Nokia most affected by counterfeit phones

Market researcher Gartner estimates sales of knock-off phones at 150 million this year

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Sales of counterfeit mobile telephones is expected to nearly double this year compared with 2008, estimates the market research company Gartner.
      Gartner calculates that total global sales of illegally manufactured telephones will reach 150 million. This means that one in ten mobile telephones sold in the world is an illegal copy or an imitation.
      Most of the shady mobile phones are manufactured in China. Illegal telephones can be roughly divided into two categories: precise copies, and imitations without a brand name. The latter do not resemble the originals as much as the direct copies.
     
What the shady phones have in common is that they usually contain a microchip manufactured by the Taiwanese semiconductor company Mediatek.
      “Between 80 and 90 per cent of Mediatek’s products are used on the grey market” says Gartner analyst Carolina Milanesi.
      Richard Windsor, technology expert at Nomura investment bank says that it is possible that the size of the grey market is significantly greater than the estimate by Tartner.
      “It is my estimate that this year Mediatek will sell about 350 million mobile phone chip series, and 250 million of these will go into the illegal market. The market is worth over EUR 5 billion”, Windsor says.
     
Both believe that Nokia will suffer most from the growth in the sale of illegal phones. The market share of the Finnish company is greatest in countries where there is the highest demand for illegal phones.
      “New market areas include Southeast Asia, the middle East, Africa, and Russia. We have also noticed that in Latin America there are very few illegal phones on sale. Dubai is one of the distribution points to the Middle East and Africa”, Milanesi says.
     
Windsor says that growth in the chip sales of chips by Mediatek has directly affected Nokia.
      “Nokia is the king of cheaper phones. That is why Mediatek’s sales are interfering with Nokia’s business the most. It is also possible that Mediatek is the reason why profitability for Nokia’s cheapest models has weakened”, Windsor says.
      The phenomenon is certainly not new. Counterfeit phones have been on sale since the beginning of the decade, when the manufacture of motile phones became mass production, and the process became easier.
     
Nokia says that the copied phones are usually manufactured in China in factories of fewer than 20 workers. The company has worked closely with local officials to prevent the activity. Chinese officials are interested in the factories because they do not pay taxes.
      In addition to eating away at Nokia’s sales, the company does not get the patent payments that it is due from the copy phones.
     
As long as sales of the illegal phones was limited to China, few seemed to be interested in the matter, Milanesi says. However, the situation has rapidly changed in recent years after the Chinese market opened up to the outside world.
      Milanesi emphasises that the grey market is not limited to the cheapest telephone models.
      “In India there are already many devices that resemble the Nokia N70.”
     
Nokia supports a proposal drawn up by Indian authorities which would make it illegal to link a telephone to the mobile phone network if it does not have the International Mobile Equipment Identity or IMEI code.
      The IMEI code makes it possible to identify the device in the mobile phone network. Copied telephones either do not have an IMEI code, or it has been forged.
      “No telephone operator wants to sell a malfunctioning copy phone. Then the consumer does not know where the problem is - in the network, or in the phone. If a phone is out of order, the operator loses business and gets a bad reputation”, Milanesi says.


Previously in HS International Edition:
  Nokia begins to examine confiscated mobile phones (24.3.2009)
  Very skilful counterfeiters swoop on Nokia mobile phones (23.3.2006)

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