Bundled Handsets
Bundle
Of Contrasts
Bundled
handsets—of the kind where the phone pays for itself—are the norm in developed
markets. India following suit in smartphones will depend on whether a tug of
war shaping up between two opposite sets of operators intensifies or not.
AN APPLE IPHONE 5S FOR RS 2,999.
If you run up a mobile
and Internet bill of at least Rs 3,000 a month, two years of network loyalty to
Reliance Communications can fetch you an iPhone 5S costing Rs 53,500
effectively for Rs 2,999. Such bundled offers—which mostly entail an operator
subsidising the cost of a handset with free network minutes—are a staple in
several developed markets. In India, though Reliance has laid down the
gauntlet, bundled handsets are far from becoming the staple, with operators
divided down the middle on taking it up. At the heart of it, such offers boil
down to one number: the minimum monthly usage required to appeal to a consumer,
which is Rs 2,500 in the case of Reliance’s iPhone offer. Data of how many such
consumers are in India is unavailable. A crude proxy is the number of post-paid
consumers, which, according to Mohammad Chowdhury, the India leader on telecom
for PricewaterhouseCoopers, is a big barrier to the bundled handsets model.
“The post-paid base is very small, less than 5%,” he says. Or, about 40 million
of the 800 million customers.
That line is, today, determining operator positions on bundled handsets. The three operators who have most of those 40 million post-paid subscribers—Bharti, Vodafone and Idea—don’t see reason to make the second move, says Kamlesh Bhatia, telecoms analyst, Gartner.
Their networks are reasonably occupied and they have a loyal pool of postpaid customers, most of whom, in normal circumstances, would baulk at the idea of switching to Reliance. Bharti and Vodafone declined comment, while the Idea spokesperson pointed to the company’s other bundled deals going.
But, at the other end of the spectrum, there are operators whose networks are going empty. Some of those operators see bundled handsets as a way to attract customers. They are weighing the costs and benefits, and plotting a move.
Reliance has fired the first salvo. Elsewhere, Russian operator MTS, according to its spokesperson, is lining up a December launch for handsets costing “$150-200” (about Rs 9,000-12,000). Last month, Aircel started offering Micromax handsets. “Telecom service providers are looking at multiple methods to keep the momentum going,” says Sunil Kuttam, vice president-marketing, Aircel. “Given this scenario and the popularity of bundled devices in western markets such as the US, bundled smartphones are now g radual ly making their way into India.”
A ny ramp up, however, will not be easy, as such arrangements take an operator away from their core, into managing handsets. According to Prashant Singhal, telecom partner in a member firm of Ernst & Young Global, a consultancy, this model can be adopted for sma r t phones at any price above Rs 15,000, but operators are circumspect. “Anyone who will massify this will burn their fingers,” he says. “Carriers will not be keen to take on any unwanted debt (buying handsets) or credit risks to recover that debt.”
Many Kinds Of Bundling
There are, generally speaking, three kinds of bundling. The first kind is what has been seen in India, where an operator offers free minutes with a handset. The second is the US model, where an operator offers a phone at a big discount in return for your custom. The third is what Reliance is doing.
The Reliance-Apple model is an intricate one, which insulates it from some of the risks that Singhal mentions. In this, a buyer makes a down payment of Rs 2,999 (for a 16 GB iPhone 5S), and walks away with an iPhone that works only on the Reliance network for two years. Every month, she has to pay Reliance Rs 2,999 as usage charges, Or, about Rs 72,000 over two years, for which she gets unlimited calls, messages and data.
But the buyer does not pay the Rs 2,999 every month to Reliance. Instead, the entire amount is blocked on her credit card. This amount reduces by Rs 3,000 a month, for 24 months. The risk of default is borne not by the operator or the handset maker, but by the bank. The country’s “small number” of credit card holders—18.4 million, according to data from RBI in August—is another barrier for volumes in such offers, says Chowdhury of PwC. According to Gurdeep Singh, chief executive officer of Reliance, the company has been “swamped” with inquiries and purchase requests, though he declined to share exact numbers on the scheme’s sales so far. “The offer is in line with our strategy to become a dominant data player, and to create, and take, a larger share of smartphones and tablets that come into the market,” he says.
