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It was a memorable year for the handset market as mobile services industry added 5 mn lines for couple of months overtaking China's net addition in the mobile space. And all this was possible, thanks to the 'Lifetime Validity' scheme offered by service providers across India. 

The overall numbers look attractive both on the CDMA as well as the GSM front. In volume terms, India witnessed a total addition of around 11 mn CDMA handsets and 33 mn GSM handsets in FY 2005-06. In total, the country saw an addition of around 44 mn mobile handsets. So, in growth terms, we have grown by around 185%. With many additions on CDMA, the ratio of CDMA vs GSM  has changed from 20.5:79.5 to 25:75.

In terms of value, India's mobile market in FY 2005-06 has crossed the five figure mark and is estimated to be around Rs 14,258 crore ie $3.17 bn. In growth terms, the market has done exceptionally well and has grown by around 62%. CDMA has grown by 164% whereas GSM has grown by 62%. In terms of revenue mix, CDMA contributed 26.4 whereas GSM contributed 73.6%.

CDMA vs GSM
In the handset category, CDMA was the star attraction in comparison to GSM in FY 2005-06. LG continued to dominate the market with 60% share whereas in GSM, Nokia was a clear leader with increased market share of around 10% points from FY 2004-05. It presently, has a  market share  around 72.5%.

In terms of distribution there is a clear demarcation between CDMA and GSM phones. CDMA is distributed directly through operators, except Nokia, which distributes handset through Brightpoint whereas in GSM it is majority through open market.

In both the categories, we have seen entry of new players. In CDMA, Huawei, Jinpeng, and Haier made good moves whereas in the case of GSM it was BPL, Spice, and i-Mate. Even UTStarcom has lunched CDMA products in the Indian market and plans are to launch GSM handsets later in the year.

The entry of Chinese players in the CDMA space helped price cuts in CDMA space whereas in GSM, the sheer number of competitors was enough to keep prices at bare minimum. All this has helped the end buyer as he/she is getting more value for a given price.      

The Players         
Nokia has done exceptionally well in the GSM space and commands around 72.5% market share. None of its competitor can match Nokia's strength in any category, be it distribution network, number of handsets launched in the Indian market, and price points at which the phones are available in the Indian market. In the CDMA space, Nokia lost its number two position and was ranked at number four with market share of 7.3%. It seems, Brightpoint strategy is not working for them, as CDMA market is still operator driven with huge subsidy.   

Nokia is a leader in each of the categories and has launched around 20 models from entry-level phones to high-end phones such as N-series.  Some of the phones do have 3G capability and would be handy when 3G services are launched by service providers. In terms of localization, the thrust is on Hindi, Marathi, and South Indian languages.

On the distribution front, Nokia phones are distributed through HCL Infosystems, but with the market expanding, the company is looking at direct sale of handsets. The company has already started the process and presently, has its own distribution network in Jammu & Kashmir and North East.

With the CDMA market doing well, LG benefited a lot and now holds the  number two position in the handset space. LG is still dominating the CDMA space whereas in GSM, it is still trying to hold 3% market share. In the CDMA space, the company launched around 12-13 models, but its best selling model was RD 2340 and RD 2430. All this has helped LG to maintain around 60% market share in CDMA space.

For Samsung, there is a dip in market share, but in the overall handset category it is still at number three, thanks to its excellent performance in CDMA space. In the GSM space, the company leads in the folder phone category. In FY 2005-06, the company launched close to 12-13 models focused on mid, mid-high, and high-end categories. For Samsung, the heroes were X200 in the mid end, X640 in the VGA category, and in the high-end it was  X700, D500, and D 600.

In the CDMA space, their strategy with operators have paid off as they have grown by around 242%, whereas in the GSM space they have to still work on the handset models, which will help Samsung to move up. 

Sony Ericsson's strategy of multiple distributions has paid off, as the company has grown by 105%. The phones are now distributed through Salora Intenational, Ingram Micro, and Sony World. The walkman strategy has done well for Sony Ericsson and the company is now aggressively looking at imaging and enterprise strategy.

Motorola is doing well in 2006, but in FY 2005-06 the company has shown a negative growth for GSM. Overall, the company has recorded revenues of Rs 507 crore. This year, is crucial for Motorola, since distribution strategy is paying off and the company is doing well in low as well as high-end categories for few selected models. The company has to focus on launching new models every quarter, if it plans to regain its lost glory in India.   

ZTE was a major surprise in the handset category as the company jumped to number two spot in the CDMA space with revenue of around Rs 360 crore. The Tata Teleservices bundling helped the company move up. On the other hand, Kyocera has grown by around 43% thanks to its tie-up with XL Telecom. XL is also planning to  create a distribution network across the country and plans to reach 10,000 multi-brand sales outlet in a year. 

The Chinese players-Huawei, Jinpeng, and Haier have made inroads in the Indian market and all these players are aggressively looking at the CDMA space. UTStarcom is also planning to leverage its operator relationship and plans to soon offer  low-end as well as high-end products in the CDMA space and mid end phones in the GSM space.  

The other categories is pretty long with vendors such as Sagem, Philips, Panasonic, Blackberry, BenQ, Bird, Spice, and BPL. Though this segment contributes around 6%, none of the players have more than 1% market share.

The Trends
Colour was the flavor of the year as it contributed around 50% with camera around 15% and monochrome around 35%. The monochrome market is moving towards the color market in a big way, as phones are available within Rs 3,000 range. And with prices further coming down one can expect more number in the color category. Nokia is still very strong in the color category and players such as Samsung and LG, the pure play color players have to rethink on their strategy if they plan to take up major share of the overall color pie. Not only in color, but even in camera phones, Nokia is way ahead of its competitor. In the entertainment space, shift is from FM to MP3 handsets, and it is moving well for vendors.

The enterprise space has not done well, but this year we might see lot of traction as handset vendors as well as service providers are focusing on enterprise related applications and also on security, which is a major bottleneck to start with.

With a large base of handset in the country, we are now seeing demand for cellphone accessories in the market such as data cable, battery chargers, bluetooth devices, walkman acessories, and others. The demand will pick up with handset now focusing in the convergence space. 

With product life cycle decreasing, the focus is on launching new models at regular intervals. Local manufacturing has given lot of impetus in localizing products as well as bringing products in the Indian market at regular intervals. 

Future Challenges
Handset manufacturers are looking at how to increase localization of components as it will help in reducing costs and will open up new markets in B and C category towns. On the distribution front, the vendors have to increase their coverage area from present 4,000 to 5,000-6,000 cities. Not an easy task, as one has to also provide after sales service in all these cities. Content in regional language will also help in increased usage of phones in the country. All this if properly tackled will help India to achieve 500 mn by 2010 and bring smiles to the mobile handset industry in the country.

Pravin Prashant
pravinp@cybermedia.co.in