Budget Provisions May Give Fillip To Domestic Manufacturing Of 5G Phones Where It Matters Most – The Entry Level

Twenty years ago, the late Indian-American entrepreneur and academic CK Prahalad, first co-authored a paper The Fortune at the bottom of the pyramid, which later became a bestselling management tome of the same name.

It proposed the then startling theory that low-income markets presented a prodigious opportunity for the world’s wealthiest companies – who could grow their business even as they brought prosperity and helped address the aspirations of the poor.

Sadly in mass-markets like mobile phones and television sets, this truism has all but been rejected and forgotten by the same wealthiest companies.

The Samsungs and the Apples who dominate the smartphone business; the Sonys and the LGs who claim significant chunks of the Indian smart TV market, have consistently set their sights much higher – at the premium end of the market that caters to the well-heeled.

The coming of 5G has only accentuated this divide – and  few of the international phone brands, most of whom manufacture in India now,  have bothered to put their brainy research and development teams into creating a 5G phone for India that can be said to be affordable by the broad mass of Indian cellular phone users, who now exceed a billion.

The market wisdom is that the tipping point - the Lakshman Rekha, so to speak of mass affordability is Rs 10,000, give or take a thousand rupees.   

Then comes a middle ground that extends up to Rs 20,000 and many brands have 5G phones in this price band.

But the biggies still prefer to serve the small sliver of customers who think nothing of spending Rs 50,000 to Rs 1 lakh on a smart handset. That’s where the big bucks lie.

Fortunately, the truly home grown Indian phone brands have not been so disdainful of the bottom of the pyramid – and almost all of them have the bulk of their offerings in the sub-Rs 10,000 space.

Their challenge, however, is this: Now that 5G is here — up to 45 per cent of smartphones sold this year are expected to be 5G-ready devices — how to incorporate the costlier hardware that 5G entails and still keep their products affordable. 

A few have already managed the balancing act with the bill of materials and launched 5G phones around Rs 10,000, but they are probably banking on large volume sales to amortize the extra cost of a 5G-ready chip.

They heard some good news on 1 February when the Union Budget was presented in Parliament. In this game of wafer thin margins, every little bit helps – and the announcement that customs duty on the camera lens for camera module and input/sub parts for lens of the camera module of mobile phone had been slashed from 2.5 per cent to zero was welcome news.

So was the assurance that the exemption from customs duties now being provided for the import of specified capital goods and machinery required for manufacture of lithium-ion cells or batteries used in mobile handsets, is being extended for another year.

Both these are key cost elements in the indigenous manufacture of phones – though arguably not the costliest elements.  

The quality of the phone-camera – how many megapixels, how many lenses – is for many buyers the deal-breaker, when it comes to selecting a smartphone. 

Reducing the duty on camera elements to zilch is bound to help pare down the cost of the bill of materials of a 5G phone – as will the customs duty holiday on the lithium-ion battery fabrication.

Affordable Indian 5G Phones

Even six months ago, two Indian phone makers announced 5G phones priced around Rs 10,000:

• Noida (NCR)-based Lava International announced the Lava Blaze 5G phone — based on a chipset from Mediatek, running the Android 12 operating system, with a 50 megapixel AI-fueled triple lens rear camera and an 8MP front camera; a 6.5 inch HD display 128 GB storage and 4GB RAM memory with a 5000 mAh battery. The device is available on sites like Amazon at Rs 10,999.

A casual search at online buying sites seems to throw up just these two phones offering 5G capability for an asking price around Rs 10,000 — and the latest customs duty announcements may help the makers  to keep their price even more competitive.

There is an interesting  side effect of the explosive growth in the indigenous manufacture of mobile phones in India – some 310 million units worth Rs 275,000 crore in the last financial year – as well as the expected spurt in demand to upgrade to 5G: The emergence of new and non-traditional 5G phone developers.

Startups Get Into 5G Act

Like Optimus Logic; a Bengaluru based startup that has hitherto addressed the demanding market for defence electronics solutions — at the IoT show in the same city in November 2022, Optimus unveiled a prototype of what it called “India’s 1^st homegrown Global 5G mobile” developed in association with IIT Hyderabad – the Optimus Rhino 5G 1.

The company is taking pre-orders of the phone which costs Rs 19,999 plus taxes and deliveries are expected after 31 March 2023.

Optimus has an interesting proposition: it works with the VeerNari Shakti Resettlement Foundation for defence personnel who died in the line of duty and encourages the NGO to assemble the Optimus Rhino in Tier 2 and Tier 3 cities across India.

Clearly, 5G is  being perceived as both a challenge and an opportunity by India’s vibrant startup community to enter the new mobile phone ecosystem with innovative ideas.