Nokia Dominates Indian Handset Market

Analysts from Merrill Lynch had a visit to India and came back with some interesting observations about the local market. Focusing on the handset side of the industry, India is almost unique in that most handsets are sold by retailers which are not affiliated with the network operators. The network operator sells the GSM SIM card and connection, and then the customer purchases an unsubsidized handset from a 3rd party retailer.

Amazingly, Nokia has managed to corner a staggering 75-80% of the market thanks to an early decision to rapidly roll-out retail distribution deals as the networks themselves expanded their coverage.

Of the estimated 79,000 retail outlets in India selling mobile phones, Nokia has a presence in 72,000 of them.

Nokia also benefits from a perception of providing sturdy phones that have a good resale price on the second-hand market. As such, Nokia continues to see strong demand for its low-end candy bar phones, which are known for their quality and durability.

Indeed, so strong is the Nokia brand in India, that Motorola was completely unable to sell any of their sub $25 low cost handsets in the market. This was in part due to the basic nature of the low cost handsets. Local consumers are very fashion conscious and within financial constraints still desire high quality handsets. The Motorola low cost phone had a monochrome screen, while Nokia's most basic handset came with a colour screen. Nokia's lowest retail point is in the region of US$40 per handset, comfortably above the low cost handset selling price of US$25.

The strength of the Nokia brand is also cited by Merrill Lynch as one (of many) reasons why the dominant CDMA operator, Reliance has decided to switch over to a GSM network.

Reliance told Merrill Lynch that in order to be competitive in the device market; it is forced to offer a US$10 subsidy on all CDMA phones in order to maintain some price parity with an equivalent GSM handset.

Assuming a US$50 phone price and US$12 price for the CDMA chip, it implies a US$5 profit for Qualcomm. Reliance therefore complained that while it is losing US$10 on every phone sold, Qualcomm is actually earning US$5.

Unusually for the Indian market, Nokia has also agreed to let Reliance sell its phones at Reliance's own stores, which should help the carrier's customer reach, given its vast national presence.

Finally, they noted that handset prices would also hamper the potential of 3G in India. Currently, the cheapest 3G handset, a Vodafone model manufactured by Huawei sells for around US$140 - considerably above the average US$50 per handset supported by the Indian market."

Posted to the site on 21st November 2006