CDMA V. GSM Battlegrounds: India (A view from Ernst & Young)
It should be noted that for all the PR dollars spent by QUALCOMM and CDG with Bock Communications, and/or Andy Seybold's consultancy, nobody but nobody in India in a comms decision making capacity, is gullible enough to consider cdma2000 1xRTT Release ZERO to be 3G technology.
Prashant Singhal of Ernst & Young India asks ...
Is it viable for a single telco to offer GSM and CDMA services?
>> No Clarity on Gains In Long-Run
Prashant Singhal Ernst & Young India The Financial Express June 26, 2006
CDMA networks in India have been a fairly recent but welcome addition to the telecom scene. Within a few years, CDMA providers have made their presence felt and have managed to capture more than one fourth of the mobile market. Today Reliance and Tatas together have 27.7% of the market. (As per May 2006.) However, GSM continues have the majority share in the market.
GSM networks add more subscribers to their base per month, in sheer number but CDMA networks have shown far quicker growth since their entry, a few years ago (In May 26.2 % new subscribers chose CDMA connections, up from 25.7% in April). ARPUs for both GSM and CDMA networks are essentially equal, and the difference is attributed more to consumer behaviours and intent than technology derived. CDMA networks, like elsewhere in the world, have proven fairly cost effective to set up and run. Telecom companies are thinking about being able to offer services in both networks, as an option, but there is not too much clarity on its benefits in the long run.
We have seen a success story of one such provider in China. Recently, China Unicom (a major telecom operator in China has moved into a CDMA network to add to its GSM infrastructure and has made its presence felt. Their ARPU increased to $6.17 from $5.8.
Telstra, on the other hand, the Australian giant, one that offers both services, has recently announced the termination of its CDMA services. Thus the global markets tell different stories and it is unusual to find a precedent of operators offering both networks, elsewhere in the world.
A major hindrance in the attractiveness of CDMA connection in a consumer’s viewpoint, is the narrow range of handsets to choose from. The CDMA technology being handset embedded makes the consumer handset bound, and this is a major disadvantage at the moment. GSM users seem to like the idea of being able to choose and change handsets as and when possible. Today, even though, it is only GSM networks that offer high end services such as VAS and 3G, there is no doubt that in the long-run, CDMA can also adapt and provide these services. Furthermore, as India moves towards a 3G era, CDMA and GSM core technologies will begin to align themselves.
CDMA, as a technology, is more spectrum-efficient. Spectrum is a scarce resource and a technology that utilised it more efficiently and creates far more capacity per frequency range. CDMA can also use existing wired networks as a platform and using WLL technology can start to supply lines without as much capital investment as what goes into setting up a GSM network.
In India, the rural market is the undisputed, ‘big opportunity’ for growth. The consumers in the Indian hinterland will not be a market that bases its purchase on services and frills. It is the basic voice telephony and essentially, being available and within reach all the time, that will be the key service and the crux of the telecom growth in this sector.
The remote Indian non-urban areas are yet untouched by telecom infrastructure but the wired network that does exist could be a great platform to base a mobile network on. It is CDMA that can take advantage of this fact. The Indian telecom market is today poised for much excitement, in its migration from 2-2.5G to 3G. If India follows the Chinese model or takes from the Australian experience, remains to be seen.
The writer is head of telecom practice, Ernst & Young India <<
I feel strongly that the real difference has nothing to do with handset prices or which is the better / cheaper tech. in the long run, etc. The deciding factor (CDMA or GSM) in a place like India is "payoff". GSM group has alot more cash to do that with, and they probably are more willing to do something underhanded since they are fighting for their lives. GSM coupled with W-CDMA is inferior; there is no doubt when one looks down the road at spectrum issues and cost issues. This probably wouldn't matter to some in power who are attracted by unreported cash. And this does not speak of what cash incentives may have been given to the operators themselves. B
CDMA V. GSM Battlegrounds: India (Spin Begets Spin)
Hi Jim,
<< ... what I find striking in all of this is the fact that the average cost of GSM phones (with inferior technology) is 50% higher than CDMA phones ($113 vs $75, +$38). >>
I seriously doubt that GSM handset sell-in ASP in India is $38 (or $35) more than CDMA handset ASP even though GSM handsets address a much broader range there beyond the entry level models phones that dominate the Indian CDMA lineup or that the ASP of GSM/3GSM handsets sold into India in April was $113 which evidently somebody extrapolatd from something. If it was, Nokia is in for one heck of a good Q2, but I'm not taking that to the bank.
