Importing phones

Pakistan imported $204.7 million worth of mobile phones in Jul-Oct period this fiscal, as per central bank data. Now thats just 1.3 percent of total imports in the period - so why even bring it up, one may ask. Well, there are two big reasons why its important to keep an eye on mobile phone imports.
First, these imports have been growing in double digits in recent years, compounding the forex drain created by other non-essential imports. Cellphone imports had reached $564 million in FY14, showing a year-on-year growth of over 10 percent. So far in FY15, these imports are marginally down by 2 percent year-on-year, but they are expected to pick up in coming months.
Second reason is that the mobile phone imports could soon witness a big jump. For the last decade, bulk of cellphone imports have been those of feature phones, which are basic handsets capable of calling and texting. These cheap and simple phones have ensured Pakistans mobile teledensity is approaching 80 percent now.
But in the context of 3G and 4G data services being gradually rolled out in urban centers and tier-2 and tier-3 cities, smartphones will soon predominate cellphone imports because of their capability to provide meaningful experience of mobile internet.
A two-frontal attack is likely in the offing: Not only will the cost of average imported handset will rise (due to expensive smartphone imports), but the number of imported smartphones will also increase as 3G services reach a wider geography and more first-time users start straight away with smartphones. Mind you, more than a third of Pakistans population is below 15 years of age, so, going forward, expect a big bump in new smartphone users every year.
So what that scenario essentially entails is that mobile handset imports are only going to increase in number and become more expensive as Pakistans cellular market increasingly migrates from 2G to 3G and 4G data networks.
Of course, one can argue that smartphone prices are going to drop, a natural fate for any tech-enabled gadget. Moreover, many global manufacturers are already working on bringing out budget smartphones, besides lowering prices to cash in on the promise of emerging markets. But lets just face the reality: Average smartphone price will still be a multiple of the price of the most-expensive feature phone. (As per IDC, a global ICT research firm, an average Android smartphone price will drop from $254 in 2014 to $215 in 2018, a drop of just 15 percent in four years!)
How best to cope with a looming possibility is a big question for policymakers. A trade-off confronts. Impose more taxes on handset imports and risk hurting adoption in the nascent mobile broadband market (through costly smartphones at import and retail stages). Do nothing and watch a larger handset import quantum dwindle an increasing portion of hard-earned forex in the future.
Thats a pickle, one which the policymakers must address soon. Right now, the sky is clear, so "what you see is all there is". But a storm may well be in the making. So, it would be wise to start deliberating the options. Why not encourage local handset manufacturing? Thats infeasible for Pakistan, some hardware experts say. Others disagree. The issue is already under the IT ministers lens. But it needs to be fast-tracked for any results to show in the medium term.