High prices hamper iPhone 3G sales in India

BANGALORE – There’s a simple reason that most people in India who have iPhones are sticking with an “unlocked” first-generation model bought from a U.S. source instead of one obtained for a higher price from Vodafone Essar or Bharti Airtel, which started offering the 3G version in India on Aug. 22.

“There isn’t a lot of difference in India between the two generations of the iPhone because there are no 3G networks in India,” said Mahadev Gupta, head of business development at StrApp Business Solutions, an IT services company in Bangalore. India is planning to auction 3G spectrum, and the first commercial deployments of 3G are expected in the first half of next year. Gupta, who bought an unlocked first-generation iPhone in November 2007, migrated in August this year to an iPhone 3G from Bharti Airtel.

“I bought an unlocked phone in 2007 because I wanted to have an iPhone by all means, and it wasn’t being offered in India,” he said.

Buying a legal phone, though locked to the operator, now gives him the benefits of a warranty, bug fixes, and the opportunity to download from Apple’s App Store without having to use a friend’s or relation’s U.S. credit card, Gupta said. “I have been using this awesome, awesome 3G version [for the] past three days now, and I am totally convinced that this iPhone 3G should be bought in India and through Airtel/Vodafone only,” Gupta wrote in August on his blog, iPhoneIndiaBlog.com.

Although the Internet connectivity offered by his service provider is slow, as it is not 3G, Gupta uses Wi-Fi in his office and other locations to browse the Web. He described the user experience as comparable to desktop browsing.

Not a lot of customers in India share Gupta’s enthusiasm.

A number of analysts say that the launch of the iPhone 3G was flawed from the start, with scant understanding of the price sensitivity of the local market. The iPhone 3G was launched in India without 3G networks in operation in the country, without access to music and video downloads through Apple’s iTunes, and at a hefty price, raising doubts as to whether the product can take off in the country.

Estimates of sales of the iPhone 3G in India range from 1,500 units to about 5,000 units, which, in any case, is low for a country that had 296 million mobile connections at the end of July and is adding over 8 million new subscribers a month. Close to 5,000 units of the iPhone 3G have been sold so far in India by the two mobile service companies, said Anshul Gupta, principal research analyst at Gartner. “I think the product has done well, as it cannot be a large volume product at the price that they have set for it,” he added.

Apple and the two operators did not disclose the number of phones they have sold since the August launch.

A lot of people interviewed for this story said that they may have purchased the iPhone 3G if the price was not as high as 31,000 Indian rupees (US$715) for a phone with an 8G-byte flash drive and 36,000 rupees for a 16G-byte version.

A spokeswoman for Bharti Airtel said the pricing of the iPhone 3G was decided by Apple and not by Bharti Airtel. The company has tried to soften the impact on customers by bundling 500M bytes per month of free data downloads for one year.

Both Bharti Airtel and Vodafone have also tied up with financing companies to offer the phone on installments, but the market for the product is still sluggish.

“The people who would have picked up the iPhone 3G are mainly those status-driven types who will flaunt a fancy device, even if its utility to them is limited,” said K. Purushottam, executive director of Wep Solutions India, an IT services company in Bangalore.

Apple and the operators are trying to skim the market with these high-price devices, even though there aren’t 3G networks in the country, and no one knows how the 3G service will be priced when they are available, he added.

Even long-term users of Apple products were put off by the high price of the iPhone 3G. The cost and some of Apple’s policies discouraged Sujay Rao, a micro-neurosurgeon in Bangalore, from buying the iPhone 3G for himself and his brother.

“There is a break with the Mac philosophy, a tendency to go the Microsoft way, when you are told that you are not allowed to forward an SMS [Short Message Service] from the phone, that you are not allowed to download any freeware unless it is from the Apple site,” said Rao, who uses his Mac extensively, including in the operating room to record information about surgeries. Rao also objects to having to turn in the iPhone to the company to change a battery.

By its high prices, Apple may have also positioned its products in the smaller smartphone segment of the Indian market, in which there are already strong, entrenched brands. Smartphones accounted for only about 4 to 5 percent of mobile phones sold in India last year, and their share is likely to go to around 7 per cent this year, according to Gartner, which includes the iPhone 3G under smartphones.

The smartphone market in the country is estimated to be 7 million to 8 million units in a year, and is currently dominated by Nokia, said Gartner’s Gupta.

Bharti Airtel is not targeting the mass market with the iPhone 3G, but only high-value customers, admitted the company spokeswoman.

Apple may, however, be changing its strategy in India, including by dropping phone prices. The company is reportedly planning to offer the phones with yet another operator, the large government-owned Bharat Sanchar Nigam Limited (BSNL). Apple declined to comment on a tie-up with BSNL, saying that it does not comment on rumors and speculation.

Apple may also be planning to offer phones in India that are not locked to any operator, as do other vendors like Nokia, according to sources. In this regard, it is in talks with a large distributor in India to get its phones to the market and at much lower prices, these sources said.

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