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The recent DoT move especially targets handsets imported from China, which lack the crucial IMEI numbers. The low cost Chinese and gray market handsets are clearly going to feel the heat as current users would be forced to change the handsets to ones having valid IMEI numbers.

The IMEI numbers emerged as a critical link for the Intelligence Bureau during the investigations of the recent terrorist attacks. If the law enforcing agencies had valid IMEI, they would have been able to track the origin to the points of sale. The DoT order becomes crucial in this background.

Though the branded players like Nokia, Samsung, Sony Ericsson and others mostly dominate the Indian handset market, Chinese manufactured goods have been slowly and steadily making inroads in this growing segment. This is especially true for the tier-2 and 3 cities. In the recent past Chinese handsets have been eating into the share of branded handsets by claiming to provide the same or similar features at a reduced price.

These handsets are flooding the Indian market despite the fact that it is illegal to sell these handsets in the market since they don't come with any valid documents However, Chinese handset markets such as ztE, Haier and Huawei meet Indian Standards.

This is not the first time that DoT has come down hard on Chinese handsets. DoT was earlier planning to include mobile handsets, parts, components and accessories on the government's watchlist to counter dumping of cheaper products from China. The industry has been wary for the last three years of the huge parallel market emerging due to cheap imports from China.

As the popularity of Chinese handsets soared, branded handset manufacturers have been trying to think of ways and means to find a solution to this problem. Anti-dumping duty could have helped in solving the problem, but this was unviable since many branded handset manufacturers also import handsets from China. In fact, the entire consumer goods industry is dependent on China for manufacturing of the products.

According to Voice&Data estimates around 90% of the market is controlled by the branded players. Around 5% of mobile subscribers are using gray handsets and approximately 20 mn would be using the handsets without proper IMEI numbers.

Welcome Move
In the background of the Chinese handsets eating into the marketshare of the branded handset manufacturers, it is no surprise that the latter have welcomed the move.

The move to restrict calls made to the Chinese handsets will give a fillip to the business of branded handsets. Customers already using these handsets without the IMEI number would then be forced to purchase a branded handset with an IMEI number.

“It is a crucial step from the national security point of view and will certainly serve to discourage consumers from using handsets without IMEI numbers. This initiative will certainly move consumers away from unbranded Chinese handsets toward branded handsets,” says Sunil Dutt, country head of Samsung Mobile.

“We welcome the DoT's recent directive and feel that their step to set-up the Equipment Identity Register (EIR) is a positive one toward consumer interest as well as national security. Unbranded and counterfeit handsets without legal IMEI numbers not only pose a severe threat to national security but also do not incorporate all the safety precautions required to safeguard consumers. Calls made from these handsets cannot be tracked by security agencies and hence are used by anti-national elements,” says Nokia's director for corporate affairs, Ambrish Bakaya.

“The use of unbranded handsets can also cause bodily harm to consumers as these products do not follow stringent quality control or approved standards. These unbranded handsets and batteries are manufactured in extremely poor conditions with manual welding, poor slitting machines using non-standard coating material. They also lack safety mechanisms such as Protection Circuit Module (PCM). As a result these handsets deliver very poor performance and are not safe to use,” Bakaya adds.

A mobile phone is still a capital investment for most of the subscribers in the country and that to some extent explains the increasing popularity of unbranded handsets. A GPRS-enabled Chinese handset costs around Rs 3,000 as against Rs 4,500 to Rs 5,000 for a similar branded phone.

While there is no data to support this, it is not just the tier-2 or -3 cities that are the hubs for Chinese handsets, they are increasing in popularity in the metros too. Customers feel cheated by handset manufacturers as the cost feels too high when a phone offering similar features is available for half the price in the gray market. That apart, a section of the customers also feel that the cost of a particular cellphone continues to come down every month, so it makes sense to buy a cheaper phone.

There is a lot of hue and cry on many blogs with users claiming that mobile manufacturers should take a cut on their prices as the same features are available in fake handsets at sometimes less than half the price.

“Every company is changing its models every month, in all possible segments. They charge a lot of money for all the services they offer. And as an end buyer wouldn't I feel cheated if the very next month I get to see someone using the same mobile phone at a lower price and a better handset at almost equal price? The important facts to be considered by companies are: Why are the prices so high? Why do you change the models so frequently? And, why do you decrease the price of a set every month?,” says one agitated reader in a blog.

It is in this space that the small Indian Players like Usha Lexus and Intex are entering and making a mark. There are a number of Indian companies which import phones from countries such as China or Taiwan, marketing the phones under their brand name. The only advantage they offer is services not provided by the non-branded Chinese products.