The global ASP of handsets today (all technologies) is ~$135 or slightly lower, and that ASP of course is propped up significantly by UMTS (WCDMA) and CDMA2000 HRPD handsets which are sold primarily into mature markets, so $113 for GSM sell-in ASP to India doesn't really compute on my abacus. While I suppose it is possible, it does not seem probable, even though GSM handset OEMs benefited from strong upgrade cycles in emerging markets last year and that trend is continuing.
There is definitely a considerably broader portfolio of GSM handsets being sold into India than the CDMA2000 range being sold in, including Nokia UMTS (WEDGE) models for the most affluent, and the ASPs are indeed higher and the best seller there is the relatively high margin Nokia 1110 with pre-paid tracker (or the 1600 with the color screen) neither of which is a sub $50 ULCH, or part of the GSMA ULCH contract: its ASP is below $75, but not below $50 ... yet, although the 3 year old Nokia 1100 which is still being sold to compete with the ultra-low cost Moto's being furnished under the GSMA ULCH contract is, and on the CDMA side so is the new Nokia 1255 manufactured by China's TechFaith with a QUALCOMM MSM that competes with the new ultra-low cost LG's. Reliance's lineup here ...
Wise to note that well before the Nokia GSM 1110 and 1600 with their SCOT engine started to ramp in volume early this year the wholesale ASP of the older 1100 -- the best selling single model in global cellular history was sub-$50, and may have actually reached sub-$40 while it was being phased out.
Speaking of LG who as late as last summer claimed 60% CDMA market share in India, and whose handset production (unlike Samsung's or Moto's) remains predominately CDMA, Bloomberg recently commented on analyst expectations (and let's hope they are wrong) ...
LG Electronics Inc., Asia's second-biggest mobile-phone maker and No. 4 worldwide, probably had a record loss of 33 billion won from handsets, according to a separate survey by Bloomberg of 12 analysts. The previous record was a 31 billion won loss in the first quarter. The company reports on July 19.
This despite LG's recent success with the GSM/GPRS version of their KG-800 'Chocolate' phone which they introduced to India at an entry price of Rs 16,000.
Reliance just might be concerned that LG will soon give up CDMA handset manufacture for refrigerators, washers, and dryers -- and GSM/3GSM handsets. <ggg>
Recent spin from the Twin Spin Cities of SoCal apparently has some spinning like a top. It's like a fish story. In every retelling the fish gets bigger, and a fresh water pond trout becomes a Chinook.
Does this statement below say that the ASP of a GSM handset being sold into India is $38 (actually $35) more than a CDMA handset?
According to the Yankee Group, when considering the entire portfolio of low and high-end devices that were available in India during April of 2006, the average wholesale price of all CDMA2000 devices was $35 less than GSM.
That is NOT my read and I don't think the marketeer that studied John Jackson's 15 page report and wrote the PR read that in the report. Let's read that statement again for comprehension ...
... when considering the entire portfolio of low and high-end devices that were available in India during April of 2006, the average wholesale price of all CDMA2000 devices was $35 less than GSM.
Is the source credible? San Mateo (just like Dublin) generally chooses its words VERY carefully, selectively, and precisely for its promotional puff releases and I'm guessing they did so in this case. I consider them to be credible, but I parse em carefully -- very carefully.
The report was 1st brought to my attention on this board when khemera_qc posted CDG's PR referencing it on June 26 -- the day it was issued, and before I listened to the June 21 IPR webcast -- and I've reposted it at the end of this post.
I have to wonder if Mike Hartogs, VP Division Counsel for QTL, or Kanwalinder Singh, President of QUALCOMM India, ever actually read the report when they ad-libbed about it on July 21, although Mr. Singh may have, and probably did, which might account for his qualification which imparted a slightly different spin than Hartogs' statement in the last four sentences of the first paragraph below ...
MIKE HARTOGS: Now while admittedly, there is a small price differential for CDMA and GSM handsets, it's on the order of about $4? And notwithstanding that, the sales volume of CDMA handsets under $50 have far exceeded the number of GSM handsets at that level. In fact, nearly two-thirds of all CDMA handsets sold into India today are priced below $50 and over 98% of them are priced below $75. Not shown in this slide is the comparison of the overall average market selling prices for GSM. And CDMA and they're interestingly enough the average selling price for the GSM phone in India far exceeds the average selling price of CDMA phones. It is I think more than a $30 differential. That number I think Yankee has in their report.
