Future of Unbranded Chinese handsets in India

Thesis Report on

Future of Unbranded Chinese Mobile Handsets

Submitted by:

Vineet Saraff

Section: Fn3

PGP-SS-2008-10

Alumni No: DS/08/10-M-173

International institute of planning

& management, satbari New Delhi.

Chinese handset’s with “fake IMEI numbers” and its future in India. Page 1

EXECUTIVE SUMMARY

Government of India, Ministry of Communications & IT, Department of Telecommunications had issued CIRCULAR NUMBER NO.20-40/2006-BS-III(PT.)/ (VOL.I) DATED: 6"' OCT, 2008 which makes all the Network operators in the matter of national security to validate the IMEI numbers of Mobile Handsets before granting them access on their networks. The non validated IMEI numbers on these handsets which are nulls and zeros on handsets will be not be processed by them and therefore will be rejected. This Ruling will mostly affect the innocent customers as almost all these handsets are owned by low end customers – the common man, who have saved for several months to buy such handsets to enhance their personal productivity and augment their income. Thus, it would be unfair and unjust to disconnect such customers as they have bought these handsets unknowingly and after all, these are plentifully available in the market and also the customer is not aware of IMEI number and implications of its absence in a handset. Their mobile handsets will cease to function once the network operators implement the above mentioned ruling.COAI (Cellular Operators Association of India) in conjunction with GSMA (Global System for Mobile Communication Association) the global body for issuing IMEI numbers and its Indian Decimal administrator MSAI (Mobile Standard Alliance India) proposed implementing a onetime GII PROGRAM nationwide in the interest of unwary subscribers, without compromising the objectives of the law enforcement agencies to be able to lawfully intercept and track mobile handset with unique IMEI number.This GII program has given a new life line to these Unbranded Chinese handset users because the users can now get a new IMEI number Implanted on their handset through MSAI’s Authorised GSP (Genuine Service Provider) centres around India which numbered more than 2000. Securities agencies and COAI had high hope of the success of the GII program but due to low public awareness (mainly because of almost nil advertisement) only around a million Chinese handsets could be cured out of the total 30 million. India’s inability to stop illegal import was exposed again and Chinese handsets with fake IMEI numbers are still being imported even after being banned by the government.

Vineet Saraff Page 2

TELECOM INDUSTRY

It is a huge market—and still growing. By the time you finish reading this sentence; more than 200 mobile phones will have been sold worldwide. At a rate of close to 3 million devices sold per day, 2009 marked another record year for the mobile handset industry. About 650 million devices were shipped to customers globally in a market worth over US$300 billion—for devices alone.

Mobile rigs were the beginning of mobile phones for use in vehicles such as taxicab radios, two way radios in police cruisers, and the like. A large community of mobile radio users, known as the mobileers, popularized the technology that would eventually give way to the mobile phone. The concept of using hexagonal cells for mobile phone base stations was invented in 1947 by Bell Labs engineers at AT&T and was further developed by Bell Labs during the 1960s. One of the first truly successful public commercial mobile phone networks was the ARP network in Finland, launched in 1971.The first hand held mobile phone to become commercially available was the Motorola DynaTAC 8000X, which received approval in 1983. Until the late 1980s, most mobile phones were too large to be carried in a jacket pocket, so they were usually permanently installed in vehicles as car phones. With the advance of miniaturization and smaller digital components, mobile phones got smaller and lighter.

The phenomenal rise of the mobile phone has seen its image change from a yuppie status symbol to a daily essential. Along the way, it has created thousands of jobs, changed the way we do business, and made an awful lot of money for investors. Today Key Handset technologies include GSM, CDMA, and 1xEV-DO, WiFi VoIP, TDMA, 3G, 4G and Blue Tooth. Worldwide mobile phone sales cruise to 990.8 million units in 2006, up a hefty 21.3% from 2005’s 816.6 million units. The estimated growth figures are—6.4% in 2007, 4.8% in 2008 and 2.6% in 2009. Notwithstanding the gradual decline in the growth figures, the annual handset sales are predicted to reach more than US $ 3 Billion by 2009.The total number of mobile phone subscribers in the world was estimated at 2.14 billion in 2005. Around 70% of world's population have mobile phone coverage as of 2006. This figure is expected to increase to 80% by the year 2010. With the periodic introduction of new features and multimedia tools in the mobile handsets due to technological advances, more and more people in the Asian continent fancy buying them. There are many diversities and complexities in the Asian mobile handset market due to types of customers, government regulations, regional/geographical wireless infrastructure, and the purchasing power. Basically, the Asian market looks at the mobile handsets as status symbols. The market is seen best for the low-end phones, but there is a huge rise in the demand for flashier and costlier phones. India, China, Korea, and Malaysia are fast evolving as the biggest markets for mobile handsets and in coming years they will mainly carry on the global handset sales.


