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‘Gray hounds’ still stalk cell handsets

Calcutta, Oct. 27: The colour of the Indian cellular handset industry is definitely grey. Despite a 10 to 15 per cent reduction in cellphone prices in April this year, the unauthorised or grey market channels continue to hold sway over almost 87 per cent of total handset sales in the first half of the year. According to IDC estimates, the grey channels will continue to rule, though their stake would come down to 55 per cent by 2006.

Industry sources feel that unless the price gap is narrowed down, it will be difficult to curb the grey menace. Despite a reduction in duties in the budget, legal handsets still cost 20 to 30 per cent more than grey ones.

“The position paper on the mobile handset industry in India states that on a base price of Rs 100, a legal handset costs anywhere between Rs 118.98 to Rs 128.13 as against Rs 100 for smuggled sets. The cumulative revenue loss for the government at the current level of duties is Rs 3,637.44 crore,” Pankaj Mohindroo, president of the Indian Cellular Association (ICA) said.

Another impediment to generating awareness regarding purchase of cellphones through the legal channel is the inadequate after-sales support infrastructure. The absence of support infrastructure acts as a deterrent for buyers who find no incentive in shelling out the extra money. “The thriving grey market has limited the ability to invest and develop viable distribution networks and expand the service network in the interiors of the country,” an industry spokesperson said.

However, companies like Samsung have realised this shortcoming and are already taking measures to fill the gap. The company has invested $ 1 million to set up 12 exclusive outlets—Samsung Talkies—across the country to provide the customer with a complete feel and experience of buying a handset. Sony Ericsson will also try to reach out to the customer through Sony World outlets.

“The addressable market in India is only 25 per cent. Manufacturers will be interested only when they are able to generate sufficient volumes,” Mohindroo said.

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