Inspite of a heady growth in the cellular services market, the legal market for cellular handsets has remained very small. A large percentage of the handsets sold in the country are sold through the unauthorized or the grey channel, which includes smuggled handsets, parallel import and handsets brought by people travelling abroad. According to a latest IDC India report on the cellular handsets market in India, the share of the unauthorized market in the overall market has shot up from 74% in the year 2000 to 86% in the first half of 2001 and estimated 89% in second half of 2001.
IDC's Head of Internet, Communications & Convergence Research, Munish Myer says," This increase can be attributed to the price differential between handsets bought from legal and grey channels. The difference in price is atleast 25%-35% and arises due to high level of duties like customs, sales tax and octroi paid by the vendors selling in the legal market."
The report also cites handset vendor's unwillingness to invest much in setting up extensive after sales service and support infrastructure as another reason for flourishing grey market. Without any supporting infrastructure, buyers also do not feel any need to spend extra as there is no incentive or value proposition for them.
However, the market outlook is definitely changing with reduction in duties which has resulted in the price differential atleast in low end products considerably. "There is enough scope for a further reduction. Also the sales tax rates in all the states across India have not been reduced. A reduction in both these duty rates will help the legal sales channel to grow at a faster pace," claims Gautam Advani, Head-Marketing & Corporate Communications.
Munish further adds,"This has resulted in a brighter outlook for the handset sales through the legal channel in 2002 with the market expected to increase by 2.5 times over 2001. In long-term also, IDC expects the legal channel sales for cellular handsets to grow at a CAGR of 87% to reach 8.9 million units by the end of the year 2006. Though the unauthorized market will continue to affect the legal handset market and will still account for 55 % of the handset market share in the year 2006."
The handset buyer's behaviour clearly states that reselling price, weight and appearance plays the most important role in the consumer selecting a particular handset. Interestingly, despite the high decibel promotion campaigns by the mobile handset majors, factors such as ease of use and features came last in the consumer's priority.