India’s Mobile Providers: Competing for Calls at the Bottom of the Pyramid

Friday, July 9, 2010

Six months ago, Chunnilal Menaria’s wife grumbled about her husband spending US$45 on a mobile phone. They lived in a one-room stone house, with no toilets or running water, only eight hours of electricity a day and earned US$60 a month with which they fed their family of five. The monsoon seasons, from which India derives much of its annual rainfall, have been poor over the past couple years and forced Menaria to take up carpentry to supplement his dwindling income from farming. Each day, he walked about eight miles around his village in Chittorgarh, Rajasthan, in search of work. With luck, he made US$2 a day. Yet, for Menaria, the Micromax X1i phone is the best investment he has ever made. “It literally changed my life,” he says. “Now that everyone has access to a phone, I don’t waste time walking around anymore. We just call each other. My monthly income has increased to US$100.”

Reaching Menaria and other customers in India’s rural areas is expected to be the next frontier for expanding the country’s mobile phone market. Both locally grown brands and multinational corporations are trying to build customer awareness and market share in India’s hinterland, offering devices at lower price points and with features that address the specific challenges facing those living outside India’s cities. Emerging as the victor in this race, however, will depend on innovation at every level of the process — from product development to after-sale customer service, experts say…

The expected growth provides some of the explanation for the plethora of homegrown mobile handset vendors — including Karbonn, Spice, Lava, and even domestic consumer electronics giant Videocon — that have inundated the Indian market. Some started as regional vendors, but have developed into pan-India players. The government’s ban on cheaper gray market phones with no identifying International Mobile Equipment Identity (IMEI) number may have been primarily responsible for the sudden spawning of local vendors. But IDC’s numbers suggest a deeper shift in industry dynamics. The number of local players grew to 28 and registered a combined market share of 12.3% in 2009, up from five players with less than 1% combined share in 2008.

In fact, two-year-old, Gurgaon-based Micromax has replaced LG of Korea as India’s third-largest GSM handset vendor with a market share of 6%. Nokia is first with a 62% market share and Samsung is second at 8%. “When we entered this space, it was a virgin market dominated by ’Tier A’ brands. We wanted to create and become leaders in a new vertical. Today, 70% of our sales come from rural areas,” states Vikas Jain, co-founder and business director of Micromax. With mobile penetration in rural areas doubling to 20% in 2009, according to the Cellular Operators Association of India (COAI), it’s not surprising that most brands old and new report a substantial percentage of sales from those regions.

Source: Knowledge@Wharton (link opens in a new window)