One reason that dealers and distributors are keen to stock Chinese handsets is because of the high margins as compared to the branded ones. “The margins on a Chinese handset is almost double of margins on a branded ones,” says Navneet Kandoi, director of Kolkata-based HelloM, who also import handsets from China.

Not just Chinese handsets but small Indian players like Usha Lexus, Xtelecom, etc, are also likely to feel the heat as customers shift toward branded handsets.

“Nokia and other big guys were being hit by increasing sale of unbranded handsets. Now they will benefit the most as a result of DoT's directive,” says Vaidyanathan of Xtelecom.

Haier is the most prominent Chinese mobile brand in the country and it is likely that this order might have some adverse impact on its sale. And this despite the fact that the company offers branded products with valid IMEI number.

“It is a known fact that most consumer durable products are manufactured in China. So I don't think that all products manufactured in China are going to see a drop in sales. DoT is targeting handsets which don't have IMEI numbers and our products are legal in all respects. It is a positive step but it has to be implemented properly,” says Sudhir Agarwal, CEO-mobile handsets, Haier.

Another company which imports handsets from China is Frio Mobile, which is basically present in the NCR region. “We import only certified handsets from China and have complete details about the IMEI registration number. It is necessary for the government to come clear on this directive...they must make it clear if they want to do it in phases or it is going to be blanket ban. On the whole it is good for business and security,” says Ashish Bhatnagar, manager, sales with Frio Mobile.

His view is echoed by Kandoi of HelloM: “The move will definitely increase our sales as we are bringing handsets legally by paying import duties and with registered IMEI numbers. Since the price range of our handsets falls in low- to middle-price bracket, it will help in increasing sales.” HelloM retails under the brand by the same name.

If there are advantages of buying cheaper Chinese or unbranded handsets, there are disadvantages as well. Many a times, these handsets boast of features, which are actually not present. Apart from this, the after-sales service is almost non-existent. Model names and numbering on the handsets are almost similar to that of the original branded products in the market.

There are also some issues associated with the implementation of this direction. Many software to change the IMEI numbers are freely available on the Net. It is not legal to change IMEI numbers in India, unlike in the US and the UK. The dealers address the issue of absence of IMEI numbers by changing the number if it all zeroes. The DoT order doesn't talk about these issues.

“Loopholes like changing the IMEI number, etc, can be plugged by DoT by working with the operators and enforcement, since changing the IMEI number is not even legal in the country,” says Dutt of Samsung.

Damp Squib
While handset manufacturers are rejoicing that Chinese handset manufacturers might be barred from making calls, this is not true of service providers. In spite of our repeated attempts, most operators refused to comment on the latest order

“There are a lot of questions regarding the implementation of this order. The first question is how to find the fake numbers. Moreover, anybody can apply any permutation and combination to get a fake number. What is the mechanism to do the same? As of now there is no clarity on how we are going to implement this,” says an industry source on condition of anonymity.

The other perspective is that mobile networks might know exactly who all are using the handsets with fake IMEIs but since disconnecting them would lead to the loss of revenue, they continue providing connectivity to them. Analysts believe that service providers have the equipment to block the handsets with fraudulent IMEI numbers and they are not doing it because of the fear of loss of business.

“The Government's move to ensure usage of handsets with IMEI numbers is important since these numbers will help us to locate cellular customers. As an organization which has some social obligation, we have been using handsets with IMEI numbers. We source handsets from Samsung and Huawei and both the companies are offering handsets with IMEI numbers,” says P Madhavan, chief sales and distribution officer at Virgin Mobile.

Other service providers that we got in touch with refused to comment on the issue.

“DoT has to be strict with the implementation of the directive simply because service providers will not be willing to implement this. There should be clear notification and the monitoring mechanism has to be very strong. It should become mandatory otherwise it'll lose its meaning,” says principal Analyst with Gartner, Anshul Gupta.

As of now, the Indian service providers are not maintaining any database of the IMEI numbers, which are to be denied the service. In many countries the service providers share the list of blocked IMEI numbers. GSM Association maintains a global list of blocked IMEI numbers. While DoT's directive is a positive step a lot remains to be done to ensure that the miscreants do not misuse telecom services.

The Chinese handsets are likely to feel the heat as a result of this move. The DoT, on the other hand, will have to come out with a strong monitoring mechanism to ensure that the service providers block the calls originating from handsets with fake IMEI numbers.

Gagandeep Kaur and Heena Jhingan
gagandeepk@cybermedia.co.in