Handset cos may tune out of life-time plans

Handset cos may tune out of life-time plans

Author | Source: The Economic Times | Saturday, Jan 21,2006 8:47 AM

Handset cos may tune out of life-time plans

The huge success of the two and three-year and lifetime-free mobile schemes is now creating a new problem for the telecom industry, especially the mobile handset makers. Mobile handset makers find the ever-rising demand a mixed blessing.

The reason - 90per cent of the new subscribers enrolling for the two-and three-year and lifetime-free mobile schemes are very low-end subscribers or first-time users.

These users typically buy only low-end mobile handsets, where margins are wafer thin, for the telecom handset makers. Nokia and LG officials, who did not want to be quoted, said margins in the lower end products are as low as 6-8per cent.

They mentioned that nearly 30per cent of the demand comes from rural and semi-urban India, which is entirely a 'no frills' belt. New subscribers in these areas have started looking at mobile phones as a necessity and buy very basic phones. This seems to be true. Nokia's basic model 1100 sells the highest in rural India. The lack of finance may be the other reason people in those areas opt for low-end mobile handsets.

Further, there is nearly a 40per cent difference between the new subscriber numbers doled out by telecom service operators and actual mobile handset sales. Sources say the difference is on account of the pre-activated schemes sold by various telecom service providers, which does not necessarily convert into a sale for telecom handset makers immediately.

These pre-activated schemes add up to the telecom service operators' new subscription numbers at the end of every month. But, for telecom handset makers, the numbers translate into sales only when subscribers buy these pre-activated schemes.

The aberration is, however, less for CDMA than GSM subscribers. This is because CDMA service providers such as Reliance, Tata and others give mobile handsets along with most of their schemes. Telecom service providers such as Tata also import handsets directly. For instance, Tatas have tied up with three Chinese companies for its 2-year incoming free offer.

According to Cellular Operators of India (COAI) estimates, both GSM and CDMA operators cumulatively added 44.6 lakh new users in December '05.

The new subscribers were split 70:30 between GSM and CDMA operators. GSM operators added the highest net additions ever with 32 lakh subscribers and CDMA operators added the balance 12.6 lakh subscribers. BSNL added 10 lakh subscribers, Bharti (9 lakh) and Tata Teleservices added 6 lakh new subscribers.

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