MOJOR HANDSETS MANUFACTURERS:

1. Nokia Corporation is currently the world's largest manufacturer of mobile telephones. It produces mobile phones for every major market and protocol, including GSM, CDMA, and W-CDMA (UMTS).The corporation also produces telecommunications network equipment for applications such as mobile and fixed-line voice telephony, ISDN, broadband access, voice over IP, and wireless LAN. Nokia's Mobile Phones division provides the general public with mobile voice and data products across a wide range of mobile devices. The division aims to target primarily high-volume category sales of mobile phones and devices, with consumers being the most important customer segment. Nokia believes that design, brand, ease of use and price are mainstream mobile phones' most important considerations to customers. Nokia's product portfolio includes camera phones with features such as megapixel cameras which appeal to the mass market.

2. Motorola is an American multinational communications company based in Schaumburg, Illinois, a Chicago suburb.Most of Motorola's products have been radio-related, starting with a battery eliminator for radios, through the first walkie-talkie in the world, defence electronics, cellular infrastructure equipment, and mobile phone manufacturing. Motorola has recently been regaining market share in the cellular-phone business from Nokia, Samsung, and others due to stylish new cellular phone designs.

3. Samsung Electronics is one of the world's largest IT companies by revenue. The company also claims to be have the highest brand value among consumer electronics companies. Headquartered in Seoul, South Korea, it is part of the Korean Samsung Group, operating in approximately over100 countries. It is the number 1 mobile phone manufacturer in Asia.

4. Sony Ericsson is a joint venture established in 2001 by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. Both companies have stopped making their own mobile phones. The reason for this merger is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. The company's global management is based in Hammersmith, London. It also has research & development teams in Sweden, Japan, China, Canada, the Netherlands, the United States, India and the United Kingdom.

5. LG Electronics is one of the world's leading electronics companies. It is part of the Korean LG Group, operating in approximately 80 countries. Its mobile phones division provides CDMA, GSM, 3G Handsets.


6. BenQ-Siemens is the mobile communications subsidiary of Taiwanese BenQ Corp. The division was formed out of BenQ's acquisition of the struggling Siemens mobile group in 2005. The stated goal of the company is to pull together BenQ's lifestyle experience, their renowned design team and Siemens' engineering capabilities to create a new leader in the mobile communications arena. The newly-formed company won the most iF design awards in 2006, and also won many design awards in Germany's reddot competition.

Company 2008 Market Share (%)Nokia 39Samsung 1 15.6Motorola 12.7Sony Ericcson 9.1LG 7.7BenQ Mobile 2.4Others 13.5


MOBILE HANDSET MARKET IN INDIA

The Indian mobile success story is quite dramatic. When the first mobile came to India the industry accused itself of being a late starter but analyzing closely it was a boon in disguise. In 1989 the number of its subscribers was zero in India. India’s love affair with cell phones started in the mid-1990s, as the mobile revolution took hold and India had just 10 million mobile and landline connections. India embraced cellular technology when 2G systems were already in place in most foreign countries and thus bypassed 1G technology thereby gaining access to a superior technology like 2G and India did not have to try this technology as most of the lesson learnt by the European deployments could be transferred to India. India embraced GSM nearly 8 years after it was taken up in Europe. Most of the equipments had already become very cheap by then. This allowed for mass deployment in the country.

