Vodafone may not be a well-known brand in Pakistan but it could change soon – here’s why: Vodafone, the top cell phone companies in Europe, have announced that they will sellreally cheap phones targeted to developing countries. How about a mobile phone for Rs 1500 with a Vodafone brand on it? As you can guess it will be manufactured in China but it will have the brand name of a top carrier. Should be much better than the low quality phones coming to Pakistan from unknown manufacturers in China!

In April Vodafone bought 52% of Hutchison Essar in India thus making their arrival in emerging markets formal. Now they are the very first big carrier who is about to compete with the handset makers such as LG and Nokia. This week, Vodafone unveiled two very low-cost handsets (US$25-45, PK Rs 1500-2700) aimed primarily at customers in emerging markets such as South Asia and Africa.

WSJ made an interesting comment on this:

Cereal and cellphones may have little in common. But wireless-service provider Vodafone Group PLC has been cruising the supermarket aisle for inspiration. The world’s largest cellphone-service provider by revenue is rolling out lines of Vodafone-branded handsets, akin to supermarkets stocking their own store-brand products alongside established brands.

Behind the move is Vodafone’s desire to drive more people to use its services, both high-speed data services in established markets as well as more basic calling and text-messaging services in emerging regions. In some cases, the handsets may be packaged with Vodafone’s or a partner’s service.

Naturally Vodafone will want to sell its new phones to Pakistani market. Look out for some interesting deals in the near future as Vodafone settles down in India and contemplates its next move. Just speculating, how does a vodafone-ufone deal sound? At least it rhymes!

BusinessWeek also covered this story – Read Vodafone’s Low-Cost Cell Phone Gambit at BusinessWeek or read the excerpts below.

Vodafone executives announced in London that the company is rolling out its own line of ultra-low-cost handsets. To be built by a Chinese partner, the GSM-standard phones will carry the Vodafone brand name and sell for $25 to $45, depending on locale.

With its unexpected move, Vodafone (VOD) becomes the first carrier to introduce its own phones intended specifically for customers in developing countries. Until now most so-called “private-label” devices resold by operators have been aimed at the high end of the market. “[These] will be the lowest priced GSM products ever,” crowed Jens Schulte-Bockum, Vodafone’s global director of terminals, at the event.

True enough, but Vodafone could have a tough time getting its newfangled devices into the hands of consumers. For one thing, it faces stiff competition from the likes of Nokia (NOK), Motorola (MOT), and Sony Ericsson, all of which market their own inexpensive models and already have a big head start in markets such as Africa, South Asia, and Latin America [see BusinessWeek.com, 1/31/07, “Handset Makers’ Emerging-Markets Boost”].

Dealing With Saturation

In February the GSM Assn. made its latest award in a series of tender offers designed to drive inexpensive handsets into developing economies. This time South Korean giant LG Electronics was selected to supply millions of cheap, third-generation [3G] phones to a dozen carriers who have signed up for the plan. [Motorola has won several earlier bids for second-generation handsets, while Nokia largely sat out the program.]

Yet despite the crowded field, Vodafone sees value in getting devices bearing its name into the hands of new buyers. It’s all part of the Newbury [England] company’s two-year-old strategic push to fuel growth by moving into emerging markets. With markets near saturation in the developed West and Asia, Vodafone has little choice but to expand elsewhere.

Turning on a Dime

But Vodafone lacks brand awareness in markets such as India, so it’s hoping that selling phones carrying its own moniker will bolster its image and visibility among first-time buyers. Despite a relatively late market entry, the company argues it can compete successfully against Nokia and others, selling “double-digit millions” of the candy bar-shaped phones over the next three years.

Made by Chinese up-and-comer ZTE Corp., the initial lineup of GSM phones includes a monochrome-screen model called the 125 and a color-screen version called the 225. Both should start shipping in the next week to Egypt, Tanzania, South Africa, and Romania. Vodafone says it’s also working with French electronics giant Sagem on later additions to the lineup. Keeping the price down is the key. “Every 10 cents we take prices down on these products extends the reach of mobile telephony in these markets,” Schulte-Bockum says.

Selling inexpensive handsets pre-loaded with Vodafone software also is a camel’s nose in the tent to boost usage of mobile services. Like most carriers, Vodafone still gets the vast majority of its revenues from good, old-fashioned voice calls and text messages. But it sees opportunities, even in the developing world, to sell other wireless applications such as mobile banking.

Changing the Sales Model

“Vodafone has the product, but not necessarily the brand and distribution,” says Neil Mawston, associate director of market researcher Strategy Analytics in Milton Keynes, England. “And distribution will be their biggest challenge.”

That’s because emerging markets tend to rely on a completely different sales model. In the U.S. and much of Western Europe, upwards of 90% of handsets are sold via operators or operator-linked stores. But in China, by comparison, carriers account for only about 5% of cell phone distribution, says Mawston. The rest happens via independent retailers–often just mom-and-pop stores.

Sweet Spot for Buyers

Vodafone’s other problem is more subtle. No doubt low price is essential in emerging markets, where a handset can be the most expensive item a poor consumer has ever purchased. But for that very reason, buying name brands acquires significant importance. Analysts concede that Vodafone is a known entity–but global mega-brands like Nokia and Motorola have even more pulling power.

“In these markets the brand is a very important part of what a mobile phone represents; it’s how people express themselves,” says Gartner’s Milanesi. In India, she notes, buyers sometimes shy away from the lowest-price model “because they don’t want their family and friends to think that’s all they can afford.” Milanesi reckons the sweet spot for “aspirational,” low-cost phones in emerging markets is around $50 to $70.

Still, observers praise Vodafone’s low-cost handsets as a useful experiment. The move should help get the Vodafone name out to a new generation of customers. And it carries little financial risk, notes Strategy Analytics’ Mawston. “If it flops, Vodafone hasn’t lost much because ZTE bears some of the costs,” he says. “But if it goes gangbusters, this creates a huge opportunity.

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