IPhone's pricing problem in India

Steve Jobs is having more fun in the handset market than a terrier loose in a jerky factory. The Apple chief executive's hot-selling iPhone has gobbled up 17.3 per cent of the fast-growing worldwide smart-phone market, up from just 3.6 per cent during the year-ago period, according to tech tracker Canalys.

Apple's experience in India, however, shows why the feeding frenzy may not last forever. The August launch of the iPhone in the South Asian country appears to have been a flop, even though India's middle class is booming.

In pictures
Seven iPhone killers
10 fun iPhone games

While Apple hasn't released any figures for Indian sales of the iPhone, some peg sales at just 11,000 units, according to a report published last week by Indian business newspaper Mint. That slow start might not bode well for Apple as it tries to push into China.

Apple hasn't said when it will put the iPhone on sale in mainland China. However, last month Apple Insider reported that the company advertised on its site for a quality assurance engineer in Beijing to 'focus on international releases' of the iPhone. The notice appears to have been removed. Apple did not immediately respond to requests for comment.

In pictures
Seven cool features on the new iPhone
Stalking the iPhone

Price, however, could be a problem in developing markets. Indians don't buy handsets the way Americans do. Instead of buying carrier-subsidized phones in exchange for a long-term contract, Indians don't like to be locked in. That means the iPhone sells for much more -- upwards of $600 -- in India than the $199 retail price in the US. The result: Sticker shock that sends even affluent Indian consumers to handsets from Nokia and Samsung.

Nokia's pricey smart phones, such as the N95, easily outsell the iPhone in India because Indians expect them to be expensive. Moreover, Nokia has a wide range of prices for its phones while Apple does not. "Nokia's overall success in the market is tied to its very broad catalogue of devices, starting at the very low end and going to the high end," says Forrester Research principal analyst Charles Golvin. "Apple is only going after a thin slice of that market."

In pictures
Seven cool new iPhone applications

Apple's other big problem in India is distribution. It sold its handsets exclusively through carriers Airtel and Vodafone, Mint reported, rather than the retailers that move most of the market's phones. In short, Jobs' knack for moving merchandise in the US simply may not translate in markets such as India.

Nokia, however, has already cracked that problem. While Nokia warned on Friday that a slowing global economy will cause its handset sales to fall next year, the Finnish handset maker remains strong in the developing world, and its presence in India is 'overwhelming,' says wireless industry consultant Gregory Gorman. That helped Nokia hang on to 39.9 per cent of the worldwide smart-phone market, according to Canalys, despite a withering assault by Apple and Research In Motion.

And while Nokia has been slow to counter Apple with new handsets, Merrill Lynch analyst Andrew Griffin now expects Nokia to finally get itself into gear. 'Expect a slew of new high-end phones with wide screens, touch and or sliding keyboards, advanced haptic interfaces, and gaming and music hardware features,' Griffin wrote in a note to investors Monday, upgrading Nokia to buy from hold.

Those me-too touchscreen phones may not catch on in the US, where the carriers have long shunned Nokia. But Nokia's distribution muscle in India, China, the Middle East and Africa means its iPhone-inspired models could get in front of more consumers first.