Sluggish growth for Handsets, though subscribers grew 50%

The handset market saw a sluggish growth rate in FY 2009-10. VOICE&DATA
estimates that the overall market size grew to Rs 27,000 crore from Rs 25,910
crore in FY 2009-10. The market grew only by 4.2% and did not reflect the growth
of wireless subscriber base in the corresponding year. The handset growth was
primarily attributed to the penetration of telecom services in rural areas and
up-gradation. Around 108 mn handsets were sold throughout the year-including
CDMA and GSM phones.

In FY 2009-10, the number of subscribers grew by around 50%. The country
added 192 mn subscribers in the last financial year. This primarily includes the
number of SIM cards sold in the market and not the number of individual
subscribers.

The main reasons for slow growth in handset revenue include erosion in
average selling price, increase in replacement market, illegal imports, usage of
multiple SIM cards, etc.

Nokia remained the market leader with 52.2% market share, despite losing
14.9% revenue as compared to previous fiscal. The Finish giant is
transforming its image as an Internet solutions provider, rather than a handset
manufacturer. Nokia's share was eaten up by Samsung and Indian branded handsets,
which gained momentum in the last fiscal. Samsung Corby series turned the tables
for the company. Samsung grew by a whopping 81.5% and captured a market share of
17.4%. LG bagged the #3 position in the V&D rankings. It grew by 37.3% with a
market share of 5.9%.

Indian branded handsets lead by Micromax captured a market share of 4.1% in
the last fiscal, and became the fourth largest handset player. The Gurgaon
(Delhi NCR) based two-year old company, turned the wheels of fortune by offering
multi-media handsets in affordable prices. Spice Mobiles was another Indian
branded handset player to feature strong in the list. The handset player,
registered a growth of 92.6% with a market share of 3.9%. The biggest losers
were Motorola and Sony Ericsson.

The handset industry is going through a phase of technological innovation.
This sudden influx of new and innovative technologies are empowering consumers
to demand more feature-packed and user-friendly phones, which in turn has
resulted in mobile phones undergoing regular hardware upgrades. Most of the
upgrades were driven by changing consumer preference and following a rigorous
R&D process.

The consumer preference and expectations today have witnessed a lot of
changes. They demand an all in one gadget. They are looking for as many
functions as possible in one device, specially technology on the move.

Some of the key technology innovations which changed the rules of the game in
the mobile space in the last fiscal were camera phones crossing the magical 12
megapixel threshold, high-definition recording being offered by camera phones
and the launch of new mobile operating systems like Android. QWERTY and touch
screen phones were no more a tool of the rich, as they became affordable to
average users. QWERTY phones' sales contributed to little less than 10% of the
sales in Q4 of FY 2009-10.

Emergence of Indian Branded Handsets

The biggest trend this year was the sunrise of the Indian branded handsets.
These players made a mark in the market with affordable feature rich handsets
which was so far dominated by the MNCs-including Nokia, Samsung, Sony Ericsson
and Motorola. These vendors import phones from China and Taiwan, and sell in a
country with a strong channel base. Mircomax, Spice and Karbonn mobiles are the
leaders in this segment. Of the 10-12 mn handsets sold every month in India,
these Indian branded handset vendors sold around 2.5-3 mn handsets in the Q4 of
FY 2009-10. They have a strong presence in the rural as well as urban areas.
These vendors are spending a good amount of money on the marketing exercise to
establish themselves as a brand.

Predominantly, this segment catered to the needs of users who were looking
for feature rich handsets in an affordable price. The government's crackdown on
the phones without IMEI number had given them an edge in the price conscious
market.

These players, as of now, have R&D facility in India. In the next few years,
they are looking forward to have the manufacturing facility as well. For these
vendors having manufacturing facility, as of now, does not make sense. However,
it would become business viable once they start selling 1 bn handsets per month.

The Indian branded handsets' manufacturers-excited with their home turf
success-are looking forward to expand their presence in third world countries
including Sri Lanka, Bangladesh, Africa, Nigeria, Latin America in the next few
years. Given their present market share in the per month sales of handsets which
is 25%, these vendors will have a strong presence in the next year. Their growth
will surely dent the MNCs' market share.

The point of sale presence and service centers across the country are the
indicators that will differentiate between the two.

Crackdown on IMEI Number

Last year, the Government banned the mobile handsets which did not have IMEI
number. This gave a jolt to the flourishing illegal market in the country.
Around 22 mn handsets were illegally imported in the first three quarters of FY
2009-10. Many of them were not having proper IMEI number. After the government
announced and enforced the ban, sales of illegal handsets saw a significant
drop. The sale of grey market handset had come down to 1 mn handsets in December
2009 from 3.6 mn handsets in March 2009.

Exports

Mobile phones were the only telecom devices which were exported from India
in FY 2009-10. India despite being the second largest telcom market globally,
lacks manufacturing facilities. India's handset exports stood at 135 mn phones
which were manufacured by the handset majors like Nokia, Samsung, Motorola and
LG. These phones were shipped to around sixty countries across the globe.
Interestingly, the total number of handsets exported is almost similar to the
size of the Indian handset market.

Nokia, the market leader, has produced more than 350 mn handsets in its
manufacturing facility in Sriperumbudur near Chennai. Nokia's facility is
operational since the last four years. Nokia first started exporting these
handsets to North America and Europe.

Future Outlook

The industry is expected to grow by 5-10% in FY 2010-11. The smartphones
category will continue to grow; and mobile phone manufacturers will rely on
Android, Windows Mobile 7, MacOSX and Symbian to offer a compelling user
experience. In terms of content and applications, location based social
networking, gaming and search applications will dominate as there will be an
increasing trend of users paying for the application downloads.

With the high Internet penetration, the key focus for the industry players
will be to provide an intuitive mobile web surfing experience. Also, integrating
top social networking tools and additional hardware and software enablers like
productivity tools, QWERTY keyboards, HD quality videos, better cameras, etc,
will be important.

On the other hand, the bottom prices could see another dip. Vodafone Essar in
the beginning of the year itself launched a Rs 799 handset bundled with its
services.

Akhilesh Shukla

akhileshs@cybermedia.co.in