India - iphone in India

The term ‘fifteen minutes of fame’ was coined by American artist Andy Warhol in the late 1960s to explain the condition where, in the future, everyone and everything will enjoy fleeting celebrity status. It’s an expression that almost every iPhone owner in India has come to understand over the last month or two. Or, to be precise, ever since the day news of the India launch of the device broke across media. Total strangers sidle up to the iPhone owner with a look of wonder and start asking questions about the gadget — where it was bought from, how much it cost, is it compatible with all cellular networks, of how many megapixels is its camera, does it have an inbuilt FM radio, when is it being launched in India.... Among friends and colleagues, the iPhone owner assumes the mien of a knowledgeable conjuror, wowing everyone with the neat tricks the gadget performs.

As a conversation piece, the iPhone has had few parallels in recent months.

That’s not entirely surprising, given the extent of media coverage that the July 2008 global launch of the iPhone 3G has received in international media: stories of mile-long queues outside stores, across countries and continents, have routinely made headlines. Add to this the high degree of suspense that’s cloaked the launch of the phone in India — at the time of going to press, barely a week from the formal launch, little was known about the product’s pricing or its availability, apart from the fact that it could be pre-booked through Vodafone and Airtel — and you have the kind of cocktail that can pique anyone’s interest. Purely for the record, the iPhone 2G is estimated to have sold 10 million units worldwide, while the iPhone 3G sold 1 million units in the first week of its launch.

One of the best indicators of consumer interest is the number of enquiries a product generates. While both Vodafone and Airtel choose to maintain strict silence on any enquiry pertaining to the iPhone, retailers — even those who aren’t part of the present distribution plan — vouch for its demand. “There’s a huge demand for the iPhone. People want to know when it will arrive,” says Ajit Joshi, CEO & MD, Infiniti Retail, owner of electronics store Croma, which currently retails two other well-known Apple products — the MacBook and iPod. For its part, RPG Cellucom says the device will be available in roughly 50% of its 200 stores, mostly in up-market locations. “Not everyone can afford an iPhone. So we will only stock it in prime locations like Mumbai’s Linking Road and Delhi’s Greater Kailash,” says Adrian Pillai, manager – marketing, RPG Cellucom.

Interestingly, even retailers like Alpha in Vile Parle, Mumbai, claim Apple’s iconic smartphone will be available at their store in September. Meanwhile, both Croma and The Mobile Store, which has 1,100 outlets across the country, are currently in talks with Vodafone and Airtel, seeking permission to retail the iPhone. What Datamonitor says, however, is that Airtel and Vodafone are planning to sell the handset through 250,000 retail outlets — which include their own shops and other organised retail outlets. Queries to Apple India were routed to the company’s Singapore office: which, in an email response, helpfully told us everything that was already known — that the iPhone would be launched through Airtel and Vodafone.

While numbers are virtually impossible to come by, there are already lots of iPhones in the country, purchased off the grey market — where the 8GB iPhone is priced at about Rs 28,000 and the 16GB model comes at about Rs 34,000 — or brought into the country by friends and relatives from abroad. And that, at one level, should be a cause for alarm for the existing mobile handset marketers in India. Nokia Corporation’s global president and CEO Olli-Pekka Kallasvuo was in India in June this year, and while fielding questions on the imminent launch of the iPhone in India, admitted that it would have an impact on Nokia. “When the iPhone comes to India, it adds to our competitors here. The entry of a new product in the market creates customer interest and it, therefore, impacts us in India,” he had said.
The converged device (smartphone) market in India is expected to cross the 5-million-units mark in 2008 to become a Rs 5,900-crore market, according to IDC India. And according to Gartner, Nokia has about 80% market share in Asia Pacific, followed by players like RIM, HTC, Samsung, Sony Ericsson and Motorola. Industry sources believe that in India too Nokia controls in excess of 80% of the smartphone market. Blackberry is estimated to sell about 5,500 units per month and HTC claims to have sold 220,000 units this calendar year — even though independent estimates put the figures closer to 150,000 units.

Of course, most handset marketers dismiss the possibility of a threat. “We are looking forward to the launch. It will boost the top-end market, and signal the evolution of mobile telephony in India to the next level,” says Lloyd Mathias, senior director – sales & distribution, Motorola India and South West Asia. Nokia, for its part, is uncharacteristically reticent when quizzed about the iPhone’s impact and the strategy it will pursue. Underplaying the buzz around the iPhone’s launch as something that all new and interesting devices create in the market, a Nokia spokesperson says: “We look forward to the competition iPhone brings with it.” Some, though, are candid enough to admit there’s some threat.

HTC India’s country head Ajay Sharma says the iPhone is a challenge as well as an opportunity. “It’s a challenge because people looking for touchscreen devices will be easily taken in by the hype surrounding the iPhone,” he says. “But we have the time-to-market advantage. Besides, the increased head to-head comparisons between our phones and the iPhone in the media and elsewhere will help consumers understand our products better.” He adds that despite the iPhone launch, HTC will stick to the media plan decided upon in June. And Sunil Dutt, country head, Samsung India, insists his company doesn’t require a counter strategy as Samsung has anyway been a strong player in converged, touchscreen and music devices for quite sometime. Smartphones account for 12%-15% of volume sales at Samsung India.

