NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Like many who follow tech news in emerging economies, I experienced three related shocks in quick succession this week. The first came when I read this eye-opening headline:

A $7 smartphone is launching in India tomorrow

Until recently the cheapest smartphone I’d seen was the short-lived, $25 Firefox smartphone, which Mozilla gave up on last year in light of poor user experience and weak sales. A $15 phone was reportedly in the works from a Canadian manufacturer and Indian service provider, but it missed its scheduled December 2015 release date, and its future is unclear. So $7 seemed like an astonishing achievement – then I got my second shock.

The actual price tag of the “Freedom 251” smartphone turned out to be … you guessed it, 251 rupees, or around USD $3.66. If you, like me, had any doubts about the plausibility of a $7 smartphone, these additional reports turned those doubts up to 11. Surely, I thought, a smartphone that cheap would be either a clunky Blackberry knockoff or a barely functional toy.

Instead, reports about the phone’s specs delivered a third shock: It’s packing an eminently respectable 1.3GHz quad-core processor, 1GB of RAM, and 8GB of internal storage (expandable up to 32GB with a microSD card). Running the Android 5.1 operating system, it has all the essential functionality of a standard smartphone: a 4-inch, 540×960 pixel touchscreen display, WiFi, Bluetooth and 3G network connectivity, and a 3.2-megapixel primary camera on the rear – with a 0.3-megapixel front camera for selfies. In short, it sounded like a legitimately usable device – and for less than a grande latte at Starbucks, the kind of pricing breakthrough that could deliver the benefits of smartphone technology to even the poorest people in India (and maybe around the world).

Sadly, reality has reasserted itself since the phone was announced Wednesday, as the initial euphoria around Freedom 251 gave way to unanswered questions. Detailed reporting from Indian and international media has raised no shortage of concerns:

• The phone is being sold by a brand new, little-known Noida, India-based company called Ringing Bells, which has been selling smartphones for under a year, and is run by a family that made its fortune in the agriculture business.
• Apparently, the Freedom 251 sample units distributed to the press were actually produced in China by Adcom, a Delhi-based smartphone and tablet importer – the Adcom logo had been covered with stickers or white paint. (Ringing Bells says these are just prototypes meant to approximate the appearance of the actual phones, which have yet to be built.)
• Though the company is currently taking online orders for the phones, with promised delivery by the end of June, it has neither built the production facilities nor obtained the required certification from the Bureau of Indian Standards – a lengthy and expensive process.  
• The appearance of the phone and its icons apparently bears a strong resemblance to its better-known (and vastly more expensive) counterpart from Apple, leading some to wonder if copyright infringement lawsuits might be in the cards.

But by far the biggest question about the phone involves its main selling point: its price. Experts estimate that its components alone would cost over eight times its selling price – not counting production, distribution and marketing expenses. Skeptics, including the Indian Cellular Association, have expressed doubts that a phone with equivalent specs could be sold below Rs. 3,500 (about USD $51.05), even with subsidies – and the Indian market doesn’t involve the kinds of mobile operator subsidies common in countries like the U.S.

That’s why speculation has been rampant that the Freedom 251’s bargain-basement price was made possible through government support. The phone was launched at an event presided over by an Indian parliament member, in a ceremony that emphasized the government’s goals of empowering low-income people. And it will reportedly come loaded with apps linked to government initiatives boosting health care, women’s safety, fishing and agriculture – something the company has highlighted in its promotional campaign. But Ringing Bells insists that it has received no subsidies or formal support from the government. The company says the phone’s price will be made possible by economies of scale, and cost savings provided by local production and online sales.

Yet few analysts seem to buy that. Some speculate that the Freedom 251 is meant to be a loss-leader, gaining market share for the company and drawing attention to other, more profitable products. Others wonder if Ringing Bells plans to make money by selling the phone with pre-loaded ads and apps that they market to outside companies. Whatever the business model, it remains unclear just how sustainable the current pricing will be, how much the phone will impact low-income consumers, if it will withstand daily use – and indeed, whether it will even make it to market at all.

Still, Ringing Bells has already been successful in one regard: PR. The Internet has been abuzz with stories about the phone, the Freedom 251 site crashed due to a reported 600,000 visits per second, and police had to disperse a mob that had gathered in front of the company’s office in Noida, hoping to buy the device in person. If they can achieve a fraction of that success in bringing the phone to low-income customers – while avoiding the fate of other high-profile but low-performing BoP tech ventures like One Laptop Per Child and the Aakash tablet – this could still prove to be a major breakthrough. But caveat emptor.

– James Militzer

Quoteable

“The (microfinance) model grew into the Nobel-prize-winning Grameen Bank, and microfinance became the most influential single development intervention of recent times, organically amassing a borrower base of 1 billion worldwide. Yet a growth model based on the example of fast-scaling consumer industries—the bid to develop the Starbucks of microfinance, as explicitly attempted by SKS Microfinance in India—was met with a complete breakdown of trust on the part of borrowers and a mass default. The cookie-cutter approach to growth—driven by speed and profit—simply didn’t work in the absence of the personal relationships that characterized the Grameen Bank.”

– The Wrongheaded Belief That Every Business Should Scale Up, by Antara Haldar, published in The Atlantic.

Other recommended reading from this week: 

How Two Rulings Are Removing Roadblocks from Impact Investing, published in Knowledge@Wharton

Is there room for NGOs in the impact investing ecosystem? by Adva Saldinger, published in DevEx

Impact investing meets smallholder agriculture by Daphne Yin and Spencer Meyer, published in GreenBiz

In case you missed it … This Week on NextBillion

NexThought Monday: Remittances Disrupted – Three ways to make the international remittance revolution stick by Andria Thomas

Rapid Growth = Equitable Access? Is Ivory Coast’s financial sector expanding enough to reach full inclusion? by Felipe Martin

Want to Change the World? Support Poor Farmers by Syeda Samara Mortada

Moving Beyond Charity: How CURE is changing how low-income patients perceive health care by Kyle Poplin

Young Women Social Entrepreneurs Inspire Optimism in Sierra Leone by Pamela Roussos