core sector communique

Google Bets on Cheap Smartphones for India

Google Inc. is pushing to become a significant player in India's huge wireless industry as a range of little-known Indian handset makers release low-cost devices that include the tech giant's Android operating system in coming months.

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Android lends functionality to smartphones, including touch-screen capability and a large marketplace of small software "apps." It has gained market share quickly this year in developed countries such as the U.S., powering several devices that have sold briskly.

Now Google is setting its sights on the masses in developing countries like India, which has 670 million cellphone subscribers and has been adding about 18 million a month recently.

Most of the initial Google-powered phones in India from established handset makers such as Motorola Inc. and HTC Corp. cost upward of $400, much too expensive in a market where 42% of the population of 1.2 billion people earns less than $1.25 a day.

To target India's vast middle class, Google is banking largely on a crop of inexperienced Indian smartphone manufacturers including Micromax Informatics Ltd., Spice Mobility Ltd., and Olive Telecom to make Android phones in the $150 range, and eventually the sub-$100 level.

"You've got a lot of innovation happening from local manufacturers," said Vinay Goel, who oversees Google's products in India. He said Android phones selling for more than $400 are only going to capture "a really niche market" in India. "To be in the mainstream, you have to be in the $100 to $200 range," he said. "The closer to $100 the better."

Since launching Android in late 2007, Google has been aiming to develop devices with the functions of smartphones that are priced in a range the mass market can afford.

Even though it is powering relatively higher-priced phones around the world so far, Android has become a formidable competitor to platforms from Research In Motion Ltd., Apple Inc. and others. Research firm Gartner expects Android's global market share to jump from 17.7% in 2010 to nearly 30% in 2014.

Gaining a foothold in India won't be straightforward. Most of the Indian handset makers have never made a smartphone before, so there could be glitches in their early tries. Also, even if they could make $100 phones—a huge challenge given that hardware for smartphones is costly—those would still be well outside the range of many ordinary Indians who can buy less advanced phones for $40 that have cameras and basic data services. And Android devices work best on wireless networks capable of "3G" speeds. Indian carriers are just now in the process of upgrading to that service level.

Spice Mobile already has released a $220 Android device with a 3.2-inch touch screen, email, GPS navigation and apps like Google Maps and the Pandora music-streaming service. A person familiar with the situation said Spice is working on other Android phones. A spokeswoman for the company declined to comment.

New Delhi-based Micromax, which is planning an initial public offering, hopes to release its first Android handset around the Hindu festival of Diwali early next month, and wants to have at least four Android phones by March, a person familiar with the company's plans said. The company hasn't finalized prices but is aiming for around $200, the person said.

The new Indian handset players have already had success in the lower-end of the phone market, grabbing market share from big players like Nokia Corp. Micromax has 34 phone models, with some as low as $30.

Research firm IDC says emerging vendors represented more than one-third of total Indian phone shipments in the three months ending June 2010, up from less than 1% of shipments about two years earlier. Nokia dipped from 56.2% market share to 36.3% over roughly the same period.

Nokia disputed the IDC figures, saying they don't account for the company's shipments from its manufacturing facility in Chennai, among other problems. Nokia "continues to do well in India across all segments" and is "well-prepared to address the emerging needs of India's consumers," the company said in a statement.

Established phone manufacturers are developing low-cost Android phones for India and other developing markets. Samsung Electronics Co. has a few Android phones around the $250 range and has the popular Corby smartphone, which isn't based on Android but sells for about $150. Spokespeople for Samsung, Motorola and HTC weren't available for comment.

Rahul Choudhary, a 19-year-old fashion design student in New Delhi, said brand wasn't a factor when he bought his current handset, a Samsung smartphone. "I just bought it because of the look of the phone and the touch screen. I didn't think too much," he said. "I used to have a Nokia but I'm not loyal to any particular brand."

Google's role in putting out Android phones is limited in most cases. Manufacturers can access the software themselves for no license fee and build devices based on it.

But the company has been helping the Indian firms integrate Android into their handsets and develop applications that will appeal to Indians. For example, Google has encouraged the inclusion of Bollywood film and local media content, a person familiar with the matter said. Micromax is developing an app to allow stock-trading.

"There's a learning curve everyone goes through," Mr. Goel said of the new Indian vendors, though he declined to discuss the specifics of Google's dealings with any specific company. He said the rollout of Android, especially on 3G networks, "has the potential to be a game-changer. All of the features that were initially the domain of high-end phones are now being made available to pretty much any user at low price points."