Touch Me Not !!

Relocation blues have well and truly taken the toll on my life. This can only lead to one outcome – Me not contributing enough to my blog. But somehow managed to squeeze time out of my schedule to write this article. Well, I have to admit that I’m not in touch with the world of Telecom & Technology since the past one week because of lack of Internet access. But doesn’t the world today have alternative modes for information access…. This article is about the company which prides itself as being the Indian Multinational. OK! Videocon may bid for the handset business of Motorola… So what’s the big deal!!

The Problems faced by Motorola and the circumstances which lead to the business getting divided into three Business Units is no secret to anyone. The Mobile handset business of Motorola has been registering negative growth since quite some quarters now. Much of this negative growth in the handset business is because of the failure to replace the very popular Razr model, thereby leaving Motorola with no other option but to extend the Razr line of handsets beyond what market demanded (Razr 2 for example). Apple’s successful iPhone launch only added to its woes with investors demanding a product response to iPhone (which never came). Eventually, it lost the highly regarded 2^nd place (behind Nokia) in the World handset market share to Samsung recently and LG is already hot on its heels for the 3^rd position. Motorola eventually decided to split the troubled mobile handsets division after sustained pressure from one of its key investors Carl Icahn who wants the business to be sold.

Videocon on the other hand is charting unexplored territories. The Indian Consumer Electronics major was recently issued mobile licenses by the Department of Telecom in over 20 circles (Datacom). Although Videocon is still awaiting spectrum to start operations, it is first in the queue for spectrum in most of the circles where it has been issued license. Currently, it is on the lookout for strategic investors (preferably a foreign mobile operator) before the launch of Mobile Services. This will present an excellent opportunity for the likes of AT&T, FT etc who have made no secret of their intention to enter the Indian mobile space. Videocon also has got quite aggressive in the consumer electronics market in the last few years and to be fair, it is doing a pretty good job competing with the Korean powerhouses like LG, Samsung etc, chipping away their market share. Videocon believes that the timing of its entry into the Indian Mobile space with about 25% penetration is just about perfect, mainly because of the reduced capex requirements of operators (thanks to passive infrastructure sharing) and a proven business proposition. The Indian Mobile Market has been adding between 8-9 million subscribers each month in 2008 and about 75% of the additions are GSM based.

At the face of it, Videocon’s interest in the Mobile handset business of Motorola does seem sound. But it is not without its own share of challenges. The Indian handset market is estimated at approximately 100 million (new) units a year. If Videocon does succeed in its pursuit to buy the handset operations of Motorola, it will enjoy controlling the entire revenue chain. There are no major references that can be drawn for this kind of a model (operator cum handset manufacturer) apart from the Korean Market. The Loophole with this model is that you tend to alienate other operators from bundling their service with your handset. This may however, succeed in India because the market is largely prepaid and popularity of bundled handset-service is still very limited. With Motorola’s Global handset business valued at over US$ 3Bn, it may not be a risk worth taking. Videocon surely doesn’t have that sort of money internally and it may be left with no other option but to lend money from the market at a time when credit is at a premium and worldwide financial markets are dogged with uncertainty. Also, handset business is inherently innovation driven, something that Videocon seriously lacks. If it were the handset businesses ZTE or Huawei which was up for sale, it would have made good sense (because of market & cultural similarities) but Motorola has got high penetration in the western markets and this is where the whole acquisition would render unfeasible. Motorola also has a handset manufacturing facility in Chennai and Videocon will hope to move some of the jobs offshore. Videocon may succeed on the low cost front but what about High Innovation? This is reason behind the problems faced by Motorola today and unless Videocon has an answer to that question, it should stay away from the idea of acquiring the handset business of Motorola.

One Final Word before I end. If the acquisition does go through, it would mean a market full of hot opportunities for Videocon. My Heart says “Yes” for the acquisition urging Videocon to go the distance but my mind, in one stern voice says “No”.