Although Singh admits that less than 5% phones in India are sold bundled with services, he believes bundling will catch on and co-exist with the unbundled sales model. “We will reach a tipping point if we can achieve 20-25% sales through bundling (industry-wide),” he says.
Burden Of Bundling
According to Aircel’s Kuttam, about 3 million smartphones are sold in India every month; of this, about 600,000 are firsttime smartphone buyers, while the rest are upgrading. The challenge for Indian operators is to structure a viable bundling scheme for a mid-level smartphone (Rs 15,000-20,000) and a low-end smartphone (Rs 4,000), and all points in between.
Vikas Jain, co-founder of Micromax, thinks it’s possible. His company, he adds, is “planning to shake up the ecosystem” and offer its handsets costing Rs 15,000 to Rs 50,000 on the bundled model. At present, Micromax only has a partial bundling with Aircel, where it is offering all handsets (priced between Rs 1,000 and Rs 20,000) with an Aircel connection and Rs 12,000 worth of voice and data minutes that come with a validity of three months.
Chowdhury of PwC feels there are many hurdles to this model, besides a low postpaid base and low credit card penetration. “It is difficult to enforce contracts in India,” he says. The risk, for example, in the Reliance-iPhone deal is that a buyer stops paying Rs 3,000 a month on her credit card. “Bundling like this will never work in India, even three to five years down the line,” says a senior executive from a leading service provider requesting anonymity. “It works in developed markets since markets are mature there and require little or perhaps no innovation. In India, plans and offers change every month.”
According to Chowdhury, this model is questionable even in developed markets as operators make little money on handsets. The holy grail for them is customer loyalty—once a buyer in comes tied to a handset, she stays on even after the mandatory loyalty period is over.
For Chowdhury, the bigger headache for operators is going away from their core—providing services—to offering products. “They will need to get into complicated arrangements with handset makers, commit to handset volumes, keep stock of cash flow requirement,” he adds.
Ultimately, how this space shapes could come down to a tug of war between the two sets of operators. It seems the laggards are inclined to use bundled handsets as a sales strategy. If they go deep, backed by willing handset makers, this sales lever could gain traction. “If the top three make an RCom-like move, it may completely change how Indians buy handsets,” says Anshul Gupta, principal analyst, Gartner. Right now, that’s only an “if”.
gulveen.aulakhTNN 131119
That line is, today, determining operator positions on bundled handsets. The three operators who have most of those 40 million post-paid subscribers—Bharti, Vodafone and Idea—don’t see reason to make the second move, says Kamlesh Bhatia, telecoms analyst, Gartner.
Their networks are reasonably occupied and they have a loyal pool of postpaid customers, most of whom, in normal circumstances, would baulk at the idea of switching to Reliance. Bharti and Vodafone declined comment, while the Idea spokesperson pointed to the company’s other bundled deals going.
But, at the other end of the spectrum, there are operators whose networks are going empty. Some of those operators see bundled handsets as a way to attract customers. They are weighing the costs and benefits, and plotting a move.
Reliance has fired the first salvo. Elsewhere, Russian operator MTS, according to its spokesperson, is lining up a December launch for handsets costing “$150-200” (about Rs 9,000-12,000). Last month, Aircel started offering Micromax handsets. “Telecom service providers are looking at multiple methods to keep the momentum going,” says Sunil Kuttam, vice president-marketing, Aircel. “Given this scenario and the popularity of bundled devices in western markets such as the US, bundled smartphones are now g radual ly making their way into India.”
