| | | |
Home /
Why iPhone 3G will be a Dud in India  Uploading .... Why iPhone 3G will be a Dud in India?
Jayakishore Bayadi
Apple fans in India who dreamt of singing romantic tunes with their
iPhone3G will feel ditched soon, as an affair with is going to be the
costliest and complex one!
//Unless Steve Jobs
offers the iPhone 3G at lower margins to countries
like India it won’t be a winner here, and unless Apple tweaks its modus
operandi to suit the pulse of Indian mobile market, the gadget will be
a dud//
When
Apple CEO Steve Jobs took the wraps off the latest iPhone 3G recently,
a dream was born in every gadget savvy chap to own one. This time it
was not only in the U.S. but also across the globe. This is the first
time a touch screen phone mania took the world by storm. The voguish
Apple gizmo, which packs a phone, audio and video player, a 2 mega
pixel camera, faster Internet capabilities, and intelligent touch
screen operation onto a single device in an "Apple way", is now
available in the U.S for just $199 for 8GB, at half the $399 price of
its predecessor; and at $299 for the 16GB version, down from $499.
In fact, this is the key reason for such a hype and hoopla around a
gizmo that has been ever created in the electronics gadgets arena.
Leave the Apple crazy U.S., even in the Asian countries, where only
unauthorized, "Unlocked" iPhones ruled till date, the Apple fever has
touched its high as thousands of excited and sleep deprived geeks
besieged the Apple stores across the continent. This time the latest
iPhone 3G is available in more than 70 countries including India, where
the gizmo will be launched in the fall of 2008.
Bharti Airtel and Vodafone announced a tie-up with Apple last month to
bring the iPhone 3G to India. The companies have already started
pre-registering customers for the iPhone 3G, and since then, offices
and blogs have been abuzz with discussions on what Apple’s much awaited
iPhone 3G will cost and whether it will be a hit in India.
But sadly, Apple fans who dreamt of singing romantic tunes with their
Apple thingamabob feel ditched as their dreams are virtually shattered
as the new Apple iPhone is going to be a costliest affair in India than
any other countries where the iPhone is being sold. Industry pundits
anticipate that the two versions will cost any where between Rs. 20,000
and 35,000 in India. As a reverberating effect, Apple will also receive
its round of jolt when iPhone 3G will turn as a dud in India, not only
for cost reasons, but also for business complexities it involves, when
it releases iPhone 3G here.
The U.S. model Vs. Indian Scenario
Many thought it would be just a shade over Rs 8,000 - the rupee
equivalent of the price in the U.S., which is $199 for the 8GB version.
But they never thought how the iPhone 3G is sold in the U.S. for such a
stumpy price. This lower price for the 3G iPhone is driven largely by
the change in Apple’s iPhone business model. As part of a revised
agreement, service providers will no longer be sharing recurring
revenues with Apple. Instead, they will subsidize the purchase price of
the phone and service providers will earn this subsidized portion of
amount by implementing higher monthly charges. Under the new
arrangement, AT&T, the service provider for Apple iPhone in the
U.S., for example, would offer the 3G iPhone at a retail price of $199
for the 8 GB model and $299 for the 16 GB model. And buyers have to
sign a service contract for two years with AT&T and the phone has
to be activated before leaving the Apple store. Apple will not allow
customers to buy an iPhone online. And those who do not activate their
iPhone within 30 days will face an unspecified penalty.
Simply canceling the contract with AT&T after the purchase of the
iPhone would also not work. To terminate the contract, a customer has
to pay $175 as a fee and AT&T will require the iPhone to be
returned before the contract is cancelled.
Hence, AT&T introduced additional data plan price (Other than
existing $39.99 minimum monthly plan) for the 3G iPhone for $30 per
month compared to $20 for the 2G versions. The new $30 plan does not
include any text messaging, whereas the previous $20 plans included 200
messages per month. If a customer wants a text message plan with at
least 200 messages, he has to pay about $5 more. Then the average
revenue per user (ARPU) would increase by $5. In this scenario, the
monthly recurring costs to the consumer for the new iPhone will be $15
more than the 2G versions. AT&T would also gain ARPU, as it does
not have to pay a recurring revenue stream to Apple. AT&T was
paying earlier about 10percent of total iPhone ARPU, or $10 per month,
to Apple for the 2G iPhone. Now, under the new business model AT&T
will essentially get an additional $25 in ARPU per month per
subscriber.
How will AT&T recover its phone subsidy then? We know AT&T is
selling the 8 GB iPhone at $199 and the 16 GB iPhone at $299. According
to the U.S. telecom research by Credit Suisse, AT&T buys an iPhone
at $549 for 8 GB and $649 for 16 GB from Apple. Hence, based on an
announced minimum monthly plan of $69.99 (minimum monthly plan of
$39.99 plus unlimited data plan of $30.00), AT&T will cover its
$350 subsidy in five months.
