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Tirlok Singh is my chauffeur for the entire trip. An ever smiling man, he calls me every morning at 7.30 am to remind me that he is going to pick me up in forty five minutes. He calls me on his Nokia. He waits outside as […]

Tirlok Singh is my chauffeur for the entire trip. An ever smiling man, he calls me every morning at 7.30 am to remind me that he is going to pick me up in forty five minutes. He calls me on his Nokia. He waits outside as I conduct my appointments, and once I am done, a simple call and he is outside, smiling with the door open. His colleagues in the car rental service are all equipped with cell phones. In India, there is no getting away from the cell phone.

Every 200 yards is someone selling prepaid cell phones, or data plans. The tantalizing ads of cellular service providers with exotic names as Dolphin, Hutch, Essar and Airtel are on televison, on radio and on billboards. It is an amazing market place. Paan Walaas, those street hawkers who sell cigarettes by the singles and betel nuts, also sell SIM cards. ShahRuk Khan, an Indian Brad Pitt, touts a family plan, while Samsung is pushing its E700 as the camera phone of choice. (In US they call it E715.)

They don’t launch acts on MTV in India. Enrique Iglesias’ latest album is being marketed exclusively via mobile phone service providers. Download clips, watch a video and hopefully you buy an album. Amazing.

Indians buy no name computers but want a Sony Ericsson Z600 (Sale price about $225 unlocked in local currency!) Screw the computer, they would spend a whopping 45,000 rupees on a P900. The brand name matters when it comes to cell phones. Cell phones ring in middle of meals, and Indians strangely pick up the calls even when in a meeting with visiting NRI. The most amazing sight of the day was when a man tried to navigate his creaky old bicycle in rush hour traffic with one hand. The other hand was holding a cell phone glued to his ear, as he had an animated conversation. (Watch out car drivers, because in India it is the one with a bigger vehicle who is always guilty in case of an accident.)

It is a strange obsession India has with cell phones. Which is why it is the most exciting cell phone market on the planet. More exciting than China, because it is young and growing. More exciting that Europe and US where penetration rates are reaching maturity levels. Indians and Chinese will become king makers over next ten years in the mobile business. Samsung, LG, BenQ and other such lesser brands will become world leaders because they understand the dynamic of the Asian Markets.

Mark my words, it is end game for Nokia. Its days of making unprecedented profits are coming to an end. This morning the company announced reduction in its first quarter sales guidance, and a pressure on its EPS. The company sees Q1 2004 sales down 2% year over year due to sales of cheaper handsets. Nokia said “lower than expected volumes and the product mix negatively impacted Mobile Phones’sales and operating profit.”

If ASP’s are under pressure, this may be an industry problem. If ASP’s are not under pressure, it is just a NOK problem. We believe it is the latter. We also believe they are cutting the ASP to keep the 40% market share target in sight. Additionally, the lower volume is based on their product mix. However, we still see industry underpinnings that seem to show evidence of strong industry growth in handset volume. (Greg Gorbatenko Marquis Investment)

The news is particularly start when put in context of this morning’s headline in The Times of India.

In last three months India added 12 million odd new users, bringing the total for fiscal 2004 to over 33.2 million mobile phone subscribers, more than 150 per cent growth, thanks mainly to increased competition and steep fall in tariffs during the past 12-15 months, says The Times of India.

Of the total mobile subscriber base, GSM cellular industry – led by Bharti, BSNL and Hutch – showed impressive growth of 106 per cent. There were 26.1 million GSM subscribers at the end of March 2004, up from 13.4 million last March.CDMA was 7.1 million at the end of March, 2004 with Reliance accounting for over 6.4 million subscribers, followed by Tata Teleservices (Indicom), way behind at 620,000 customers.

So far the youth and upper middle class has led the growth and bought into mobile lifestyle. But the ever cheaper pricing plans are coming to make mobile a commodity like shampoos and soap. Can you hear me now, no you don’t because soon there will be a billion Indians talking.