The cell phones industry has shown a remarkable growth in the last decade. Growth then soared in the last four years due to regulatory change and falling costs of calls and handsets. India’s wireless market is a test bed for alternative infrastructure, handsets, billing systems, business models and marketing strategies that will likely prove applicable to other developing countries. On a numerical basis, India is the biggest growth market adding about 6 million cell phones every month. CAGR for mobile phones is 86% in India. It is one of the fastest growing mobile markets in the world; in April 2009 mobile subscriber base crossed 400 million mark. This has been accomplished by rethinking handsets, network infrastructure, enhanced services and content. More than two-third of mobile subscriptions are with GSM operators and rest with CDMA. India has one of the lowest mobile phone tariffs in the world resulting in low Average Revenue per User (ARPU) of 9.04 USD per year (CDMA 5.74 USD and GSM 8.89 USD).

Indian land area covered by mobile networks is approx 30%. CAGR of Mobile Market Value for 2004- 2009 is 36.9%.With 156.31 million cell phones; teledensity in the country is still low at 17.45%. Fewer than eight in every 100 Indians use mobiles, compared with China's 30 per cent. In India, about 13 percent of people have cell phone which has increased from 8% in 2005 and is expected to reach 40 percent within a few years. A lack of investment in the infrastructure needed to support landline services means there are only 50 million fixed-line users in the country, leaving the stage set for mobile operators. India is expected to have the third largest mobile user base, behind China and the US, by the year end and will become the second largest market of mobile handsets by 2010. Indian cellular market would account for 11% of the overall Asia Pacific and Japan market by 2009 and is expected to reach 500 million subscribers by end of 2010 with CAGR of 33.7% for 2004- 2010.


The major players in the handsets segment in India include Nokia, Motorola, Sony Ericsson, Samsung, LG, Philips, Panasonic, Bird, Sagem and BenQ. Nokia is the market leader in the Indian market with 70 % share, while US giant Motorola has 15 % share and Sony Ericsson has gained around 8% share this year. Samsung has 5% share and LG has 1.8% share.Now a day’s cheap Chinese handsets are being dumped into the Indian market having technical specifications of high end branded handsets at half the price. This enabled new segment of the society who earlier could not afford high end mobile to buy mobile phones having features like MP3, camera, email etc at a price range of Rs. 3000 to 5000. These handsets are capturing the market at a staggering rate leading to reduction of market share of the more established players.

Innovation has been driving the industry. Today’s devices are much more than simply mobile handset. They offer a variety of features, ranging from PDA to gaming functions to digital photography—and that is only the beginning. Wireless is going broadband and setting the scene for video-telephony and more, based on 3G, Wi-Fi, WiMax, and VoIP. Unrelated industries have become competitors overnight, as camera-equipped mobile phones begin to compete with traditional cameras on their home turf. Each of these advances —and others like them—is reshaping an industry that increasingly resembles the general consumer electronics market mechanism. Competition will intensify; price pressure will increase.


INTRODUCTION TO PROBLEM

India just like any other country in the world is facing the problem of import of cheap, unbranded Chinese handsets which poses serious threat to National Security. One might ask why is it so? Well as per Global System for Mobile communications Association (GSMA) 90% of these Unbranded Chinese either has no International Mobile Equipment Identity (IMEI) number or Cloned IMEI of branded handsets. IMEI is a 15 digit number which is unique to every GSM mobile phones. With the help of the IMEI number security agencies can identify the mobile calls and as such handsets with the no IMEI number poses a serious threat to national security. These handsets have been used in Jaipur attacks by terrorists as a detonator. Fearing similar attacks in the future the government of India through Department of Telecom (DOT) ruled that all Chinese handsets having fake IMEI will stop operating from 1st December, 2009.

