space.

LG Electronics has overtaken Nokia India and occupies the number one position
in the overall mobile handset space. The company has a market share of around
33.5 percent and is above Nokia by four percentage points. In terms of sales, LG
is pegged at around Rs 2,797 crores. Nokia's revenues are estimated at Rs
2,481 crore and it has a market share of around 29.7 percent. Samsung occupies
the third position in the overall space handset, though it is second in both GSM
and CDMA space. The company has a market share around 13 percent. It has GSM
revenues of Rs 442 crore and CDMA revenues of Rs 632 crore. Motorola is placed
at fourth with a market share of around 8 percent. Hyundai Curitel has done well
so is Siemens and Sony Ericsson, active in the high-end space.

In the overall handset market, other players contribute around 6.6 percent,
i.e., around Rs 549 crore. It is high on the GSM side and contributes around 13
percent. The reason for this is the long list of vendors in others category
which includes Alcatel, BenQ, Bird, DBTel, Kejian, LG, Panasonic, Philips,
Primus, Sagem whereas on the CDMA front there are players like Telson, GTRAN,
and others.

LG, the market leader in India has done pretty well because of its early
mover advantage in the CDMA space. The wide range that LG has is in no
comparison to that of its competitors. The company wants to repeat its
performance even in the GSM space and is moving at a fast pace and is focusing
on mid- and high-end segment.

Overall, Nokia is ranked at number two in the handsets space as it has not
been able to encash on its CDMA portfolio. Strong in the GSM space where the
company has around 55 percent market share, the company is ranked no. 5 in CDMA
and has a market share of only 4 percent. The company has increased its
portfolio in the CDMA space by launching 2112, an entry-level phone and 3125
mid-range phone.

Samsung has done well both on the CDMA as well as GSM space. Very strong in
the strong in the mid- and high-end , the company has netted revenues of Rs
1,074 crore. The company has also done well on clamshell, a hot model range in
the Indian market. Motorola occupies the number four slot, and has a wide range
of products in the GSM space. It has a limited range in the CDMA space. Hyundai
Curitel has done well on the government sector and is strong on the CDMA front.
Siemens has wide range of phones in the GSM category whereas Sony Ericsson has
done very well in the high-end category after restructuring.

In others category, there is a long list and a majority of the companies have
joined in the last fiscal. Chinese vendor, Bird has entered the Indian market
through Agrani in the month of August and has launched products for all the
segment. BenQ of Taiwan has entered the Indian market in the month of October
and is focusing at the high end. DBTel has entered through Munoth Communications
and has launched over ten models. Alcatel reentered the Indian market and tied
with Videocon as a country distributor focusing on entry- and middle-level. Now
having formed a JV with TCL, the company will reorient its India strategy. In
the last fiscal, Siemens tied up with Tech Pacific and launched a whole range of
models and thereby occupying fourth position in the GSM space.

Being a new entrant, LG has opted for a direct model instead of a
distribution model and this is paying off. The company is focusing on color and
camera phones and is doing pretty well as it is encashing on LG brand name.
Pansonic is focusing on the mid and high range.

On the CDMA front, Kyocera has launched PDAs as well as entry models whereas
GTRAN is focusing on only high- and medium-range products. Telson has launched
in the meanwhile, a single brand-watch-cum-CDMA phone.

The Business Model

For two competing technologies, the handset vendor has opted for different
strategies. A majority of handsets sold in the GSM space is through the retail
channel whereas in the absence of SIM card in CDMA space almost all the handsets
are sold through service providers.

Almost all the GSM vendors have opted for a retail channel except LG, which
has opted for a direct-distribution model.

On the CDMA front, the service provider acts as the master distributor and
handset vendor pass that margin to the consumer. With CDMA service providers
providing a package deal, even GSM service providers have started a package
deal, something they had discontinued sometime back. CDMA service providers ask
for specific requirements from the vendor and once they agree, they develop all
these models. These typically take around 8-10 months. With the market moving at
a very fast pace, it is becoming extremely difficult for vendors to cope up with
the changing requirements of the service provider.

The Trends

A majority of CDMA phones are data-enabled which is not the case with GSM.
The market for MMS-enabled phones are small and is picking up. The mobile phone
model of the year goes to RD 2030 of LG Electronics. Also according to
VOICE&DATA estimates, LG has sold more than 2.5 million handsets. The best
marketing scheme for the last fiscal was Reliance Monsoon Hungama scheme. This
Rs 501 scheme helped in lifting the fortunes of CDMA market and contributed
around two million subscribers for Reliance Infocomm.

With market picking up in color and camera phones, in this fiscal there will
be a lot of new models in this space. India will witness a lot of activity in
this space.

The booming handset market in India has led to manufacturing opportunities
for top players and one might see some manufacturing operations in the country
by FY 2004—05. Some vendors are either in the advance stage of decision taking
or doing feasibility study And with new minister's focus on manufacturing,
India will soon join the league of other mobile handset manufacturing country in
the world. With markets increasing at a fast pace, it is all the more important
for companies to be closer to the Indian market so that logistics problems can
be minimized. Companies are sprucing up their service centers both in terms of
numbers as well as reach.

Apart from manufacturing opportunities, the handset industry will also see
lot of after sales support required for which companies have to get ready at the
earliest. Recently, a senior LG employee, WC Kim has opted to provide after
sales support to LG through his new venture, 'Ways In Telecom', which
focuses on repair of LG CDMA handsets.

The Outlook

With Tata joining the league of Bharti, Reliance, and BSNL, the market is
expected to achieve a growth of around 20—25 percent in volume terms. With
Bharti and Tata expanding in new geographies and service providers expanding
their coverage in smaller cities, the sector is expected to show an excellent
growth. All this will result in a bigger market and increased number of vendors
in the mobile handset space.

Pravin Prashant

The Methodology

This time, VOICE&DATA has analyzed GSM and CDMA handset markets under one
segment called mobile handsets because of the implementation of unified
licensing. Technology is immaterial for people using mobile phones, the idea is
to get an overall view of the handset market rather than looking at it from two
different angles. VOICE&DATA has taken this initiative for a good cause like
similar initiatives in the past For example in the 'Mobile User's
Satisfaction Survey 2003,' the quality of service of both GSM as well as CDMA
service providers were measured.

In the mobile handset segment, VOICE&DATA has tried to give a true
picture by segregating Indian companies and their parent companies. A majority
of handset deal in CDMA space has gone directly to the parent company and not to
its Indian subsidiary. For e.g., LG Electronics takes care of CDMA business
whereas LG India takes care of GSM in India. For CDMA phones, Reliance Infocomm
has directly placed orders on LG Electronics. So revenues are not reflected in
the Indian subsidiary. The same is the case with Samsung and Nokia. For e.g.,
Samsung India takes care of GSM revenues in India whereas Samsung Electronics
takes the CDMA revenues.