Indigenous Smartphone Design Increases Competition
VMK , the R epublic of Congo based consumer electronics designer, has unveiled the first sub-Saharan African designed smartphone as it looks to take on established players such as Huawei , Nokia and Samsung . VMK's Elikia handset uses the Android OS and will be available on Airtel , MTN and Warid 's networks. BMI expects VMK to have only a marginal impact on the market with its first smartphone. However, we believe there is considerable potential for local designers to pose a competitive threat to larger international handset vendors through improved user experience and an emphasis on local applications and content.
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A number of factors are converging in Sub-Saharan Africa , which BMI expects to underpin high rates of growth in smartphone sales - attracting both local entrepreneurs and international vendors . First, rising incomes will drive demand for higher value handsets, although we expect Africa's growing middle class to find mid-range smartphones attractive price points, with flagship devices such as Samsung 's Galaxy S3 prohibitively expensive to all , but those on the highest incomes. Second, operators have been investing in wireless data networks as they capitalise on dramatic increases in international connectivity with the spread of submarine cabling around the continent. Finally, Sub-Saharan African markets are becoming increasingly well regulated, reducing the revenue loss from counterfeit phones , however this is by no means uniform across Africa (see our online service, September 7 2012, 'Opportunities And Challenges In Counterfeit Phone Clampdown') .
BMI forecasts the impact of these three trends to dramatically increase the value of the smartphone market over the medium term. In 2011 we estimate that 35% of handsets in Africa were 3G, 3.5G or 4G - a figure we expect to jump to 65% by 2016. Perhaps more significant is the jump in 3.5G as a share of total subscriptions, which was 20% in 2011, but will reach 57.9% by 2016. Given this potential Africa is set to become a key market for handset vendors over the medium term.
Context Specific Smartphones Will Outperform
VMK Elikia 's smartphone will target the mid-range smartphone market, costing about US$160 for a 3G model - placing at the higher end of the price range for smartphones that BMI expects to see strong growth in Africa . It will compete with popular handsets from established international vendors such as Huawei ' s Ideos handset , which is estimated to have taken a 45% market share of the Kenyan smartphone market in 2011. Meanwhile , Samsung is also making Africa a strategic priority, launching stripped down versions of its flagship smartphones such as the Samsung Galaxy Pocket , which it recently launched in South Africa and Kenya. Samsung is targeting US$10bn in sales in Africa in 2015.
BMI expects the Elikia smartphone to make little immediate impact in the market as t he Samsung Galaxy Pocket sells for approximately US$120 and Huawei's Ideos for US$80 - undercutting VMK . Despite outsourcing manufacturing to China , VMK is never likely to challenge large handset vendors in ter ms of price point and features, limiting widespread appeal.
While the Elikia is unlikely to storm the African smartphone market , it has interesting features that demonstrate the value of local design. Indeed the vendors BMI expects to outperform in the African smartphone market will produce handsets relevant to the economic environment and local demands for features. In this regard VMK's experience may be valuable to a latecomer to the African smartphone market, or an established vendor looking to refresh its product range.
Features that stand out include the development of a VMK app store, with prepaid gift cards. This works on the basis that app retailers such as Google's Play store do not take Congolese credit cards. This built -in workaround could prove a popular feature in other countries where credit card use can be problematic, and in any case large numbers of new smartphone buyers in future will have no history of credit card use so prepaid app purchasing and carrier billing is a significant opportunity. Another feature is the Wi - Fi hotspot functionality enabling the Elikia to connect five Wi - F i devices - valuable for users in a continent where ubiquitous wireline and Wi - Fi coverage is a long way off. Promoting hotspot technology as a key feature and is in contrast to developed markets where hotspots have been contentious , with network operators discouraging or even banning use.
BMI does not consider these features to be transformative and will not threaten market leaders such as Huawei and Samsung. However, we believe there is value in local design to improve the quality of user experience. In this area we believe Huawei has an advantage out of the international vendors based on its deep engagement in a host of African markets, including local R&D facilities. However there remain opportunities for other vendors to acquire local knowledge and design approaches from firms such as VMK and make a late push into African smartphones. However, we believe that vendors interested in the sub-Saharan African market must move quickly or they will be left behind as the market is developing rapidly.