While marketers insist the iPhone isn’t a tech equivalent of Attila the Hun, market observers think there’ll be some blood on the streets. Vaibhav Khera, practice head – technology, Datamonitor India, feels leading marketers like Nokia, Motorola and Samsung will have to revise their handset pricing and focus on their sales and marketing efforts to counter the new competition. In fact, Anshul Gupta, principal analyst, mobile devices technology, Gartner, adds that the launch of Google’s Androidbased smartphone devices some time in October could spark another price war — and the entry of cheaper smartphone devices.

In private, there’s a feeling that the iPhone presents clear and present danger to one brand — market leader Nokia. A senior manager from Nokia India says the iPhone has already seriously impacted Nokia in US, though not in Europe. “In India, it could pose a threat in terms of thought leadership. People will start associating smartphones with iPhones rather than the Nokia E71s, E90s and N95s,” he says. Another senior executive from a rival company adds: “The ones who will get affected the most are the ones who enjoy a greater chunk of the market share.” According to IDC, in 2007, Nokia headed the list of Top 5 converged device (smartphone) vendors in terms of number of units sold, followed by Motorola, HTC, RIM and Sony Ericsson. The top five smartphones models sold last year were all from Nokia: N72, N70, Nokia 3230, N73 and Nokia 7610. Incidentally, Nokia sees India among the top 10 largest market for high-end smart phones globally.

Alok Shinde, principal analyst, Accendia Consulting, an independent research & analyst firm, says the iPhone will compete head on with Nokia and Sony Ericsson. “The three are fighting for the same set of lifestyle attributes like multimedia, music and entertainment,” he says, adding that Motorola and Samsung won’t be greatly impacted as Motorola is largely a mass-player, while Samsung, though technologically advanced, has an insignificant market share. Blackberry won’t suffer much either, he feels, as it is primarily perceived as a business phone, known for its push email technology. Also, it facilitates functioning with a number of applications like CRM and SAP, and has good security features to protect data. The iPhone does not match these features, says Shinde.
However, the iPhone’s success hinges hugely on its pricing strategy, which has remained a closely guarded secret: even RPG Cellucom, which says it’ll retail the iPhone, claims ignorance when it comes to its pricing. The iPhone 3G is highly subsidized in the US by mobile operator AT&T, which offers the handset at $200 (Rs 8,000). AT&T recovers the cost many times over during the three-year lock-in contract from its subscribers. However, given the rock-bottom mobile tariffs in India, mobile operators here cannot be expected to subsidise the iPhone.

“Pricing would play a big role in deciding its adoption at the early stage. To garner significant sales in a market like India, mobile service providers might decide to shrink their margins,” says Khera of Datamonitor. He expects the launch price to be in the vicinity of Rs 22,000 to Rs 24,000 for the 8GB model (without accounting for margin cuts by service providers) and Rs 26,000 to 28,000 for the 16GB one. “Any price above that will encourage the grey marketing,” he adds, saying that even at this price range, the iPhone can only attract high-end handset users. Pillai of RPG Cellucom reckons the price tag could be as low as Rs 15,000, with an EMI clause that ties up the handset price and call billings with services providers. Says Gartner’s Gupta: “If the iPhone prices are comparable or competitive to Nokia’s N and E series, there may be a significant shift in market share.”

Not everyone believes that the iPhone will be a runaway success. “Reach will play a crucial role; Nokia’s distribution today is unbeatable,” says Shinde. An executive from a leading mobile retail store thinks Apple’s strategy of going with two service providers doesn’t make too much sense. “Airtel iPhone and Vodafone iPhone will be two separate products,” he says. “If a customer wishes to buy with Airtel and we’ve exhausted Airtel iPhones, I will have to send him back.” He feels it would have made better sense for Apple to have tied up with cell phone distributors like HCL (currently a distributor for Nokia), or with organised retailers. “Service providers here are not handset sellers, unlike in western countries where handsets are used for bundled offers. Besides, Vodafone and Airtel will help address 40% of market. How will they address the remaining 60%?” he asks. He cites the example of Blackberry, which launched in India through an exclusive bundled offer with Airtel. The company, however, has since change tack and joined hands with all other major cellular operators.

The other hitch is consumers cannot change between service providers — a major impediment considering 90% of the mobile telephony market in India is pre-paid. Plus there are bugs with the product itself. And it doesn’t pack many features that Indians have come to expect of such devices: MMS, FM radio, copying-pasting of text, Flash animations on web pages. And competitors have already launched new products and have a strong brand presence in the market. “Nokia has a strong brand and a wide portfolio of models to offer. It will be tough for Apple to compete against Nokia’s brand loyalty. Similarly, iPhone is expected to have minimal impact on Blackberry sales as corporate clients are unlikely to go for the iPhone,” says Khera. And according to Shinde, Blackberry is selling more units globally after the iPhone launch, due to the heightened interest in top-end phones.

The iPhone may just expand the smartphone market in India, and everyone will benefit. But, as Pillai says, “The iPhone is an aspirational brand. It is something that you want to be seen around with.” A battle is brewing and something has to give.