  1. An interesting point here is that Nokia has over $14B in the bank – can they spend their way back to the top by cutting products (N-Gage) and maybe firing the current product team and refocus on good products? I think these two issues are key to Nokia. Their products seem dated and old (don’t see a lot of Nokia phones here in the States for mostly pricing reasons but also for features I believe) and their declines in their markets speak to that.

    Looking through their last 10-K (actually called something else), the data speaks volumes – from 2002 to 2003, Nokia had the following declines: -2% in Finland, -4% in USA, -13% in Britain, +24% in Germany, -28% in China (very scary), and +2% growth in the “other category” – which includes India. Overall, they had declines of -2% across all markets.

    But Om – specifically in India – it sounds like brand matters – will this benefit Nokia?

    Thoughts appreciated….

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  2. Oh, and I meant to add, which was the point of mentioning the $14B – could Nokia also cut prices to make their handsets more attractive to the carriers?

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  3. damian

    i am currently working on a piece on the handset business and hopefully it will be out by end of the week. it will give you a complete low down on nokia and other brands. however, nokia sells well here, except those models which are cheap enough for the consumers. nokia is not the premium brand here – sony ericsson is. and when people think handsets, well it is mostly samsung and LG

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  4. So Nokia is selling low-end phones in India…that makes sense. But are you saying that Sony Ericsson as well as Samsung and LG are premium brands here? or just Sony Ericsson?

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  5. no SE is a premium brand because that is the strategy they adopted, se stands for serious money. snob appeal is huge. nokia is pushing 7600 – not much in sales at the top end

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  6. The ‘brand’ feel depends heavily on where you live and observe it from.

    The days when Nokia could make success out of industry where others were not even making profits on is maybe gone. Still, by the numbers Nokia is FAR from dead and could probably do negative profits(which it isn’t doing) for few _years_ before facing ‘the end’(when compared to other players they are huge).

    SE has zero snob appeal here anyways(except p900).

    and the biggest market doesn’t care about snob values either, they just want a trusty phone(that is why 3330 has been manufactured at least near to this day, even though it’s an ooooold model).

    what’s the deal with email being ‘optional’, yet it’s required?

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  7. I couldn’t help but smile at your description of India’s manic obsession with cell phones. Om, trust me this is just the tip of the iceberg.

    With players like Reliance Infocomm (my employer) pushing for making the cell phones more accessible by reducing the call rates, you can bet that this market is set of explode.

    And inspite of other models having trendy hi-end handsets, there is something comforting, reliable and robust about a Nokia handset. I personally use Nokia 2100 after a bad experience with a Motorola handset.

    This blog post was a great read overall.

    Cheers,
    Dhar

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  8. It’s hard to believe but yeah people are going crazy about phones. You must see the fruit-vendors in south delhi with there cellphones as well :)

    Btw on last count number of cell phones in India is half that of fixed lines.

    Well there are reasons here

    - As a general market reason, I think people are fed-up of the BSNL’s stodgy attitude towards phones.
    http://weblogs.cs.cornell.edu/aseem/archives/000230.html
    Though the private operators of fixed lines are doing good, but cell phones have really taken off

    - Too much of competition has crashed the prices. I remember when I first used the phone in year 2000, the incoming & out going rates were Rs8/min (not to mention Rs 16/min in 1996-97 when it started. On the last account (8 months ago) I used my phone with no incoming charge and out going at Rs 0.5/min
    http://weblogs.cs.cornell.edu/aseem/archives/000210.html
    This has also something to do with what Sumit Dhar calls “Reliance’s influence”

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  9. I think the pressure of depleting margins will drive consolidation. The wireless infrastructure is still poor and most of the models sold are outdated. There is no wireless broadband infrastructure. Under these circumstances, where will service providers get revenues? I expect the market to consolidate and head downwards unless the broadband market picks up steam in India.

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  10. Mr. Malik,

    I found this entry very interesting. I’m working on a class project regarding the cell phone market. You said that the majority of the market in India is most concerned with having a reliable phone. Is there any general interest in web capable phones? Or Bluetooth-enabled phones? If not, why not? Is it a price issue? Any information you can give me is greatly appreciated. Thanks.

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