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India emerging as a handset hub
By agencies
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Thursday, 18 August 2005, 19:30 IST
NEW DELHI: India, the world's fastest growing wireless market, is also becoming a handset-manufacturing hub as global phone makers seek cost-cutting opportunities in a country where phone ownership has room to boom.
Despite a lack of reliable infrastructure in India such as regular power supplies and world class ports, companies including Elcoteq, Europe's top electronics contract manufacturer, have set up shop to soak up local demand and base their global sourcing from Asia's third largest economy.
Manufacturing in India could shave costs by 2-3 percent - an attractive edge for handset makers whose margins are being eroded by fierce competition and heavy advertising costs, says Pankaj Mohindroo, Chief of the Indian Cellular Association.
"India is a natural choice because it compares favorably in terms of wage costs globally. Also, it offers one of finest demographic profiles for companies because about half the population is below 25 years of age," Mohindroo said.
Top handset maker Nokia, a leader in India's $2.5 billion mobile phones market, and its suppliers have announced plans to invest up to $150 million in a manufacturing plant to keep costs low amid rising competition from rivals such as Motorola.
Nokia is building a unit in Chennai, not far from Elcoteq's humming facility in Bangalore, the tech capital. LG Electronics Inc, the fourth largest player, has an assembly unit in Pune.
"An encouraging regulatory regime, falling rates and growing geographical penetration of networks is driving mobile growth in India," said Kobita Desai, Principal Analyst at Gartner.
Handset makers are encouraged by policy changes in India that allow unlimited competition in telecom services and the opening up of the sector to foreign competition.
Gartner estimates 34 million handsets will be sold this year, up 62 percent over 2004, and Indian sales could overtake Chinese handset demand in 2009 on likely sales of 139 million handsets.
Over the past two years, mobile sales have boomed in India as local call rates of about 1-2 cents a minute, the cheapest anywhere, attract about 2.5 million new users a month. Indian mobile subscribers overtook fixed-line customers in 2004.
With more than 60 million users, India's mobile base exceeds the population of Italy, but handset ownership remains clustered in urban centers because networks cover just 30 percent of the country.
"Our main problem is that mobile coverage is still very poor," Pradip Baijal, Chairman of Telecom Regulatory Authority, said. "But all economic indicators show that 75 percent population coverage should happen by 2006."
Demand is likely to rocket in the coming years because India, with a population of more than a billion people, has a mobile phone ownership rate of only six in a 100 people compared with more than 25 percent in China. Local manufacturing is expected to help India cut the $165 million it spends each month to import phones. Software-Hardware Combo.
Apart from strong local demand, India's famed software servicing skills and low-cost but highly talented engineering workforce are potent attractions.
"Demand from the domestic market is a substantive springboard for economies of scale and for developing a good supply base that will provide export opportunities for India," said Henry Gilchrist, Elcoteq's Asia Pacific Marketing Director.
Elcoteq will spend about $150 million on its plant, which will have the capacity to produce 10 million handsets a year by 2006. The facility is set to roll out phones by early next year.
Last year, LG Electronics said it would invest $60 million to start manufacturing GSM and CDMA handsets in India. The plant will make 20 million phones a year by 2010.
Fifth largest handset firm Sony Ericsson has asked its vendors to explore manufacturing options.
Already, more than 15 handset players offer Indian consumers a bewildering array of phones, from brightly colored clamshells to snazzy photo-snapping handsets priced as low as Rs 2,000 ($44) to Rs 45,000 ($1000).
But analysts say entry-level prices need to be bought down to about $30 to lure millions of cost-conscious people in rural areas, where more than 60 percent of the population lives.
"The Indian market is extremely price sensitive. So if you price the product right, there will be another boom," Baijal said.
Although Indian firms such as Spicenet Ltd are assembling phones, the sector is likely to remain in the grips of global players due to high investment costs and the phones' short shelf lives.
"India is not going to become a China or a Taiwan where home grown players have strong market shares," Gartner's Desai said.