Author: Viranch Damani

Could WhatsApp Kill Dual Sim in Emerging Markets?

Dual SIM handsets are very popular in emerging countries for a variety of reasons. The most common is saving money. In this post, I’ll be explaining how Dual SIM handsets became popular and the role the internet played and how, ultimately, the internet might end up killing Dual SIM handsets.

How Dual SIM handsets came into being

As many of you know, most emerging countries don’t have any contract system. The carriers don’t subsidize devices nor do they even sell devices for the most part. This means carriers have almost no influence on the sale of a device in emerging countries and, by extension, no influence on the making of a device.

In countries such as the US, having carrier relationships is very important for a manufacturer to do well — just ask Sony. In contrast, the fact carriers in emerging countries have no influence on the sale/making of devices makes it a lot easier for new entrants to enter the market with a reduced barrier to entry.

The reduction in barrier to entry has meant a whole host of local manufacturers such as Micromax and Evercross have become popular in emerging countries. These local manufacturers have always tried solving problems unique to their regions. For example, Micromax’s founder, while on a tour of rural areas, saw how people lined outside a shop to charge their handsets. This encouraged him to make the first handset which had a battery that lasted for weeks.

Similarly, Dual SIM handsets were one such innovation that were mostly developed by local manufacturers. Soon the popularity of Dual SIM handsets from local vendors grew to such an extent that even Tier 1 manufacturers had to adopt them. The reasons for their popularity?

1) No contracts – If consumers in emerging countries were stuck in two-year contracts similar to that of other countries, Dual SIM handsets would not make sense

2) No control by carriers – Since carriers didn’t sell the handsets, they had no control in their making. Had carriers sold the handsets themselves, I am pretty sure something like Dual SIM would never have been possible

3) Vast majority of market is prepaid – In most emerging countries, consumers pay carriers money upfront for airtime, data services etc. So, once a user wanted to stop using the services of a particular carrier, he could do so without owing the carrier anything.

4) Intense competition – Compared to developed countries, competition among carriers in emerging countries is even more intense. This means operators keep launching new offerings to lure customers. Certain states in India, for example, have as much as eight operators. I’m not talking about MVNOs. These are eight real operators with their own spectrum and infrastructure.

Smartphones as a great enabler

Feature phones prevented me from truly embrace Dual SIM. However, all that changed with the smartphone.

Being a teenager, my primary form of communication was texting. When I owned a feature phone, texting was done through SMS. With SMS, your identity was dependent on the number of the SIM card you were sending the message from.

With the growing proliferation and popularity of smartphones, all my texting shifted from SMS to WhatsApp. The people whom I previously used to send SMS’ to had made the jump to smartphones and adopted WhatsApp. It’s now my primary means of communication and no longer do I send SMS messages.

The beauty of WhatsApp is it allows a person to register with one number and use the internet from a completely different one. For example, I could register on WhatsApp with my primary number 994023xxx and use the internet of my secondary number 971049xxx. Despite using internet access from 971049xxx, all my messages would still be sent under 99402xxx since that’s the number I had registered with WhatsApp.

WhatsApp allowed me to text under a single identity by leveraging the internet as medium. Regardless of whether I was using wifi or data from carrier ABC or carrier XYZ or carrier 123, all my messages would be sent under the number I have registered with WhatsApp.

WhatsApp was what made me truly embrace Dual SIM. I would insert my primary SIM with the number 994023xxx and make and receive calls on that number. My secondary SIM would only be used for data purposes. So, if my secondary number 971049xxx provided me cheaper data than my primary number 994023xxx, I could subscribe on my secondary number and preserve my identity. Alternatively, if a third operator 123 provided me even cheaper data rates, I could just swap the secondary SIM with the SIM of my third operator 123. Remember, the secondary SIM is just being used to provide internet access, the number of the secondary SIM has no relevance.

Could Dual SIM ever die?

The answer is yes. Just as WhatsApp leveraged the internet and made texting possible by delinking the number of SIM card being used, we need a solution for calling as well which uses internet as a medium and delinks the number of SIM card being used.

Indeed, WhatsApp and Facebook Messenger have moved in that direction by integrating voice calling in their apps. Standalone apps like Skype and Viber do pretty much the same. However, there are key differences between something like texting and calling.

1) Texting was mostly done by savvy users and generally young people who have by now made the transition to smartphones and, by extension, WhatsApp. Hence at least 95% of the people I used to text in the past are now on Whatsapp — allowing me to bypass traditional SMS completely and adopt WhatsApp as my sole texting platform. But in the case of phone calls I still call people who don’t own smartphones — my grandmom, the laundry guy etc. These people still use feature phones and until they use a smartphone it will be difficult for a VOIP app to completely take over calling the way WhatsApp took over texting.

2) Text messages on WhatsApp even work on basic EDGE connections. However, VOIP isn’t even possible on 3G given that, at least in India, latency is too high. It’s only on 4G that VOIP works smoothly. But 4G adoption is far from ubiquitous and wifi is not available everywhere.

