Freefall!

By Desaraju Surya

Hyderabad: It's a strange paradox. Prices of essential commodities have been skyrocketing but rates of mobile handsets are falling. They will become even cheaper in the coming days as the retail Global System for Mobile Communication (GSM) handset market is going to be stirred with the entry of telecom major Reliance Communications (RCom), a Anil Dhirubhai Ambani Group company. RCom, which is already into the Code-Division Multiple Access (CDMA) handset business, is set to make a foray into GSM handset retailing as well in a month. Apart from the petty vendors, major business houses like Essar Group, RPG and Subhiksha are currently in the GSM handset retail business through a chain of stores, mostly confined to major towns and cities. Their size is also very small and hasn't helped in market consolidation. Mukesh Ambani's Reliance Fresh stores too have been selling mobile handsets but on a smaller scale. Major mobile manufacturers like Nokia, LG, Samsung, and Sony Ericsson have also opened exclusive outlets but only in select towns and cities. Reliance, however, will have its footprint virtually everywhere, thanks to its existing network of stores and that gives it an edge over the others in the business. Market sources also feel that Reliance's entry could lead to consolidation of the handset business and make it more organised. Market sources said RCom has already signed agreements with major handset vendors, including LG, Samsung, Motorola, Sony Ericsson, Spice, Fly Mobile andHTC while it may also enter into an agreement with Nokia, which is the leader in mobile handset market in the country now. "With the kind of discounts that Reliance can offer, thanks to its bulk orders with handset manufacturers, customers will get to benefit a great deal. At the sametime, the smaller players, particularly those unorganised, will be badly hit," a Nokia Priority dealer pointed out. Market sources recall that it was RCom that virtually changed the mobile business by offering handsets for as low as Rs 500 in its initial years and even now the cheapest handset (CDMA) is being offered for just Rs 777. Information gathered from the Cellular Operators Association of India points out that the mobile handset market might cross 100 million this year against the last year’s estimated size of 70-75 million units. However, the handset replacement rate has fallen from six months to eight months. Already, the mobile handset market is in disarray what with margins becoming wafer thin. "Even on a high-end model, the profit margin is a mere Rs 100 because of the intense competition. Besides, with the launch of new models virtually everyday, prices are falling significantly," G Ramakrishna, a leading mobile dealer, said. In the past 15 days, prices have fallen by Rs 50 to Rs 200 per handset and with about 40 new models expected to be launched into the market in a few months, rates are set to drop further.