Mobile Standard Alliance of India (MSAI) is world’s 4 th and India’s only company authorised by GSMA to issue IMEI in the world. Based in New Delhi the company has been given exclusive right by DOT to give a fresh life to the users of these Chinese handsets who would otherwise loose the right to use their phone. Being a company that started its operation just in 2008 the company faces many challenges to meet the huge logistics requirement for implantation of IMEI numbers Pan India. As per data disclosed by TRAI and COAI there are more than 20 million Chinese handsets which will be affected by this ruling

An IMEI number is one of the most important parts of a cell phone which helps to identify a specific mobile phone being used on a mobile network. And having a subscriber base of more than 400 million people, it’s really tough for the operator to detect cloned IMEI numbers which are working on multiple handsets. Unbranded Chinese mobile handset normally contains fake or cloned IMEI numbers, which pose a threat to national security. These mobile phone having a fake IMEI numbers have been barred by the service provider after 30 th NOV as per Department of Telecom (DOT) directive. Having a genuine IMEI number in the mobile phone, helps the service provider to keeps an eye on the mobile users so that it can enhance national security & prevent use of telecom services for illegal purposes. Cloning of IMEI numbers have became rampant and the government should consider banning services to those sets because an IMEI number is a number which is unique to every GSM and WCDMA and iDEN mobile phone, as well as some satellite phones also. The IMEI number is used by the GSM network to identify valid devices and therefore can be used to stop a stolen phone from accessing the network. It can also be used to track a mobile device.

To give an example, after the Mehrauli blast the terrorists melted away without a trace. However, assuming that they had mobile phones, it should have been possible to track them down by zeroing in on all the phones that started to move away from the blast site immediately after the bomb went off. Instead of blindly putting roadblocks across the city,


the security forces could have pinpointed all suspicious post-blast movements and caught the terrorists. Security forces believe that, as it appears in the Mehrauli case, terrorists have taken to these unbranded Chinese phones to mask their movements. Currently, about 1-2 million Chinese phones come into the country every month. This figure was much higher before the talk of their ban started - in September 2008.

Naturally, not all of them are used by terrorists (only their readily available availability makes them a security threat). These phones are popular with consumers because of their low cost, often less than half the price of branded phones.

"Combination of IMEI numbers", or many phones with the same IMEI number, happens because the number is cloned in lots of 100, 1,000 or 5,000 phones by makers of unbranded Chinese mobile phones. This makes it impossible to trace a call or to locate a particular phone.

For example if a unique IMEI number needs to be traced by security agencies it can be traced easily even if the MSISDN number changes. We can lock that particular IMEI number for attention. However, this task would be impossible if thousand of handsets are working with the same IMEI number.


GSMA INTRODUCTION:

The GSMA represents the interests of the worldwide mobile communications industry. Spanning 219 countries, the GSMA unites nearly 800 of the world’s mobile operators, as well as more than 200 companies in the broader mobile ecosystem, including handset makers, software companies, equipment providers, Internet companies, media and entertainment organizations. The GSMA is focused on innovating, incubating and creating new opportunities for its membership, all with the end goal of driving the growth of the mobile communications industry.

In India GSMA has authorized MSAI (Mobile Standards Alliance of India) for issuing IMEI numbers to the manufacturers and importers. The IMEI numbers issued by MSAI starts with 91series (for IMEI) & 97 series (for MEID).

COMPANY PROFILE OF MSAI

Mobile Standards Alliance of India (MSAI) is the official reporting Body of GSMA for providing Genuine IMEI numbers to GSM Devices and mobile Handsets in India. MSAI also provides IMEI related assistance to regulatory bodies, network operators and Security agencies. MSAI is the Premier force behind developing standards in the Indian mobile Industry by studying global practices while customizing them for specific Indian needs. These Standards are created and implemented to enhance the value chain which the mobile industry provides to the Indian consumer. We mentor existing and emerging global and local handset Brands from standards and quality perspective.


INTRODUCTION OF IMEI:-

The International Mobile Equipement Identity or IMEI no. Is a number which is unique to every GSM, WCDMA and IDEN mobile phones as well as some satellite phones. It can be displayed on your screeen of the phone by entering *#06# into the keypad on most phones. The IMEI number is used by the GSM network to identify valid & unique devices. The IMEI is only used to identify the device and has no permanent or semi-permanent relation to the subscriber. The linkage between regulatory approval and IMEI allocation was removed in April, 2000, with the introduction of the European R&TTE Directive. After that only four reporting body who provide the IMEI numbers in mobiles:-

MSAI (Mobile Standard alliance of India) India CTIA (Cellular Telephone Industry Association), USA TAF China BABT (British Approval Board Of Telecommunications), UK

IMEI Number Structure

TAC - Type Allocation Code Serial Number Check Digit

NN XXXXXX ZZZZZZ A

Reporting Body Identifier, e.g. reporting body

Type Identifier defined by reporting body

Number range allocated by reporting body but assigned to individual mobile stations by the manufacturer.

