The Hindu Business Line : Tell me it's cheaper!

WITH large Indian wireless operators expanding their networks to cover small towns and villages, the key to the success of mobile penetration will be handset availability at low costs.

Operators entering these regions should prepare themselves to work in business environments where average revenue per user levels are expected to be as low as $5 (Rs 220) per month in the next 18-24 months, says Kobita Desai, Principal Analyst (mobile), Gartner.

A subscriber who wants to contain his monthly mobile spend at Rs 200 can hardly be expected to purchase a Rs 4,000, a Rs 3,000 and often even a Rs 2,500 handset.

How to put such a low-cost handset into such a subscriber's pocket? That will be the challenge for both operators and handset manufacturers.

There are already offers that appear close to this requirement. Airtel Mumbai's bundled offer of a Motorola phone for Rs 2,200 with free talk time offered says the phone's effective cost will be Re 1 at the end of 14 months of use.

The catch is that the free talk time and airtime offered for 14 months is only for Airtel-to-Airtel calls. This is the case with many other operators who offer such deals.

So, this is not effectively a low handset price. Also, such a deal may not work in a small town or village where free calls are offered within the same network, says a marketing official with a wireless company.

Talk to operators and they would claim that a sub-$40 handset (Rs 1,760) will grow their subscriber base by 30 per cent almost instantaneously; and a sub-$30 (Rs 1,320) handset might cause such an explosion as to render them unable for some time to handle their networks!

This is the race, then, that handset manufacturers and operators are in. With declining service costs and the introduction of low-cost handsets, the Indian market has the potential to increase cellular penetration levels to 30 per cent, according to Gartner, netting more than 300 million connections.

(This would indicate that more than one person per family in India would own a mobile connection).

In fact, it was demand for low-tier handsets targeted at prepaid replacement or new users in emerging markets that helped propel Asia-Pacific mobile phone sales to 164 million in 2004, a 24.1 per cent increase compared with 2003, according to Gartner.

Nokia's market leadership in the Asia-Pacific region with a 30.8 per cent share of mobile phone sales during 2004 was driven by strong demand for its mid and low-tier models.

But for India, low-tier would mean a notch lower than what Gartner means for Asia as a whole, says a senior official with a pan-India mobile services company.

Sales in 2004 in the Indian market showed mobile phone sales scaling up to around 21 million.

Recent policy initiatives implemented during the annual budget will stimulate adoption of mobile services, fuelling demand for handsets, according to Kobita.

"In the coming months, the advantage will be with those who focus on expanding their channel outlets and undertake aggressive brand build-up exercise as mobile operators extend their networks into provincial towns. Of course, low-income users will mean thinner margins.

But revenues ought to make up, and the base can be worked upon as it will, doubtless, grow more affluent, given the economic growth in the country."

Hopes for an unbelievably low sub-$20 mobile handset seem realistic with a Germany-based semiconductor company Infineon Technologies AG claiming to introduce a Chip Platform for such handsets.

"Around 3.5 billion people now living in areas with mobile phone coverage cannot afford their own mobile phone.

But this could soon change," says a statement from the company announcing the technology.

It says it has laid the foundation for mass production of very low-cost mobile phones.

Infineon's platform is ready to release to handset manufacturers a `reference platform' for new product designs, which means that ultra low-cost handsets could be planned for volume production in the first half of 2006.

Year 2005 also saw the industry actually organise an `Ultra Low Cost Handsets' conference in June at Amsterdam. This would be the first step towards unlocking a new growth segment in mobile subscriptions; handsets below the $40-mark will come to emerging markets, said the invitation paper.

The price, in itself, may not be something new, but when we take a look at which features are being offered, Ultra Low Cost Handsets are becoming an attractive option for operators and their customers for the first time.

But there is also the distinct possibility that with Nokia, Samsung and other manufacturers setting bases here, the ultra low-cost handset could emerge from our very own soil, says a member of the Cellular Operators Association of India.

kripram@thehindu.co.in

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