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Cellular phones – economic analysis of this industry

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This is an interesting topic and has a connection with the objective of this blog.

How often do you (in India) swap your mobile for a better piece? 5 years, 10 years? Nah! Its as simple as <1 year for the younger demographics and even 2 years is considered an upper limit to discard that old mobile and go in for the new funky design with a lot of value added features and yes, you guessed it right, at a price point lower than that of your existing mobile when you purchased it an year ago!

How did all this happen?

Towards 2002 and 2003, there was a major mobile revolution that swept most parts of India and add to that the lowering of tariffs and call charges including STD/ISD with stringent competition to our cellphone providers from VoIP technology had a lot to do with that bubble.

It is estimated that there are over 100 million mobile users in India’s 1 billion populace (that is still only a measly 10% of its populace so cellphone co’s – you know the amount of reserves and untapped territory you still have to cover!)

Out of this, the # of GSM subscribers are 75 million and # of CDMA subscribers are 25 million!

India is the 5th largest mobile savvy country in the world.

China leads the pack with over 400 million subscribers. The others in the pack are:

USA

Japan

Russia

Such statistics would make the inventor of the cellhphone, Marty Cooper, proud indeed – the pioneer who invented the cellphone on a busy NY city day – who used to work for Motorola (NYSE: MOT)

http://www.cellular.co.za/cellphone_inventor.htm

I did not want to be left behind so I have a tunraround time on my mobiles of about 2 years (on an average).

My first mobile was an Alcatel purchased in mid-2003 that I held diligently for 1.5 years.

I exchanged that for an advanced Motorola E398 in Jan 2005 and held that for 2 years 2 months till it was time for me to replace it for a more funky model from SONY Ericcson – the 810i Walkman with a business companion!

Yes, I am a gadget freak.

I purchased a HP iPAQ PocketPC way back in 2003 from Texas for $199. I hardly use it today except to listen to songs or use the MS Excel spreadsheet!

I purchased a Canon 2 mega pixel camera in 2004 and purchased a more advanced Canon 7.2 mega pixel – Japanese make from NY, USA in 2006.

I purchased a notebook (earlier references made to that piece) and even sold it recently a month ago since I was again not using it!

However, the mobiles you get nowadays are extremely handy. You can listen to music, take calls on your way back home, send out SMS’s.

This SONY Ericcson W810i even has cool accessories that include a Bose twin speaker arrangement allowing me to play my FM station or my favorite MP3’s/videos loudly running on battery power! Isn’t that cool?

This is the beginning of the mobile revolution and it will take India by storm in the next decade! Mark my words!

On a side note, the depreciating value of mobiles are really bad since there is so much competition that prices keep getting driven lower and lower. The piece I bought in 2005 cost me Rs. 15K. The one I purchased yesterday cost me the same amount for a much better feature set!

When I casually inquired from the shopkeeper for the resell value of my older mobile, he quoted, Rs. 2500! That is a depreciation of almost 90% from its original base price – astounding! This just gives you an idea of what competition can do in a hyper competitive market such as the mobile market!

We had a similar economic study done on the calculators and the type of market that was – it was a competitive oligopoly. The mobile market is something similar and no longer dominated by Nokia alone. There are other larger efficient players such as Motorola with its models such as the Moto Razr, Krzr etc. SONY Ericcson etc.

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Written by Naveen Athresh

March 5, 2007 at 2:52 pm

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