Defined as a function of all other digits (calculated by the manufacturer).


Government of India, Ministry of Communications & IT, Department of Telecommunications has issued CIRCULAR NUMBER NO.20-40/2006-BS-III(PT.)/

(VOL.I) DATED: 6"' OCT, 2008

Banning Handsets with Fake IMEI number from 30th November 2009

Fig 1


ABOUT GII TOOL SOFTWAREDuring various meetings of DOT (Department of Telecom) and Security Agencies with Mobile Standard Alliance of India, they had posed certain requirements to be incorporated in the GII Program. These requirements are highlighted below:

1. The IMEI Implant solution should be secure, encrypted, robust and scalable: 2. IMEI number issued should not be manipulated during the course of the Implant and

should be implanted directly from the server.3. The IMEI Implant solution should be able to capture the photo of the bearer with

identity proof of the subscriber.4. The Genuine IMEI number once Implanted should not be allocated again.5. The Solution should capture the old and the new IMEI numbers.6. The Service centre to confirm that he has seen the identity document of the

subscriber.7. The IMEI Implant solution should expire after a given period of time.8. Transaction logs highlighting activities should be captured for all transactions for a

period of six months from the transaction date.

All of the above mentioned requirements of DoT and IB are incorporated in the GII Program

To facilitate these requirements MSAI had created state of the art software named GII (Genuine IMEI Implant) TOOL which directly connected MSAI’s server with over 2000 GSP centers all over India. The software once connected with the server asked for personal details of the owner of the handset which was forwarded to law enforcement agencies for the purpose of record so that it can be used latter if required. The software had an option of taking picture using both integrated and external WEBCAM.Once the data of the owner is entered a New IMEI number is transferred to the user’s handset using the data cable. IMEI implantation is a fast one which takes around 10 min per handset.

Step 1: The GSP center logs into IRS application software using his unique user Id and Password which is provided by MSAI. The user id and password is unique for an GSP center. Once the user logs into the software he uses can check the number of IMEI credit left with him in his account. The details of the shop and the number of IMEI left will be displayed in the toolbar near the IRS_App. As and when the GSP center issues IMEI number the number of credit reduces from his/her account. This IRS_App is an in-house MSAI’s software which directly connects the GSP center with MSAI’s server strategically all over India.


Now once the GSP has connected the handset with the SPIDER MAN BOX we select the option of COM port and we click on CHECK IMEI.


When we click on CHECK IMEI, the software automatically checks the IMEI number in the handsets and verifies it with the GSMA’s data base if the handset has a valid or invalid IMEI number. If it has an invalid IMEI number then the software shows an message Press OK to Issue a new IMEI. In case the handset has a valid IMEI number then the software does not allow us to go any further and the process ends here.

If there is an invalid IMEI we click on “OK” and the registration form opens. In the registration form the personal details of the owner of the Chinese handsets with fake IMEI numbers are entered. These details are being entered as per guidelines issued by Intelligence


Bureau. The form will be forwarded to the IB and other security agencies so that a data base can be maintained so that it can be used in future. The form has a facility of capturing Picture of the Owner and Govt. recognized ID proof which can entered either using a WEBCAM or Scanner.

Page where we enter data in software


Once the correct and appropriate details of the owner are entered in the data sheet an IMEI number is transferred to the handset. The new IMEI number is transferred and a printed copy of the new IMEI number along with the name of the customer, his address and his mobile number is attached along. The Shop owners name and address is also attached in the print out.

FIG 3: AFTER IMPLANTATION REPORT


RESEARCH OBJECTIVE:

The GII program was meant to provide relieve to more than 30 million cellular phone subscriber by providing them a once in a lifetime opportunity to get a valid IMEI number on their handsets having a fake one. The Program failed big time because of DOT’s refusal to extend the Deadline further from 30th November 2009. The GII program was able to help only 1 million subscribers i.e. 3% of the effected base.