KANWALINDER SINGH: Let me also add to that. Let me also give you another statistic that was briefly referenced by Mike before. If you look at the average weighted prices, wholesale prices, of handsets coming into India in totality for all of GSM and all of CDMA, you will find and this is referenced from the Yankee Report that just came out, that average selling prices of GSM handsets in totality in India is about $38 more than the average selling prices of CDMA handsets coming into India. So you can then see how the effect of QUALCOMM reducing, working with this ecosystem to reduce the prices is actually reducing in dollar terms to the operators and consumers the overhead. It's actually in fact GSM vendors who are bringing in handsets in totality, which are much higher priced than CDMA handsets.
I might add that Mr. Singh referred to handsets of GSM vendors being brought into India, not referencing those produced there by the largest GSM vendor in India, who is also number 2 to LG in supplying CDMA handsets in the sub-$75 category that according to the report accounts for 98% of all CDMA handsets being sold (not manufactured) in India, or LG who is already producing GSM handsets in Pune near New Delhi, and currently has 3% of the GSM market and is gunning for 10% by 2007 ...
... what I find striking in all of this is the fact that the average cost of GSM phones (with inferior technology) is 50% higher than CDMA phones ($113 vs $75, +$38).
At the end of the day it is a carrier that determines which technology is superior or inferior for his particular market, at a particular time, and what the TOC and ROI will be when comparing migration paths for that network and the suitability of the technology as a platform for VASs ... and consumers buy handsets not technology, and they base their decision on a number of factors but those include what they percieve to be the best available handset features and functionionality at a particular price point.
Across a broad portfolio of phones, GSM, GSM/GPRS, GSM/EGPRS phones have a lower wholesale ASP than their 2.5G 1xRTT counterparts, and an EDGE feature phone or smartphone from Nokia or Sammy Sung will perform with or outperform their 1xRTT counterparts at the same unsubsidized price point in many if not most respects that a consumer values -- including, of course, faster downloads, and the capability to pause and resume a data session to make or take a voice call, and if they are class A, and the network supports it, to multitask voice and data.
If 98% of all CDMA phones that were being sold into India in April had a wholesale ASP less than $75 and almost two-thirds less than $50 (which means B&W display, and nothing but basic functionality -- certainly not whar we'd consider to be 3G data functionality, much less any self-respecting Indian -- then it would seem to me that the ASP would most certainly be many dollars less than $75 and 75% or more would be targeted at entry level only not the more experienced user who is in the upgrade cycle that drove GSM handset sales and higher ASP's in the maturing segment of emerging markets last year and which is continuing into this year. If 98% of all phones that were being sold into India in April had a wholesale ASP less than $75 and almost two-thirds less than $50, then they were sold in at an ASP that is fully 50% less than the global ASP of a broad portfolio of CDMA2000 phones whose ASP is ~$145 or just slightly less.
>> CDMA2000 OFFERS The Largest Selection Of Entry-Level Phones In India From 10 Suppliers
CDMA2000 and GSM Handsets are Approaching Price Parity in India
The CDMA Development Group (CDG) (www.cdg.org) announced today that there are 21 CDMA2000® phones being offered for less than $50 USD (wholesale) from 10 different suppliers in India. This compares to only 18 GSM handsets being offered for less than $50 from 5 suppliers. The low-cost CDMA2000 handsets provide access to downloadable value-added services, while the GSM low-cost handsets, as 2G devices, do not.
The level of competition to deliver entry-level handsets in India, one of the most competitive markets in world, has increased significantly. A recent Yankee Group report that focused on the monthly ex-factory/landed cost of all handsets legally imported into India has uncovered many important facts related to the price and availability of ultra-low cost devices. The report, entitled “Aiming Low for Great Heights: Ultra-Low Cost Device Competition in India,” supports the claim that CDMA2000 devices outperform GSM devices in this dynamic market.
Since the beginning of 2006, CDMA2000 handsets have accounted for as much as 60 percent of all entry-level (sub-$50) handsets imported into India on a monthly basis. And, for more than six months, the difference in the average wholesale price of CDMA2000 and GSM phones being sold below $50 in India has been $1.00 to $4.00 USD. During the same period of time, less than 5 percent of the handsets purchased in India were supplied by the GSM emerging-market handset initiative. The findings of this market study show that CDMA2000 is leading the way in offering subscribers more value and doing a better job at fulfilling the demand for entry-level handsets to price-sensitive consumers in India.
