Low Cost Smartphone : Assess the market opportunity and network readiness

Slide1Low Cost Smartphone : Assessing the market opportunity and Network readiness

During the last decade mobile penetration has reached 53% in Africa, which means there are more than 500 million users . Increasing access and lower prices to sophisticated smartphones implies that low income consumer will be able to perform basic IT tasks at a fraction of the price of a laptop.

Unfortunately the smartphone price remains well above the current average price of $10-$15 per handset price in Africa. Analysts expect low cost smartphones to reach a price of $50 soon. As both prices and data cost is set to decrease at a dramatic pace, the BOP segment has the potential to become a growth market for the entire Mobile operator value chain.Mozilla announced at Mobile World Congress that it is partnering with Shanghai-based fabless semiconductor company Spreadtrum to come up with reference designs of the low-cost Firefox OS-powered smartphones.

Chunghwa Telecom, the largest operator in Taiwan, has partnered with Mozilla to support Firefox OS, bringing another powerful ally to the ecosystem. There are now 22 key operators across the globe, such as Telefónica, Deutsche Telekom, China Unicom, KDDI and SingTel that support the open Web device initiative.Mozilla, which currently works with mobile manufacturers ZTE and Alcatel, among others, has partnered with two of Indian based low-cost handset makers, Intex and Spice, to develop the low-price phones.

Therefore it is high time to start designing business models from scratch that are resonant with the target audience and their particularities with respect to their cash flow, spending habits and environment.Operators must ensure their networks are smartphone-ready, delivering superior coverage, speeds and reliability. Smart networks, which are user-, service- and content-aware, call for a holistic approach to network architecture with policy control that enables differentiated services and optimize network resources.

Any worthwhile market opportunity evaluation should aim to investigate African users’ preferences for smartphones, The problem is not the array of opportunities, it will be to narrow the scope and identify which how to develop a profitable business model :

• Evaluate the usage of VAS / Content applications for these low cost devices
• Understand the network externalities of Apps ecosystem as a result of the low cost smartphone
• How to monetising low cost smartphones from the Mobile Carrier perspective

The outputs from the above phase would then be contextualised to draw meaningful conclusions on :

• The key applications end-user segments see as critical for a smartphone
• The pricing models for low ARPU users : data / device
• New telco business models and their relevance to low cost smartphone
• The traffic impact of low cost devices on the Mobile Operators network

Whatever the opportunity, there is need to identify the needs and buying patterns of rural subscribers as well as analyse the impact of Cross Platform MNO App stores , Smart Applications , Enterprise Mobility, mHealth, mGovernment, m Learning etc

Identifying “ white space “ or uncontested opportunities for low cost smartphones in the low ARPU segments necessitates exploration into areas adjacent to but outside an Operator’s traditional business boundaries. Unconventional approaches are required to uncover these high value opportunities and to convert them into attractive businesses.Tackling the “ new market place “ challenge often requires a dual focus exploring the intersection of multiple emerging trends and defining how the convergence of two or more technologies or capabilities might satisfy powerful latent consumer and/or customer needs.

In developing markets, micro packages of innovative data services will play a critical role in driving mobile broadband uptake among prepaid smartphone users. According to expert analysis the best low cost smartphone packages are those with a high customer value and yet require minimal network resources to deliver. The prepaid bundled data packages need to be :

• Relevant: content and services must be pertinent and value-adding to users’ lives. This opens up vast opportunities for localization and personalization;
• Simple: services must be easy to purchase and easy to use, with an attractive and user-friendly interface. They must also be flexible, allowing cost-conscious users to easily choose just what they want;
• Affordable: User cost control, low price points as well as simple and risk-free plans are essential in price-sensitive, low-ARPU environments.

Due to the lack of widespread 3G data network coverage in some African markets, < $50 smartphones will often have to be preloaded with a suite of apps and features that a typical user would be most likely to use and value. Mapping and navigation features may also be included to drive sales, but weaker digital mapping data in the developing world may limit utility in those markets.

In the final phase of creating a viable business case the data collected from primary research is used to determine the strategies to monetize the device , ROI etc. A detailed assessment of the market positioning, go-to-market strategy and end-user experiences are critical to the project. It is important to develop a view on the potential consumer demand for the low cost smartphones using five-year forecasts with relevant primary research. This provides a platform to evaluate the likely success of these devices in low ARPU and rural consumers.From an African perspective ( low ARPU , rural , peri urban populations ) one would have to identify the features that consumers rank as the most desirable , highlight the kind of applications they would use , and analyse business models that will accelerate the uptake of these devices.

The role of retail distribution is as critical as supply chain management that leads to the manufaturing of a low cost smartphone. While Mozilla has relied on carriers to sell Firefox-powered smartphones in emerging markets during the past 12 months, the software company plans to expand its partners to include electronics retailers and local handset brands. Chinese vendors who have a services strategy are targeting a higher price point where the consumers are more likely to buy services. Chinese smartphone maker Xiaomi which entered the Indian market earlier this month sells hardware just above cost and heavily banks on software sales for profits.

As price competition increases, commoditization pressure in the smartphone industry, variations of “hardware as distribution”, could become one of the primary drivers of profitability. According to Vision Mobile the mobile handset industry has already seen two waves of disruption: A “new market disruption”, led by Apple, and a “low-cost disruption”, driven by Google and its Android platform. Each wave created distinctly different business models that completely realigned competitive dynamics in the industry. They believe that the coming, third wave of disruption will again reshuffle the deck for all industry players. We will see growth in a new class of business models, where handset hardware is no longer seen as a source of profits, but is treated as a distribution channel for digital products and services.

Sadiq Malik ( Telco Strategist )

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