'Microsoft-Nokia deal to promote competition in entry-level smart phones'

Microsoft's $7.2billion acquisition of Nokia's handsets business is likely to promote competition in the under-penetrated smartphone space in India. Domestic consumers are likely to benefit from innovative products and lower pricing resulting from cost reduction due to synergies and integration of hardware and software capabilities from the deal, says India Ratings & Research.

The price of Nokia's Lumia range, using Windows 8 operating system by paying licensing fees to Microsoft, is likely to decline as savings in licensing cost are likely to be passed on to customers.

The Indian handsets market is predominantly a feature phone market (90% of total market share in FY13) where Nokia is a leading player. Analysts believes the lower penetration in the smartphone segment (10%) coupled with large untapped rural markets indicates humongous demand potential for lower-cost entry-level smartphones (such as Nokia Asha series) due to the rising Internet subscribers on mobile platform, and highly price-sensitive semi-urban/rural market.

Of the 898 million wireless mobile phone subscribers on a pan-India basis as of March 2013, 61% are urban and rest rural. However, rural teledensity is much lower at 41.02 in end-March 2013 as against urban teledensity at 146.96 (according to the Telecom Regulatory Authority of India).

The competitive positioning of Nokia-Microsoft to provide low-cost smartphones would be better than import-dependent players who would bear the brunt of rupee depreciation on imported phones as Nokia has a local manufacturing unit at Chennai. The competitive edge could be further strengthened by cost synergies on licensing, patents and intellectual property and benefit from Microsoft's research and development capabilities, analysts added.

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