The response of the Indian market towards the purchase of CDMA2000 handsets has been very positive. Today, about one-third of the more than 100 million wireless subscribers in India use a CDMA2000 handset. In March of 2006, CDMA2000 handset shipments into India surpassed those of GSM for the first time. One reason for this increase in shipment volume is due to the larger selection of affordable devices from more suppliers across the entire CDMA2000 product portfolio, and their ability to meet the diverse needs of most Indian consumers. According to the Yankee Group, when considering the entire portfolio of low and high-end devices that were available in India during April of 2006, the average wholesale price of all CDMA2000 devices was $35 less than GSM.
As a result of this intense competition, the price gap between entry-level CDMA2000 and GSM handsets shipped into India has narrowed significantly. Market data now shows that CDMA2000 and GSM handsets are equally competitive at the low end. “CDMA2000 low-cost handsets have approached price parity with GSM and are more affordable than GSM handsets across the entire product portfolio,” said Perry LaForge, executive director of the CDG. “These competitively priced devices will enable operators to more effectively address the entire market”.
Recent market studies have confirmed that consumers want to do more with their handsets than just make simple voice calls and send short messages. John Jackson, director of wireless/mobile technologies at the Yankee Group, who led the Yankee Group ultra-low cost handset study states, “It is clear that consumers want affordable phones that offer value, not necessarily the cheapest phone. Consumers associate value with brand affinity, quality perceptions, and performance expectations. In this regard, the low end is no different from the high end. Therefore, the lowest priced handsets may actually drive consumers away. In markets such as India where PC penetration is nominal, the data-capable handset will define the Internet experience for a massive numbers of end users.”
“Affordable data access using solutions such as BREW ® are catalyzing value-added service consumption by allowing users to download ringtones, wallpaper, games, news, daily prayers, and eventually Bollywood video clips. In the long term, exposing users to an enriched customer experience and exposure to advanced data services will enable operators to sustain revenue and profit growth,” added Jackson.
CDMA2000 offers a larger selection of fixed and mobile devices to address the diverse needs of individual markets and different market segments than any other advanced wireless technology today. Based on current market data, CDMA2000 is leading the way towards addressing the rural market segment in the most price-competitive mobile communications market in the world – India.
The CDMA industry is working on several initiatives to further reduce the cost and accelerate availability of entry-level devices, as well EV-DO mobile broadband and WorldMode TM global roaming devices. CDMA2000 is becoming the 3G technology of choice for rural markets.
More information on CDMA2000 handsets is available at www.cdg.org. A copy of the Yankee Group report on ultra-low cost devices is available at www.yankee.com. <<
Yankee Group on Ultra-Low Cost Device Competition in India
Jim,
I have not seen Yankee Group's 15 page May 31 report titled "Aiming Low for Great Heights: Ultra-Low Cost Device Competition in India" by John Jackson who "examines GSM and CDMA ex-factory/landed handset cost trends in the Indian market," but you and others might be interested in the introduction ...
>> Executive Summary: Recent initiatives around ultra low-cost (ULC) handsets have attracted a great deal of industry attention. As markets begin to saturate and less affluent consumers become the engine of future market growth, affordability will become key. This is particularly relevant in markets such as India, where mobile penetration remains a single digit percentage of the addressable market, and relatively low incomes preclude mass adoption at the current handset average selling prices (ASPs).
This Yankee Group Report focuses on GSM and CDMA ex-factory/landed handset cost trends (net of tariffs) at the low end of the rapidly growing and competitively unique Indian market. Using comprehensive monthly handset import data for 2005, Yankee Group identified specific Indian market trends relating to price points, technologies and consumer preferences. ... Historically driven by US$51 to US$100 devices, ULC (less than $50) device shipments in India accelerated rapidly in 2005, accounting for 50% of total monthly volumes by year-end (see Exhibit 1). The reduction in government duties boosted the market. Further momentum will build as major handset vendors develop or expand their local manufacturing facilities. Despite being late to the low-end game, ULC CDMA devices outperform GSM devices in volume terms, although average ULC GSM device prices are lower. However, for the overall market, GSM devices’ ASPs remain higher than CDMA devices, given Indian consumers’ preferences for more expensive, brand-specific GSM devices. But ultimately, price is just one component of both vendor and competitive service provider environments. ULC devices are essential, but portfolios should map to customer segmentation objectives and long-term operator goals.
Table of Contents I. Market Demand for ULC Devices II. Indian Market Overview III. Handset Market Dynamics in India ---> Pricing and Consumer Choice Varies ---> ASPs Are Only Meaningful In-Context Indicators IV. Conclusions and Recommendations ---> Can CDMA Devices Compete with GSM Devices at the Low End? ---> Recommendations for Operators ---> Recommendations for Vendors V. Further Reading.
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