State of Telecom Industry in Pakistan

In Part 2  I am presenting additional news and views about growth and competition in the mobile industry of China, India and Pakistan. As you will read below, India and China are directly competing to dominate the handset markets of the world. Pakistan is not in the picture as it does not manufacture mobile phones and rakes up big import bills.

First, an analysis by Brough Turner, Comparing Telecom growth in India and China in which he compares the teledensity and growth rates for the two countries from 2006. This is one of the few direct analysis using data available from different sources. He also touches upon the blurry line between mobile and wireless local loop about which I wrote as well.

 
Top 10 Emerging Mobile Markets - Source: Unstrung.com

Second, I am sharing an article titled Tale of two cell phone markets: India and China by Mike Clendenin, published at Electronic Engineering Times. The focus of the article is on mobile handset and electronics industry. Here’s some selected  text, with my comments in italics:

The buzz these days is that India is the “new China” of the cellular world. All the big multinationals have piled onto the subcontinent, chasing trendsetters in Mumbai as well as first-time buyers in remote villages. “They are the key drivers for the marketplace,” said David Taylor, India-based director of strategic operations in Motorola’s High Growth Markets unit.

Expansion in India now rivals China, the world’s largest cellular market. At least 5 million to 6 million Indians are signing up each month and about 7 million in a hot month. China? close to 5 million (6 by some estimates).  The number for Pakistan is 2.5 million based on 2007 data. Overall, China still trumps India for subscribers, at more than 480 million. India is on fire, though. Subscribers nearly doubled last year, to 149.5 million, and should hit 484 million by 2011, according to market researcher iSuppli Corp.

India is adding fuel to an already hot global trend. Since 2002, handset sales in developing countries have jumped threefold, compared with 62 percent in developed countries, according to Strategy Analytics Inc. It forecasts that 65 percent of handsets sold this year will be bought in emerging markets.

Yet the rapid ascension of India shows that not all emerging markets are alike. Beijing and Bombay may both be supersized cities in gigantic markets, but there are probably more differences than similarities in the way these places are growing, especially in the supply chain.

China has a relatively large chip industry, targeting local growth in communications; India does not. Pakistan’s chip industry is relatively insignifcant. China has more than 75 companies making handsets; India has only a few. China develops globally competitive telecom gear; India does not. The list goes on.

This is a relief to multinationals, although they may not publicly admit it. As things stand, global chip and handset makers won’t see a new crop of margin-destroying competitors rise as quickly in India as they did in China.

Indian IC strategy

In chips, India will stick with its current modus operandi-stay behind the scenes and strike deals with market leaders. There could be a “rogue” company out there that has a design for a baseband chip, Rebello said, but he thinks most of them will try to sell small pieces of the design to big multinational corporations.

Because the wireless industry is maturing, some observers believe it will be more difficult for small chip design companies to emerge in India and effectively compete, especially if there’s a dearth of local handset vendors. Even in China, apart from MediaTek Inc., there hasn’t been a significant challenge to global players, though many are trying, said Bill Krenik, chief technology officer of the wireless terminals unit at Texas Instruments Inc.

That doesn’t mean India lacks the brainpower to pull it off. TI, after all, tapped Indian engineers to develop a significant portion of its Locosto single-chip platform. The fact that those engineers get paid less didn’t factor heavily in the decision, Krenik said. “When you’re doing something this complex, you’re more concerned with getting solid technical resources, not so much with counting your pennies.”

India imports just about all core components-ranging from ICs to LCD modules. China is different. From the early days of the handset market, China placed a premium on building up a supply chain that included a fair number of local companies that would benefit from skyrocketing growth.

Now the country boasts a massive mobile-phone manufacturing infrastructure, a scrappy throng of local handset brands and plenty of fabless chip makers looking to steal some action from the likes of TI, NXP Semiconductors or even the ultracompetitive MediaTek Inc.

Outsiders fight back

For Chinese handset makers, however, home field advantage hasn’t counted for much so far. In 2006, domestic handset companies captured only 35 percent of total units (and less by sales), a big drop compared with 2003, according to government figures. Domestic companies had won just over half the market back in 2003 by targeting the low end.

Nokia and Motorola have now carved into that turf as well, however, so there is no low-hanging fruit in China. By various estimates, Nokia claimed around 35 percent of the Chinese market last year. Lenovo Mobile, the top local brand, eked out only 6.2 percent, according to BDA China.

To illustrate the importance of China to its top line, Nokia earlier this month unveiled the largest order in its history. China Postel, the country’s largest mobile-phone wholesaler, said it would spend $2.5 billion to buy more than 20 million Nokia handsets this year. Soon after, Motorola touted a similar deal: $2.3 billion for 16 million handsets.

To battle back, local companies are trying their hand at designing phones for the midrange and high end. In April, Amoi released four Windows-based smart-phone models. Lenovo, claiming its R&D ability is on par with global rivals, is developing smart phones, 3G phones and phones for mobile TV.

Some analysts believe such strategies will fail, however. Consumers who want fancier phones will usually fork over a little-or a lot-more for a trusted brand, something the domestic companies don’t necessarily have.

In India, the story will be the same. High end or low, the global brands have the market sewn up. “Setting up a mobile-phone brand is expensive, and it’s very competitive out there,” said Motorola’s Taylor. “But there are many local Indian electronics brands, so I’m sure they will come at some point.”

Maybe sooner than he thinks. Ever heard of DigiBee Microsystems? Not many folks have. It’s a tiny company, based in Bengaluru. But it dreams of being a player, it shipped 300,000 units. Six-figure shipments won’t cut it for long in a global market tipping over into 10 figures this year. But DigiBee is already showing some survival instincts. Its phones are designed in India but made in China. And plans are already afoot to fill out its product line, from low-end GSM and CDMA phones to high-end 3G handsets.

But without a strong local supply chain, or more favorable government policies, it will be hard for companies like DigiBee to survive in India as they have in China. For better or worse, the Chinese government’s heavy-handed influence on the market affords domestic companies more opportunity than they might otherwise have had.

Outward bound

But when it comes to the area of hottest growth-the countryside-India and China are likely to turn to foreign manufacturers that can leverage huge economies of scale to deliver cheap handsets. Motorola is touting its Motofone, which retails for less than $40. Nokia’s 1100 sells for just a few dollars more and is popular in India.

For India, in particular, basic connectivity for the lower class is a huge issue. Urban teledensity exceeds 40 percent, but rural penetration stagnated at a little more than 2 percent last year. Approximately two-thirds of the Indian population lives in the countryside.

Indian operators, perhaps egged on by intense competition, are eager to find ways to develop the country’s vast rural base. In order to target the sub-$10-ARPU (average revenue per user) customer, some Indian operators are pondering innovative schemes such as sharing network infrastructure to save costs. Pakistani operators face the same situation and will look at their neighbors to see what works.

Add in 3G in 2008, maybe even some WiMax services, and India starts to look pretty interesting from a few angles. “It’s not just an entry-level, low-tier marketplace like it was two years ago,” Motorola’s Taylor said. “It’s developing quickly into a very dynamic marketplace.”