The objective of the research was to find out the ground realities of various problems that were faced by the

a) MSAI’s representatives in various circlesb) CSD heads of Various Network Operatorsc) GSP center’s Ownersd) Chinese Handsets users


1. MSAI’S REPRESENTATIVES MSAI had employed 12 Relationship Officers to interact with CSD (Customer Service Department) heads of various telecom operators viz Airtel, Vodafone etc for the purpose of facilitating them in proper implementation of the GII program in different telecom circles. The task of the Relationship operators was uphill from the start with 12 Officers handling 22 telecom circles. Few officers were handling 4 circles at a time. In an interview with MSAI’s Representative Mr. Amit Nara (Relationship Officer MSAI for telecom circle Haryana, Punjab, Himachal Pradesh and J&K) I found that he faced many challenges. Some of which are

a) They had to solve all the problems at Operators endb) Create new GSP centers c) Being the sole employee in the 4 states.d) No clarity from management side whether the deadline of 30th Nov, 09 would be

further extended.

“GII was one of the best opportunity that a fresher can get because you get the chance to interact with the CSD heads of major Telecom Operators”, said Mr. Nara a MBA from IIPM New Delhi. If you want to interact with the best you need to step up your game plan. The operators were facing pressure from their CEO who wanted to ensure minimal loss of revenue because of Department of Telecom’s directive. Because of low numbers of GSP centers in their respective circles the operators were all the time demanding opening of new GSP centers which was not an easy task because Mr Nara being the sole employee of the company in 4 state and having a deadline of 30 days he faced a mammoth task which was impossible, as a result the operators were never happy with the working of MSAI’s representative. Airtel on its part provided the highest level of co-operation with involving most of its Airtel Relationship Centers (ARC) to implant Genuine IMEI numbers on handsets having fake IMEI numbers. The problem with involving ARC’s were that they are not mobile repairing experts so that had to learn completely from scratch the whole process of IMEI implantation. Also the minimum hardware requirement to become a GSP centers were

a) A computer cost approx Rs. 20000b) Spider Man Box cost Rs 5000c) Internet Facility cost Rs 500 d) Webcam cost Rs 150

Now the almost all prospective GSP had 3 of the above 4 requirement expect the Spider Man box. The profit margin that MSAI offered to its GSP centers were only Rs 30 with the investment of Rs 169 ( the cost of 1 IMEI number for the center was Rs 169 and the selling price was Rs. 199). Now in order to become profitable an GSP center had to sell at least 170 IMEI number to recover its cost of Spider Man box. Looking at the demand in the market it looked like an impossible task so almost all prospective GSP centers backed out. This created a lot of problem for the Relationship Officer cause without new GSP centers the user of the Chinese handset having fake IMEI numbers were returning back without getting a genuine IMEI number. Plus due to geographical constrain it was impossible for a man to travel all


over its territory to create new centre as a result huge chunk of areas were left without GSP centers.It was clear from the start that customer influx will only start once these Chinese handsets stop working because of Indian Mentality of not doing anything unless the threat becomes real. This was proved correct also because only after 1st December the GSP centers were crowded with customers but by then the DOT had clearly stated to MSAI that the GII program will shut down on 30th November and no extension will be given.


2. CSD HEADS OF NETWORK OPERATORS

In an interview with Mr. Naval Tiwari the service marketing head for Bharti Airtel of 3 telecom circle viz Kolkata, West Bengal and Orissa he remembers the GII program being of the toughest challenge he faced in his 16 year old career in Airtel. “The affected base in my area was more than half a million people which meant a possible loss of revenue for the company over a 1 crore per month. I had to take extra ordinary measures to resolve the issue, over 10 manager level employee were dedicated full time just to look into the program to ensure minimal loss of revenue.”

The management of the operators were not at all happy with the response provided by MSAI for the project. “It amazing how a company with no past experience was handed sole authority to implement such a big project” said Mr Tiwari.

Airtel WBO suffered losses of more than 1 crore in revenue for the month of November.


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Future of Unbranded Chinese handsets in India