A ny ramp up, however, will not be easy, as such arrangements take an operator away from their core, into managing handsets. According to Prashant Singhal, telecom partner in a member firm of Ernst & Young Global, a consultancy, this model can be adopted for sma r t phones at any price above Rs 15,000, but operators are circumspect. “Anyone who will massify this will burn their fingers,” he says. “Carriers will not be keen to take on any unwanted debt (buying handsets) or credit risks to recover that debt.”
Many Kinds Of Bundling
There are, generally speaking, three kinds of bundling. The first kind is what has been seen in India, where an operator offers free minutes with a handset. The second is the US model, where an operator offers a phone at a big discount in return for your custom. The third is what Reliance is doing.
The Reliance-Apple model is an intricate one, which insulates it from some of the risks that Singhal mentions. In this, a buyer makes a down payment of Rs 2,999 (for a 16 GB iPhone 5S), and walks away with an iPhone that works only on the Reliance network for two years. Every month, she has to pay Reliance Rs 2,999 as usage charges, Or, about Rs 72,000 over two years, for which she gets unlimited calls, messages and data.
But the buyer does not pay the Rs 2,999 every month to Reliance. Instead, the entire amount is blocked on her credit card. This amount reduces by Rs 3,000 a month, for 24 months. The risk of default is borne not by the operator or the handset maker, but by the bank. The country’s “small number” of credit card holders—18.4 million, according to data from RBI in August—is another barrier for volumes in such offers, says Chowdhury of PwC. According to Gurdeep Singh, chief executive officer of Reliance, the company has been “swamped” with inquiries and purchase requests, though he declined to share exact numbers on the scheme’s sales so far. “The offer is in line with our strategy to become a dominant data player, and to create, and take, a larger share of smartphones and tablets that come into the market,” he says.
Although Singh admits that less than 5% phones in India are sold bundled with services, he believes bundling will catch on and co-exist with the unbundled sales model. “We will reach a tipping point if we can achieve 20-25% sales through bundling (industry-wide),” he says.
Burden Of Bundling
According to Aircel’s Kuttam, about 3 million smartphones are sold in India every month; of this, about 600,000 are firsttime smartphone buyers, while the rest are upgrading. The challenge for Indian operators is to structure a viable bundling scheme for a mid-level smartphone (Rs 15,000-20,000) and a low-end smartphone (Rs 4,000), and all points in between.
Vikas Jain, co-founder of Micromax, thinks it’s possible. His company, he adds, is “planning to shake up the ecosystem” and offer its handsets costing Rs 15,000 to Rs 50,000 on the bundled model. At present, Micromax only has a partial bundling with Aircel, where it is offering all handsets (priced between Rs 1,000 and Rs 20,000) with an Aircel connection and Rs 12,000 worth of voice and data minutes that come with a validity of three months.
Chowdhury of PwC feels there are many hurdles to this model, besides a low postpaid base and low credit card penetration. “It is difficult to enforce contracts in India,” he says. The risk, for example, in the Reliance-iPhone deal is that a buyer stops paying Rs 3,000 a month on her credit card. “Bundling like this will never work in India, even three to five years down the line,” says a senior executive from a leading service provider requesting anonymity. “It works in developed markets since markets are mature there and require little or perhaps no innovation. In India, plans and offers change every month.”
According to Chowdhury, this model is questionable even in developed markets as operators make little money on handsets. The holy grail for them is customer loyalty—once a buyer in comes tied to a handset, she stays on even after the mandatory loyalty period is over.
For Chowdhury, the bigger headache for operators is going away from their core—providing services—to offering products. “They will need to get into complicated arrangements with handset makers, commit to handset volumes, keep stock of cash flow requirement,” he adds.
Ultimately, how this space shapes could come down to a tug of war between the two sets of operators. It seems the laggards are inclined to use bundled handsets as a sales strategy. If they go deep, backed by willing handset makers, this sales lever could gain traction. “If the top three make an RCom-like move, it may completely change how Indians buy handsets,” says Anshul Gupta, principal analyst, Gartner. Right now, that’s only an “if”.
gulveen.aulakhTNN 131119
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