Will this kind of model work in India? Certainly, it will not."There is
no question of subsidizing the handset in India. The U.S. service
providers are able to subsidize handsets because they can make up for
that with their call charges. Their charge rates are like 25 cents a
minute. India being a low tariff nation, the charges here are only 1.5
to 2 cents a minute," said Manoj Kohli, CEO, Bharti Airtel recently. If
service providers in India are burdened with such a handset subsidy of
$350 for the iPhone, it will be a tough situation for them to
successfully launch iPhone 3G, given their lower level of ARPU, which
is, according to IDC India, stands at a measly $6.24 per month.
The success of the launch of the iPhone in India will be largely
measured by the growth of subscriber base and ARPU. However, the impact
on marketing costs will depend on each operator‘s strategy to build
momentum and grab high ARPU subscribers while offering the iPhone.
Also, since in India the value added services (VAS) market is still in
burgeoning stage, and it’s contributing only about 10 percent to the
service providers’ revenue, it will be a highly challenging task for
service providers to draw larger subscriber base growth for iPhone 3G.
Hence, unlike AT&T in the U.S., service providers in India cannot
profit from the heavy subsidy of $350. Hence, service providers in
India, like Bharti, will face difficulty selling the iPhone beyond a
limited high-end market existing in the country. In fact, only 17 out
of 1,000 people go for high-end devices in India. Industry pundits
believe that many service providers would not want to go with such a
pro-Apple model despite its huge anticipation in the Indian markets.
Both Airtel and Vodafone declined to comment on bowing to Apple’s
stringent instructions in this regard.
In addition to this, the Indian mobile market is a huge prepaid market
where three out of four users are prepaid customers who prefer chota
recharge. Less than five percent of the subscribers have more than $3
balance, while 33 percent of them use lifetime plans. Prepaid
connections accounted for more than 89 percent of all mobile
connections in 2007, and it will grow to 92 percent by 2012. Plus, they
enjoy the option to switch operators at the expiry of each of their
cards and some do exercise this option. "And this is happening most of
the time at the bottom of the pyramid which essentially is not the
target audience for Apple’s iPhone," says Madhusudan Gupta, Senior
Research Analyst, Gartner.
With regard to tariff plans, even if service providers charge the same
amount as in the U.S., i.e., a minimum monthly plan of $69.99 in India,
it will be around Rs 2,850 per month, which certainly is not affordable
for many. "In this case, Airtel and Vodafone will lose huge chunks of
the market who are dying to buy iPhones," notes Kiruba Shankar, CEO of
Business Blogging, a social media consultancy. Hence, Apple and its
partners in India have to make iPhone a cost effective gizmo to buy and
the services affordable to grab a share of Indian mass market.
"Otherwise it will be positioned as a botique service meant for the
elite or have to target corporate sponsoring of the gadget for its top
management," says YLR Moorthi, Professor (Marketing) at Indian
Institute of Management (IIM), Bangalore.
Also, India has a history that shows the ‘service provider push’ a
failure in the market here. Airtel faced the difficulties while
launching RIM Blackberry in the country. But even after lowering
tariffs, Blackberry hasn’t been able to penetrate the mass market yet.
"Now Apple is seen to be catering to the demand created from its
prelaunch hype. That novelty would have worn off when it comes to
India," says an IDC Analyst.
Another important aspect to be considered is Subscriber Acquisition
Cost (SAC). For example, according to Credit Suisse, Singtel, a service
provider in Singapore, has one of the highest levels of SAC in Asia, at
$227, which it recovers within seven months, with a monthly ARPU of
$33.40. But the case is different in India as SAC here is dismally low.
So, despite being one of the largest mobile markets in Asia, India will
have a hard time bracing for iPhone, due to the lower number of
post-paid subscribers and the paltry SACs. Thus, service providers in
India may not dare to subsidize the phone in anticipation that they can
recover handset cost from increased monthly tariffs due to lower ARPU.
Other Challenges
To experience the iPhone 3G to its maximum, it needs 3G infrastructure.
But in India, even though the country is yet to settle on 3G spectrum
auction rules, the service providers Vodafone and Bharti have committed
to carrying it on their 2G networks until the things get worked out.
So, the supposed official owners of the iPhone 3G would not be enjoying
the "Real iPhone 3G experience" as of now.
However, recently the issues were sorted out and the Telecom Regulatory
Authority of India (TRAI) has agreed for open global auction for 3G.
But 3G can become cost effective only if operators do not have to pay
exorbitant prices for 3G spectrum. An auction of 3G spectrum could lead
to irresponsible bidding resulting in high costs and tariffs, which
would completely negate the tremendous capacity advantage of 3G. But
this is what is happening in India, with the TRAI setting a higher base
price for operators participating in the auction. This will be a huge
dent for 3G growth in India, which in turn obviously will affect the
fortune of iPhone 3G. Therefore, the key to the success of iPhone will
be dependent on 3G services made available, which have to be cost
effective to cater to a larger market base. In many western countries
3G was a failure due to high costs and as it was catering to only a
niche ‘rich’ market. This segment has a very low market share in India.
In addition to this, Internet usage is pretty costlier on mobile when
compared to broadband usage on PC, at least for the mass segment. The
unlimited connection of GPRS is costlier when compared to other wired
and wireless plans offered by the same providers, including the
installation of the connection. The iPhone Web Apps is a totally new
area in India and mobile Internet is the backbone for these iPhone3G
handsets that are heavily data driven.
