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Service Providers Fasten Seat Belts As Handset Market Lowers Profit Margin

Feb 18, 2006

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The Indian government has eased limitations on foreign ownership in its fast-growing telecom industry. The limit on foreign investment in telecom service firms has been raised to 74 per cent from 49 per cent. Prior to raising the FDI bar, the government had brought down the custom duty from 10% to 5% in January 2004 in addition to abrogating the Special Additional Duty (SAD). With the market developing further, additional concessions of taxes are around the corner.
The recent market research report “Mobile Handset Industry Asia (2004-2009)” highlights that by December 2005 the phone penetration in India with a subscriber base of 124.2 million crossed the 11% mark. The GSM mobile ownership surged by 3.2 million, taking the customer tally to 55 million, a minimal increase of 4.4%.
The report states that December 2005 was party time for both mobile handset manufacturers and service providers in India. The carriers launched services targeted at the lower middle class that guaranteed a number for life, lower talk time rates and handset with connection combo; by cutting their own profit margins. The handset manufacturers contributed their bit to the no-holds-barred war in the industry; by offering handsets are shockingly low prices. The outcome of these schemes was favorably significant. The experts at RNCOS expect the mobile base to grow from 95 million to 200 million at 23% compounded annual growth (CAG) rate, across the next five years.
The report by RNCOS provides an overview of the demographic distribution of the Asian mobile handset market, analyzing the threats and opportunities present in the market, giving an insight into the buyer profiles. It provides details of the key market players, elaborating their strengths, weaknesses along with a fiscal summary of Asia.
A continued support from the government would greatly help in cutting down the margins of the handset resellers as these handsets are indigenously made. Analysts say the party will only get bigger, with carriers aiming at the two-thirds of India’s billion-plus people living in villages and small towns.
Already home to the world’s lowest local call rates—this sector should see a further fall in call rates, better content and cheaper handsets, with mobile resellers really not having anything to lose.
With the rural sector getting connected by wireless services in the next 2-3 years, India could easily be at par with China in tele-density. A further reduction of regulatory costs and other connected expenses would spur the growth of subscribers in these areas. Elimination of the grey markets is another problem area that needs to be tackled to ensure an unhampered growth in this segment.
The mobile industry has woken up to the fact that emerging markets have become critical to industry leadership. As India and China put an appearance on the radars of global players, a successful deployment of technology products in these countries could in fact attract customers from across the globe.
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