Dual SIM smartphones will only die when either carriers adopt uniform pricing (which isn’t happening) or when a common app or a collection of apps make calling and texting possible by delinking the number of the SIM card being used. Once both calling and texting are possible by leveraging the internet as a medium, then the number of the SIM card doesn’t really matter and you could very well use just one SIM to provide the data connectivity.

In my current scenario, I’m texting using WhatsApp which only requires some form of internet connection and the number of the SIM card being used for data doesn’t matter. For phone calls I’m still placing traditional calls and the number of the SIM card is my identity. So I’m having to use my primary SIM card for calling and secondary one for data. In case calling also becomes possible over the internet I could just pop in the SIM card of the cheapest operator and use my smartphone for calling and texting.

A View from India: How iPhone Stacks Up

With growing saturation in US and China, India is the next market every smartphone manufacturer wants to have a part of. After China and US, India is the third largest smartphone market in the world.

While India is the third largest market, it has just 10-15% smartphone penetration. So the potential is vast for manufacturers in the years to come. India is well on track to overtake the US as the second largest market and could overtake China as well, given its ever growing young population and falling prices of smartphones.

Less unit share but more value share

Market share in India is dominated by Android followed by Windows Phone with iOS comes a very distant third. In terms of market share iPhones constitute a very small percentage of the Indian smartphone market (<5%). But it must be noted that iPhones still have a greater share of the value of India’s smartphone market. Despite having such meager share, Apple is the second or third most valuable brand in India, surpassed only by Sony and Samsung — the second and first most valuable brands in India, respectively.

Over time, I expect Apple to become the second most valuable brand, given Sony’s falling market share and its fading fortunes. Similarly, I expect Apple to one day overtake Samsung and become the most valuable brand in India as Samsung continues to battle it out with the flood of Chinese manufacturers. The battle with Chinese manufacturers means Samsung can either retain market share by reducing margins to compete or they can hold margins but risk losing share. Either way, Samsung’s profitability is destined to go downwards in the long term.

Lower satisfaction rate for Apple

Apple has a name worldwide to lock users into its ecosystem of devices. As much as 80-85% of iPhones users plan on upgrading to another iPhone when they purchase their next device. This, of course, has been because Apple is one of those very few companies that enable people to make the most out of their devices without really requiring them to be geeks/power users. And the splendid combination of hardware and software gives a pretty awesome user experience. Top this with superb interoperability of the iPhone with MacBooks, iPads, etc. thanks to features such as AirDrop, Continuity and the like and it’s not difficult to see why iPhones are liked by so many and have people coming back to them again and again each time they upgrade.

But it’s important to remember this performance is only achieved with the help of splendid hardware. The latest iPhone 6 and 6 Plus come with some of the best processing power found in smartphones along with accurate displays and some of the sharpest cameras. This cutting edge hardware is what powers the iPhone and makes using it a real delight. I’m not saying software is not important but, if we consider a smartphone as a bird, then hardware and software are its wings. A bird needs the best of both wings to fly to the highest levels.

In most developed countries, many people use the latest iPhones. Although a part of this has to do with the fact users in developed countries have higher spending power, the way carriers have operated in developed markets has also helped Apple a lot.

In most developed countries, carriers often subsidize the cost of a smartphone, although this practice is slowly fading away as US carriers turn to installment plans and Chinese carriers cut subsidies to boost profitability.

The practice of subsidizing smartphones made the latest iPhones available for as low as $200 or so. The subsidy was then recovered from consumers in the form of two-year contracts which forced a person to stay with a carrier and terminating those contracts meant a hefty fine. Also, the general service fee was higher since it even included the cost of the device. This made the carrier look expensive and the average Joe thought the price of the latest iPhone was just $200.

Even though it made a lot of people hate the carriers, the subsidy was a boon for Apple and several high-end Android manufacturers such as Samsung and HTC. It enabled them to sell their high-end smartphones at 1/3rd to 1/4th the price of its unlocked retail value. The remainder was subsidized by the carrier.

However in India, subsidies were never popular since carriers over here operate at razor-thin margins. Smartphones have been bought unlocked for its full retail price and people chose a carrier of their choice and inserted the SIM of that carrier in their smartphone. They are free to swap it anytime they want since there are no contracts.

Along with the lack of subsidies by carriers, general spending capacity of Indians is also far lower. India’s GDP per capita is far lower than something like the US or Japan.

The lack of subsidies and lower GDP per capita made the market for high-end smartphones very dull in India. The share of smartphones costing more than $600 is less than 5% here. This has, in turn, meant very few people can actually buy the latest iPhone in India. In fact, even the predecessor to the latest iPhone is sold at such a high price that very few Indians can afford it.

However, Apple does sell its legacy lineup in India at the price of a mid-range Android smartphone that many Indians can afford to buy. The iPhone 4S 8GB sells for around $220-$230 in India. To be honest, these lower-end iPhones are the ones that end up selling the most in India since this is what Indians can afford.

