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Laying the ground for a second coming
After years of struggling with its CDMA technology in India, Qualcomm is looking for business avenues in the smartphone space. However, its real potential seems to lie elsewhere.
Issue Date - 27/10/2011
The Indian telecom industry has been witnessing an unprecedented fall in subscriber additions of late. For the last 4 months, the net additions have been less than 10 million every month and still descending on monthly basis; taking the total to 611.75 million by August 2011 (COAI). However, low cost handset makers are getting upbeat about revolutionising the 2nd largest telecom market in the world even after over half of it is taken.

Riding on the wave created by Google’s free operating system Android, which surpassed Nokia’s outdated operating system Symbian in 2010, even chipset manufacturing companies like Qualcomm are eager to have their share of the pie in Android’s feast, which is all set to cross 49% market share by 2012 (Gartner). The worldwide smartphone market is expected to grow by more than 55% yoy in 2011 and around 472 million phones will be shipped through the year. It is projected that shipments will reach 982 million by 2015 with Apple’s iPhones & Samsung’s Galaxys leading the segment currently.

Many OEMs naturally believe in the low cost handset market for an emerging market like India. Qualcomm CEO Paul Jacobs shares the view. After facing significant reversals in India due to the far lower success rate of CDMA services, due to which even its largest customer RCom switched a few years back to a dual service portfolio, Qualcomm is looking to make amends. In 1990, Qualcomm pioneered the designing of CDMA-based cellular base stations, which has been its forte. Being the OEM of mobile phone chipsets, (Qualcomm CDMA technologies contributed 61% of its revenues in FY 2010), Qualcomm was once able to derive huge royalties from the companies it served with CDMA (globally, LG and Samsung contributed over 10% each in the same period). But India is very low in contrbution despite significant investments by the company.

The San Diego-based company’s strategy is to leverage the expanding availability of 3G services (as its core competency is producing 3G compatible chipsets) and after successfully tapping the biggest handset market of the world (China accounted for 29% of Qualcomm’s revenues of $10.99 billion for the year ending September 2010), the company has now decided to follow the footsteps of its Chinese competitors and bring out a sub-$100 phone with a Qualcomm chip in order to cater to the needs of the price sensitive yet feature conscious Indian market. Huawei and ZTE have already launched Qualcomm chip powered Android handsets in that range in China.

3G spectrum has been auctioned off in the country last year after a long delay; yet the experts still feel that it will take more than a year before telecom giants will reap benefits from Value Added Services, for which 3G is really sought after. Keeping that into consideration, it also remains an indisputable fact that the Indian mass market uses and prefers entry level phones. So, will Qualcomm be able to make this foray really count? It wants to serve Indian markets with smartphone costing less than $60 ultimately, but the addressable market for this segment right now is not aware about the benefits of possessing a smartphone. Moreover, apps that could attract them like regional language apps are still in fairly short supply.

ARPUs have been falling for both GSM & CDMA services (Rs.100 & Rs.66 as on March 2011; PwC), and handsets. Voice still dominates over VAS in India (since the services are still to be streamlined for 3G). So the mass market is continously booming, but unless people are made aware about why they should possess smartphone and why Android, the phone might fail to see the anticipated traction at least initially.

Abhishek Chauhan, analyst with Frost & Sullivan, comments on India’s CDMA scenario, “The future of CDMA does not look too optimistic in India for voice & faces issues in global roaming. Strategically, CDMA operators would need to move their focus from voice to complete data based offerings.” It might be agreed that lack of choice in handsets is the main issue in CDMA. However, the operators are trying their best in order to sustain their market share after the introduction of Mobile Number Portability. CDMA handsets offer a peak download speed of 2MB/s compared to 384 kbps for GSM, which explains why Qualcomm has remained steadfastly positive on the potential of its technology. But it’s just one of those cases in the technology market where the ecosystem has gone in favour of the rival technology.

On the other hand, Qualcomm’s LTE offerings in India can definitely hope to see huge potential. The company won 20 MHz of BWA spectrum in 2009 for $1.1 billion in order to facilitate the evolution of Long Term Evolution (LTE) technology in India at the expense of rival Intel’s attempts to push WiMax in the market. Reliance Infotel has already unveiled grand plans for this technology, with an ambition to take it to 700 Indian cities in the first phase of launch. This technology enables data download speeds of upto 10 MBps as compared to 3 MBps for 3G services. This edge will obviously make it more attractive for carriers who are looking to enhance their offerings for their customers in the fixed access domain. For a change, Qualcomm’s India arm may finally get to twist the ecosystem in its favour.

Anirudh Raheja           

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