Going grey with gusto

G. Rambabu

GOING mobile is no longer a status symbol. Everyone, from the local paanwalla to the roadside Romeo, is in possession of what was once the privilege of a few. Reams have been written on it, and it is not the intention here to give one more descriptive analysis of the mobile revolution that is supposedly sweeping the country.

Neither is it intended to bombard the reader with loads of statistics eulogising the efforts made by the cellular operators to bring down tariffs, which has seemingly contributed to the spurt in subscribers.

Instead, what is being attempted here is to break the myth that the ``enabling'' policies being implemented with gusto by the occupants of Sanchar Bhavan have anything to do with this.

The main reason for this spurt in demand for cellular connections, officials of the Department of Telecommunications (DoT) would have us believe, is the easing of regulations for companies wanting to set up cellular phone networks, which has brought about competitive pricing of the services. However, there is ample evidence to suggest that it is, in fact, the lack of effective policies which has spurred the growth of the cellular subscribers in the country.

Surprised? Well, then read on.

If you were to go in for a cellular connection, what is the first thing that would weigh on your mind? You are right, it's the price of the handset. Without doubt, its the biggest investment to be made for going mobile.

Less than two years ago, the cheapest available handset in the market was close to Rs 10,000. This, in itself, was an entry barrier, leave alone the high tariffs and subscription charges. But, we live in different times today. Handsets are now available off the shelf for as little as Rs 1,000. And for a little over Rs 1,700, a customer can now go mobile with a cash card.

What's more, one need not hunt around for a handset distributor any longer. Turn the corner and pick it off the shelf, for a price of your liking.

In fact, with affordability touching new lows, the market is estimated to grow to more than 35 million subscribers by the year 2005, from a little over 4.5 million at present.

Big Boys apprehensive

Given this scenario, the Big Boys of mobile phones -- Nokia, Motorola, Mitsubishi, Samsung, Siemens, Ericsson, Alcatel and Philips, -- who have a sizable presence in India, should be jumping in joy. But no, they are hardly enthused.

This is exactly where the faultlines in DoT policies appear.

The Big Boys fear that this spurt in subscriber base is unlikely to translate into any major jump in their sales. The answer is there in black and white -- the grey market (which includes stolen and smuggled goods).

Although there are no official estimates available, independent studies have suggested that over 75 per cent of the handsets sold in the country are routed through this ``shady'' market. In fact, a ballpark figure based on the number of subscribers values this market at Rs 600 crore today. On the other hand, the legal sales of handset together manages just around Rs 200 crore.

The reason for this is not hard to come by.

Smuggled handsets are available at 60-70 per cent of the cost of genuine imports, the differential largely being accounted for by the import and countervailing duty. They also use non-standard accessories without the standard one-year warranty. Additional local taxes and octroi are also greatly responsible for the huge price differential between genuine and smuggled handsets.

The comparative cost structure, as shown in the table, says it all.

Grey's the colour

While the import duty has been gradually lowered, the Government has not touched the high countervailing duty of 16 per cent. This is surprising, considering the fact that there is no local manufacturer of handsets in the country. So whom is it trying to protect?

Since most of the service providers do not make it compulsory for subscribers to purchase a handset from the authorised store, a majority of them are sourced through illegal sources. If a customer wants to, therefore, get mobile at the cheapest possible price, all he has to do is walk into any of these shops around the corner. Even the smallest shops are able to sell handsets at prices much lower than the authorised retail outlets. And that explains the sudden spurt in cellular subscribers.

But the trend is certainly not healthy. It would rather make more sense to facilitate the manufacturers to offer handsets at international prices. This would bring about a genuine cellular revolution in the country.

As pointed out by U. Narendra Nayak, Country Operations Manager, Personal Communications Sector, Motorola India Pvt Ltd, in most markets, mobile operators make cellular telephony attractive by bundling the handset with ready-to-use cellular connection at affordable prices. In fact, in markets such as the UK, Singapore, Australia, Indonesia, Thailand, the Philippines, Bangladesh and Sweden, over 80 per cent of the cellular connections are bundled with the handsets, allowing the mobile operators to penetrate new markets and segments such as students, farmers, truck drivers etc.

``In India, however, mobile operators are unable to pass on the benefits of rapid market growth as the prices of grey market products call for huge subsidies on officially imported products, thus affecting penetration into the rural and remote areas, bundling of services, access to latest technology and availability,'' he says.

According to Pankaj Mohindroo, President, Indian Cellular Association, at present the consumers buying handsets from the grey market are adversely affected by a poor brand experience, lack of warranty and poor service.

``Since the unofficial trade also sells second-hand, stolen phones with non-genuine accessories and refurbished handsets, the Government, by turning a blind eye to this problem, would also be a big loser. If the current situation were to continue, the Government would stand to lose an estimated Rs 1,840 crore in the year 2005 through loss of duty,'' he points out.

Wake-up call for Govt

Although the industry has been requesting DoT to step in before it is too late, there has hardly been any response from the officials. What is needed is a crackdown on the grey market, coupled with incentives for the legal manufacturers.

In the words of Sanjeev Sharma, Country Manager, Nokia India Pvt Ltd, ``the most critical link in effecting an erosion of the crime base is stricter enforcement. It is a criminal offence and has to be viewed as one.

Rather than politely referring to it as a grey market, the Government has to crack the whip against these smugglers and their distribution network. It is necessary to call a spade a spade.''

As he rightly points out, unless the Government wakes up to the harsh reality instead of gloating over the increase in subscriber base, the real cellular revolution in the country may fail to really take off.

Feedback can be sent to grambabu@thehindu.co.in