As with most other countries, Indians have an affinity towards the Apple brand. The iPhone acts as a status symbol in India. Owning any Apple-made product is one of the biggest aspirations for Indians, at least in the tech sector. This aspiration, coupled with the no subsidization and lower GDP per capita, means most people end up buying legacy Apple devices.

The issue is these legacy iPhones come with really outdated hardware. However, most people aren’t savvy enough to understand the role of hardware in the user experience or to properly gauge it. Many in India believe buying any Apple device (even legacy ones) will provide them the same experience.

However, legacy iPhones hardly deliver the kind of performance expected. Apple’s habit of updating the iPhone’s OS frequently is a good thing but, in the case of legacy hardware, it bogs down their performance even more. One of my friends bought an iPhone 4 and, after receiving the first update to iOS 7, the iPhone 4 became nearly useless. Lag was beyond description and the experience was nowhere near satisfactory. My friend swore never to invest in any Apple product ever again.

The same is going to be the case with iPhone 4S and iOS 9. Although iOS 9 is focused on improving performance and the iPhone 4S’ hardware is a giant leap up from the iPhone 4, the experience is still not going to be anywhere near what an iPhone 6 can offer.

These lower-end iPhones like the iPhone 4 and 4S constitute most of the iPhone shipments in India. Given how old these devices are, their experience is often sub-par at best. This leads to a high dissatisfaction rate among Indians for the iPhone. As stated at the beginning, 80-85% of people plan on buying an iPhone the next time they upgrade. Of the remaining 15-20% who don’t plan on buying an iPhone the next time they upgrade, a significant portion of that comes from countries like India.

At the same time, when these dissatisfied iPhone users upgrade, a lot of them give Android a chance and, after using something like the Moto G which also sells for around $200, most of these iPhone users feel Android is so much better than Apple’s iPhone. This dynamic puts Apple’s still costly legacy hardware up against new hardware with higher specs at lower prices from the Android OEM landscape. See this chart on how the best-selling iPhones in India compare to newer low-cost Android smartphones.

iPhones5C Click to enlarge.

Credits to Apple

Despite the numerous challenges Apple faces in India, they are not giving up but doubling down on their Indian operations.

Over the past two years, Apple has launched various commercials to boost the sales of the iPhone. The Cupertino firm has launched EMI plans for users that make buying an iPhone easier. It has launched back-to-school promotions for the Mac. With online purchases for tech products like smartphones becoming normal in India, Apple can move to be less reliant on physical retail channels and gain traction more through e-commerce.

The company has also expanded its distribution partners. Recently, it inked an agreement with BrightStar to distribute iPhones in India and Redington and Ingram Micro have been its distributors in India for quite some time now.

Apple doesn’t have its own stores in India given certain regulatory hurdles but Apple does operate in India through the franchise model. But even its franchise model provides one of the best in-store experiences among smartphone manufacturers. The employees are well trained and know each and every aspect regarding the Apple devices they have on display. Apart from this, service of broken iPhones has always been a delight with Apple. The Cupertino firm always replaces iPhones which are under warranty as long as the cause of the defect is genuine.

Apple has also priced apps on the App Store and songs on iTunes at very reasonable levels. Google has only now taken this approach — for the most part, apps and other content on the Play Store were a direct conversion of their US pricing. However, Apple has always made the pricing of their digital content lower in India than compared to the US.

Conclusion

Apple’s ability to compete and, more importantly, grow in mature markets has been proven by the steady growth in its Mac line. Indeed, the smartphone market is moving in a similar direction. But while even entry level Macs provide a superior user experience when compared to their Windows counterpart, this does not seem to be the case with the iPhone where the entry level models are providing a underwhelming user experience when compared to their Android counterparts. Apple needs to fix this if it is to grow in India. Either Apple needs to discontinue the sale of lower end iPhones or optimize the updates in such a way they work flawlessly on every iPhone which, to be honest, is almost impossible.

One possible solution is for Apple to sell refurbished devices in countries like India. In the US, the shift to leasing plans such as T-Mobile’s Jump on Demand and iPhone Forever program will make people return their iPhones every time they upgrade.

If these returned iPhones are refurbished, packed and sold again by Apple in emerging countries such as India at reduced rates they would sell very well. This will have two possible solutions:

1) Apple would not have to develop a low-cost iPhone for emerging markets and risk possible cannibalization of the high-end.

2) These refurbished iPhones, sold at reduced rates, will not only help Apple boost sales significantly but will help them maintain a good experience for the end users which is very important for Apple’s business model.

For example, now that the iPhone 6S will be launching in September, a lot of people will give their iPhone 6 or other smartphones to friends and family and upgrade. These iPhones can be then sold again in India next year.

Certainly, users would be buying a year old used smartphone. But Apple’s brand image and their excellent replacement policy will give users a lot of confidence.