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Last Updated : Feb 19, 2016 07:59 AM IST | Source: CNBC-TV18

Ringing Alarm Bells: Could Freedom 251 be a fraud?

Ringing Bells Pvt Ltd, a hitherto-little-known Noida-based company, has suddenly caught people's popular imagination after it announced it would launch Freedom 251, an Android mobile phone priced at Rs 251.

Ringing Bells Pvt Ltd, a hitherto-little-known Noida-based company, has suddenly caught people's popular imagination after it announced it would launch Freedom 251, an Android mobile phone priced at Rs 251.

The company says that the phone, which carries budget-phone specifications, will be shipped to buyers by June. The company's website, which opened a purchase window this morning, says it has suspended sales for now after getting 6 lakh orders.

But many things have looked suspicious from the get-go: the phone looks eerily similar to Adcom Ikon 4, which retails for about Rs 3,600. Reviewers from several publications and tech websites that the test unit had had its branding whitened out. Others said their test units didn't work; everyone pointed out that software's look-and-feel resembles the iPhone operating system.

Further, the Indian Cellular Association, the apex body of mobile phone manufacturers, claims that the bill of materials for a phone of this specification comes to around Rs 2,700, and has raised concerns that the phone doesn't pass the smell test.

Pankaj Mohindroo
Pankaj Mohindroo
President|Indian Cellular Association

    The ICA even wrote to the Telecom Industry warning that the government keep its distance from the phone company -- which claims to be furthering the cause of Make in India -- following which Defence Minister Manohar Parrikar did not show up at the launch event despite being scheduled to.

    On his part, Ringing Bells President Ashok Chadha, in an interaction with media persons last night, put out some fuzzy numbers: saying that the company will save Rs 400-500 each by manufacturing in India (and benefiting from a duty differential), using economies of scale and by selling only through the online route.

    In an interview with CNBC-TV18's Nayantara Rai, ICA President Pankaj Mohindroo explained what was wrong with Ringing Bells' math.

    Below is the interview transcript on CNBC-TV18.

    Q: We have seen the company actually explain on how it is possible to price the phone at Rs 251. He talks about passing on 13.8 percent duty to the benefit to the customers saying this is the Make in India duty. Now we understand there is a differential pricing for imported phones and those that are made in India which is 13.8 percent in effect from March 1, 2015. The question I want to ask you is then why are all the manufacturers anyway passing on this benefit to customers. For him it works out to be Rs 470. For other manufacturers it will be a lot more?

    A: It doesn't add up like that. The bill of materials for a product like this -- the specs that are being claimed -- is approximately USD 40. This cost is very optimised, very sharp and without any margins added. So, that is about Rs 2,700 per phone. On top of that, you add import duty or manufacturing duty, value added tax (VAT), retail margins, distribution margins. And let me tell you the mobile phone industry is extremely cut throat. It is extremely optimised, retail margins are very small, 1-3 percent. Distribution margins are very small, 1-3 percent. There is no place to hide. Nobody can keep a margin up his sleeve. It is absolutely cut throat, dog eat dog industry.

    There is a differential duty margin [when you manufacture in India as opposed to importing] and this is not something we have to learn from a gentleman like this. There is a 11.5 percent duty differential which translates into Rs 60 for a Rs 700 phone and Rs 7,000 for an Apple product. So, there is a duty differential and it is being passed on to the consumers. But look at the sums, look at the dynamics of the bill of the material which I have told you. This phone should be costing Rs 4,000.

    Q: Ashok Chadha is saying if you look at the economies of scale they will save an additional Rs 530, he is going to save another Rs 460 by not getting into traditional advertising and marketing and saying he only has to back up and cover up Rs 550, which will be done from the marketplace. You have raised alarm bells to the telecom ministry...

    A: I am leaving this to the court of the media by giving facts. I gave you the numbers, when I said USD 40 bill of material -- USD 40 is bare bone, very large volume economy numbers. I am not talking about any margin, I am talking about the bill of material.

    So, if you are talking about normal trading, which is a very economy brand this phone should sell for Rs 4000. If you are talking about a job lot being sold in the e-commerce type of business, it should be about Rs 3500.

    Q: I want to understand why are you so alarmed? If you look at Ringing Bells explanation he seems to have it all covered. Sometimes things are too good to be true but he does explain it. He is going to pass on 13.8 percent duty, he says he is going save additional Rs 530 from economies of scale, he is going to save Rs 460 by not getting into traditional marketing and says then I am only left with Rs 550 which he will do with his market place. So, he is going to get probably apps or get other people to sell on his phone. Are you alarmed because people will buy his phones and not the phones of all traditional companies?

    A: I am saying USD 40 bill of material with very large volumes of millions of phones. That is the starting of the building block, where is this duty coming into place?

    Q: What happens when he has to make deliveries?

    A: I am placing the facts in front of you. We have no vested interests in anything. We are promoting the nation's manufacturing, we are promoting the industry. If there is a person with a business model like that we would love to promote it. We have spoken to all the operators, there is no hidden subsidy in this. There is no bundling, which is happening with any operator. So, something where the bill of material is Rs 3000, how is he undercutting it, that is the question I want to ask.

    Q: Why is it that you all have made a representation to Ravishankar Prasad the telecom minister explaining all of this and then saying that it is perhaps not prudent for a senior minister to attend the launch. We do understand that defence minister Manohar Parrikar was supposed to attend the launch, his name was there on the invite as well and then post your letter and conversations with the telecom minister, we did not see Parrikar there at the launch yesterday. So, I want to ask you why is it that you are association was worried? If there is somebody who is trying to make false claims that person would be brought to justice.

    A: Absolutely, that is the thing we pointed out to the minister. We have said that we do not understand this business model. It is beyond us, what is the business model. It looks extremely suspicious. In these circumstances, if you think we are worth anything, we are proposing to you that there should be no direct or quasi endorsement from a government leader for this company till the air is clear.

    First Published on Feb 18, 2016 07:23 pm
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