Phones get cheaper, spares don't

When Nikhil Kant, a young Delhi-based businessman, bought his Nokia N73m in March 2007, he paid Rs 22,000 for it.

Earlier this month, when Kant went to have the battery changed, he found out that though the price tag on N73 had shrunk to Rs 12,000, the battery price was unchanged at Rs 2,250! He decided against replacing the battery and instead bought a new handset.

Mobile phones prices have crashed between 25 per cent and 40 per cent in the last one year, but spare parts remain more or less where they were. Privately, several mobile handset makers said that they prefer to keep the prices of spare parts and batteries high so that customers go for new handsets. In other words, it is a carefully crafted strategy to push handset sales.

Since spares account for a very small part of the revenues of a mobile handset maker, low sales in this segment do not dent their top line in any significant way. KPMG Advisory Executive Director Romal Shetty reckons that for a large mobile manufacturing company, the revenue from spare parts would be less than 5 per cent.

"The mobile components usually do not see a price drop like phones, which is due to the fact that the margins are lower in this market," said Motorola Mobile Devices Director (marketing) for India and South-West Asia Lloyd Mathias, adding: "Components are service products and not the main product; handsets will always be the main priority for us."

Mobile handset retailers Business Standard spoke to said that there has been a nominal decline of Rs 100-500 in the prices of panels and battery prices have softened by Rs 50-100 in the last one year.

Industry experts said that the cost of components like battery have declined a little with the shift of manufacturing to low-cost countries like China.

Till recently, most batteries and panels were manufactured in European countries like Finland. Now, with large companies like Nokia and Sony Ericsson shifting their units to East Europe and Asia, the prices could fall sharply in the days to come.

"If the prices of components come down enough to make replacement a more viable option, then there might be a larger share of revenues coming from this area, but for that to happen there has to be about a 25 per cent reduction in prices in components," said Shetty.