Smartphone makers are either launching or rapidly expanding their operations in Asia’s third-largest economy, hoping to capitalise on a market that analysts expect will double in size this year © AFP

John Sculley knows a thing or two about the mobile industry, having launched a string of wireless ventures since stepping down as Apple’s chief executive in 1993. In his view, the sector’s next big thing is clear: smartphones, in India.

“I’ve been in and around mobile for many years, and this is the most exciting opportunity globally,” he says. “India is growing incredibly rapidly with smartphones . . . it is going to be huge.”

In April, Mr Sculley’s newest business, Obi Mobiles, joined a rush of handset manufacturers either launching or rapidly expanding their operations in Asia’s third-largest economy, hoping to capitalise on a market that analysts expect will double in size this year.

Such eye-catching growth rates are increasingly unusual in other global smartphone markets – even in emerging economies such as China and around southeast Asia – luring anxious manufacturers to one of the few remaining sizeable developing nations where relatively few consumers have upgraded from basic handsets.

Earlier this month came Xiaomi, a fashionable and much-discussed Chinese manufacturer that self-consciously models itself on Mr Sculley’s former employers. By September it will be joined by Google as it launches Android One – a set of specifications specially designed to help manufacturers make inexpensive handsets for low-income markets, and India in particular.

These relative newcomers join the likes of Taiwan’s HTC and China’s ZTE, which have been making renewed efforts to crack a market dominated by Samsung, along with a trio of sprightly homegrown Indian players.

The influx stems from two factors. Roughly 650m Indians already own mobiles, making the country the world’s second-largest market by sales. But in 2013, only about 40m bought smartphones.

Looked at one way, this makes it a relative minnow next to China, the world leader, where sales are nearly 10 times as high. But according to Jayanth Kolla of telecoms analysts Convergence Catalyst, it is also what makes the country so exciting.

“China is getting saturated,” he says. “Most people already have smartphones, just like in the US. But hundreds of millions in India are about to upgrade to their first one, so manufacturers are piling in.”

India became Asia’s fastest-growing smartphone market during the first quarter of 2014, with sales rising nearly fourfold year-on-year, according to researchers IDC. The next five years will each see growth of at least 40 per cent, the group predicts.

South Korea’s Samsung Electronics ought to be the main beneficiary. The world’s largest smartphone maker controls about a third of India’s market by sales, even though its lead has been slipping back amid heightened competition.

That pressure comes partially from Apple, although the iPhone maker sells relatively few devices to India’s famously price-sensitive consumers.

More stems from the rapid rise of three cheap and cheerful domestic brands – Micromax, Karbonn and Lava – that grabbed about a third of sales last year with their Chinese-made phones.

As in China, Indian handsets are not subsidised, meaning customers face their full cost up front. Companies such as Micromax have prospered by offering Android-based phones with iPhone-like specifications, but at substantially reduced price tags.

This has forced both Apple and Samsung to offer increasingly heavy discounts to ward off hungry local competitors, according to Anshul Gupta at research group Gartner.

But the likes of Lava also offer phones that cater to thriftier shoppers, many of whom cannot afford 3G connections, and avoid costly downloads by “side-loading” music or Bollywood videos via memory cards.

The three Indian companies also excel at distribution. Some new entrants, such as Xiaomi, plan to sell phones only online. But Asim Warsi, Samsung India vice-president, says any company with true mass-market aspirations must first go through the “hard slog” of dealing with the tens of thousands of corner stores, where most Indians pick out handsets.

Even then, breaking into India’s market is far from easy. Telecoms infrastructure is rickety, with 3G services that remain expensive and unreliable outside major cities.

Language is also a problem, as just one in 10 Indians speaks English. Few mobile groups have cracked the problem of making mobile internet or social media sites – one of the most common reasons to upgrade a phone – compelling in the nation’s dozen or more other tongues.

In spite of its growth spurt, India is unlikely to overtake China as the world’s largest smartphone market by revenue any time soon. The country remains poorer than its Asian neighbours: 20 per cent of Chinese households enjoy an annual income of $40,000 or more, according to Gartner, compared with just 1.5 per cent in India. Fancy new iPhones remain a luxury for the elite.

Ultimately it is falling prices, not faster connections or nifty translations, that will further spur India’s smartphone growth. Google’s Android One – which is poised to be used as a base for handsets made by Micromax, Karbonn, and other Indian manufacturers – will be notably inexpensive, retailing for as low as $100.

But Hari Om Rai, chairman of Lava, India’s fourth-ranked manufacturer by sales, predicts the arrival of handsets costing half as much again over the next few months. Technology group Mozilla plans to go lower still, promising an ultra-cheap $25 handset later this year.

“At $40 to $50 almost every Indian will get one: the student, the worker in a factory, the farmer,” Mr Rai says. “I can see huge, huge growth. What happened in China about two years ago is about to happen here . . . It will be a big bang.”

How low can a smartphone go?

How cheap can a smartphone become? Ultra-cheap, at least if Mozilla, the business behind internet browser Firefox, has its way, writes James Crabtree in Mumbai.

The company will next month launch a device running on its Firefox operating system for about $50 in India, with a further handset retailing at half that price due later this year.

Other domestic Indian manufacturers are also likely to push down entry-level costs, roughly to levels where basic smartphones are close to identical in price to basic “feature phones” – potentially persuading hundreds of millions of Indians to make the step to a fancier device.

Dramatic declines in Chinese-made and assembled phone components explain part of these sharp cost falls, along with the willingness of Indian consumers to buy smartphones without bells and whistles, such as a 3G connection.

Margins on such handsets are understandably thin, meaning cut-price companies hope to sell additional services, or push new customers to upgrade to more expensive handsets in time.

Such tight economics mean many of India’s newest entrants – such as John Sculley’s Obi and China’s Xiaomi – are unlikely to rush into bargain basement territory, preferring to undercut the likes of Samsung and Nokia with mid-priced phones.

Even so, the wave of ultra-cheap handsets heading to countries like India and Indonesia creates a particular dilemma for the global handset makers, which are set to suffer both heightened mid-price competition and the cannibalisation of their dominant positions in the rapidly declining feature phone market.

“The shift in feature phones to smartphones has been much faster than we anticipated in the past,” says Kiran Kumar of analysts IDC. “There is really big growth to come in the sub-$100 category; we haven’t seen prices there hit bottom at all.”

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