Will Apple Sacrifice for India?
A strategy that Apple can adopt at least for India is to sell contract
free, unlocked iPhone 3G for a nominal price. According to the market
researcher iSuppli, Apple spends about $170 for producing each iPhone
and it sells it to AT&T for $549 for 8GB and $649 for 16GB. So, it
can sell the contract free, unlocked iPhone 3G at the same price in
India just as an exciting gizmo. "But they won’t sell contract free
iPhones any time soon in India," feels Shankar. Even if they do, they
have to face the stiff competition from Nokia and others who offer more
facilities than iPhone 3G in their offerings (like N92) at the same or
little lower prices. iPhone doesn’t support Bluetooth and every one
falls for its interface and the big screen.
While Nokia is planning to launch one more model of its music-enabled
phones before the official launch of iPhone in India, the potential
rival models for iPhone, like Sony Ericsson W950i, Samsung S700, HTC
Tilt, LG Voyager, LG Dare, Samsung Glyde, HTC Touch, Blackberry Curve,
and Palm Centro are on the queue for the Indian buyers indulgence who
is, by now, used to prices dropping every month. Therefore unless Steve
Jobs chooses to offer the iPhone at lower margins to countries like
India, iPhone won’t be a winner here. "It might become a fad if prices
are not brought down. Apple’s Macintosh lost its market share just for
the same reason," remembers Moorthi.
All these facts and figures collectively chuck the message loud and
clear. One need not have to wait any longer to tell the fortune of
iPhone 3G in India. Undoubtedly, at least for now, unless Apple tweaks
its modus operandi to suit the pulse of Indian mobile market, its
iPhone 3G will be a dud in India. On the contrary, by hook or crook,
even if it does well, it will be the eighth wonder of the world!
| Smart Techie wrote: |
| Hence,
AT&T introduced additional data plan price (Other than existing
$39.99 minimum monthly plan) for the 3G iPhone for $30 per month
compared to $20 for the 2G versions. The
new $30 plan does not include any text messaging, whereas the previous
$20 plans included 200 messages per month.
If a customer wants a text message plan with at least 200 messages, he
has to pay about $5 more. Then the average revenue per user (ARPU)
would increase by $5. In this scenario, the monthly recurring costs to
the consumer for the new iPhone will be $15 more than the 2G versions.
AT&T would also gain ARPU, as it does not have to pay a recurring
revenue stream to Apple. AT&T was paying earlier about 10percent of
total iPhone ARPU, or $10 per month, to Apple for the 2G iPhone. Now,
under the new business model AT&T will essentially get an
additional $25 in ARPU per month per subscriber. |
| Smart Techie wrote: |
| How will
AT&T recover its phone subsidy then?
We know AT&T is selling the 8 GB iPhone at $199 and the 16 GB
iPhone at $299. According to the U.S. telecom research by Credit
Suisse, AT&T buys an iPhone at $549 for 8 GB and $649 for 16 GB
from Apple. Hence, based on an announced minimum monthly plan of $69.99
(minimum monthly plan of $39.99 plus unlimited data plan of $30.00), AT&T will cover its $350 subsidy in
five months. |
| Smart Techie wrote: |
| Will this kind
of model work in India? Certainly,
it will not"There
is no question of subsidizing the handset in India. The U.S. service
providers are able to subsidize handsets because they can make up for
that with their call charges. Their charge rates are like 25 cents a minute. India being a low
tariff nation, the charges here are only 1.5 to 2 cents a minute"
said Manoj Kohli, CEO, Bharti Airtel recently. If service providers in
India are burdened with such a handset subsidy of $350 for the iPhone,
it will be a tough situation for them to successfully launch iPhone 3G,
given their lower level of ARPU, which is, according to IDC India,
stands at a measly $6.24 per month. |
| Smart Techie wrote: |
| In addition to this, the Indian mobile market
is a huge prepaid market where three
out of four users are prepaid customers who prefer chota recharge.
Less than five percent of the subscribers have more than $3 balance,
while 33 percent of them use lifetime plans. Prepaid connections accounted for more than
89 percent of all mobile
connections in 2007, and it will grow to 92 percent by 2012. Plus, they
enjoy the option to switch operators at the expiry of each of their
cards and some do exercise this option. |
| Smart Techie wrote: |
| To
experience the iPhone 3G to its maximum, it needs 3G infrastructure.
But in India, even though the country is yet to settle on 3G spectrum
auction rules, the service providers Vodafone and Bharti have committed
to carrying it on their 2G networks until the things get worked out. So, the supposed official owners of the
iPhone 3G would not be enjoying the "Real iPhone 3G experience" as of
now. |
| Smart Techie wrote: |
| All
these facts and figures collectively chuck the message loud and clear.
One need not have to wait any longer to tell the fortune of iPhone 3G
in India. Undoubtedly, at least for now, unless Apple tweaks its modus
operandi to suit the pulse of Indian mobile market, its iPhone 3G will
be a dud in India. On the contrary, by hook or crook, even if it does
well, it will be the eighth wonder of the world! |
|
|
|
| | | |
|