Is the mobile phone industry boom over?

[LahoreEstate]

THERE are clear indications that the mobile phone industry has peaked off its boom in the world and that its climb-down has already begun. In most of the countries, it is experiencing a massive slow down in sales, faster than expected.

Pakistan, too, has begun to suffer a similar decline but here it is the domestic factors more than the impact of the global crisis that are contributing to the downturn.

Only a few months ago, the leading companies were sure to escape the effects of global recession for they thought billions of people in the developing countries still have no cellular phone and hence there existed a vast untapped market. Corporate leaders and manufacturers had hoped that a strong appetite in the Third World would help them overcome a slump in Europe and the US.

Such an optimism proved short-lived after the US media revealed last week that the industry’s performance in the fourth quarter of 2008 has been “disastrous” and that millions of handsets are likely to remain unsold in the weeks ahead. And even Nokia, the worldwide favourite enjoying 40 per cent share of the global market, is “suffering the humiliation of downgrades,” stated BusinessWeek. The shares of the global giant lost nearly a third of their value in the stock market trading but it has managed to keep its profitability on track.

In Pakistan, the total number of subscribers which had touched an all-time high figure of 90.52 million in October 2008, according to the data released by Pakistan Telecom Authority, dropped to 89.9 million in December, showing a 0.7 per cent decline in the last two months.

The main reason is that imports of handsets have registered a 70 per cent decline in the July-December period of 2008 when only 1.788 million sets were imported compared to 5.924 million in the corresponding period last year. The drop is attributed by the industry to Rs500 customs duty per set imposed in the last budget and a regulatory duty of Rs250 introduced in August.

These duties are intended to raise more revenue to meet the IMF-dictated revenue target. The huge shortfall is, however, stated to being met through increased smuggling but the prices have, of course, soared.

The sales are down even in the markets such as China which has seen explosive growth for years and its subscribers have gone up to 650 million. In India, which is the second biggest market after China, there are 300 million subscribers. There is a consensus in the western market that one of the worst slumps is under way and that 2009 will see at least one per cent decline in global handset sales which may be revised to five per cent any time in the year.

In October 2008, shipments of mobile phones in Japan fell by 57.8 per cent, compared to shipments in October 2007. Only 1.08 million units were shipped which is the lowest ever number. There is little demand for new handsets or replacements because the domestic market is saturated.

In Europe and the US, the cellulor phone growth has been slowing for years because practically everybody has a mobile phone. In fact, the western countrie have more mobile phones than people. According to Eurostat, Luxembourg had the highest mobile phone penetration rate at 158 per 100 people. In Hong Kong the penetration rate reached 139.8 per cent of the population in July 2007.

Over 50 countries have penetration rates higher than that of the population. Between the 1980s and the 2000s, the mobile phone underwent a great transformation. From being an expensive item used by the business elite, it became a personal communications tool for the general population. In most countries, mobile phones outnumber land-line phones.

Some countries have also discovered an emergency response function of this instrument. The Finnish government decided in 2005 that the fastest way to warn citizens of disasters was the mobile phone network. In Japan, mobile phone companies provide immediate notification of earthquakes and other natural disasters to their customers free of charge. In the event of an emergency, disaster response crews can locate trapped or injured people using the signals from their mobile phones.

A developing country market is different. It is essentially a market of cheaper models for common citizens and the magic instrument has played a great role in improving business prospects of a variety of artisans, semi-skilled workers and small traders.

According to PTA, mobile phone user base started shrinking in Pakistan two months ago, posting a negative growth. About 0.618 million subscribers have become inactive by stopping use of their phones. In fact, the leading five companies have squeezed most of the market in the big cities – keeping more than one set is not yet in vogue here – and now the challenge before them lies in capturing the untapped market in small towns and rural areas where a mobile phone may work wonders for those living or working at long distances.

The mobile phone teledensity or penetration which had reached 56.20 in November has come down to 55.80 by the end of December as the downturn began. Still, it means that about half of the population may be possessing the phone.

The PTA data shows that Mobilink remains the leading company with 28.47 million subscribers but there is a cut-throat competition for the second position between Telenor and Ufone, the former with 19.38 million subscribers having a slight edge over the latter, having 19.30 million users, in December. However, in August this year, Ufone was ahead of Telenor with 18.6 million subscribers against the latter’s 18.3 million. And 16.91 million people are using the service of the UAE-based Warid at present. Chinese mobile phone company, Zhong, a new entrant, has built a subscriber base of 5.5 million in the country so far.

The major reason attributed by the industry for shrinking of the subscriber-base is, of course, imposition of high taxes. A mobile user has to pay almost 31 per cent in terms of taxes/service charges which is at least 14 per cent higher than any where in the world. Now every customer has to pay Rs5 more in terms of service charges to the mobile phone company on every recharge of Rs100.

However, the stiff competition has compelled some companies to lower their call rates and offer attractive packages to maintain their profitability rates.

The telecom sector was a major recipient of foreign direct investment (FDI) at $5.6 billion during the last five years and in 2007-08 it was estimated at $3.1 billion. However, their future investments and promotional plans would depend on what direction their parent companies take to fight the effects of the global recession.

http://www.dawn.com/2009/01/26/ebr17.htm