Cell phones ring up profits in crisis
By Yudha Kartohadiprodjo
Many residents of major cities cling to their cellular phones as a necessity. The Jakarta Post looks at the business and the thriving black market for the sought-after products.
JAKARTA (JP): Walking through the corridors of Roxy Mas Mall, West Jakarta, one could be forgiven for mistaking the outlet of a cellular phone vendor for a candy store. Attractively placed behind glass cases, cellular phone sets in various colors, models and brands are displayed to catch the eye of passersby.
Feeling blue or green today? Nusaphone, a small vendor in a corner of the mall, carries Nokia 5110 phones in eight gradations of blue. Into the high-tech look? The Samsung phone set that Nusaphone sells comes in two metallic colors.
Sometimes, however, the pretty packaging is deceiving.
Windi, a photographer, bought his cellular phone a month ago in Roxy Mas. The phone worked fine for the first five days. His job requires him to be reachable at any hour and he rarely turned the phone off.
One day, however, the message "SIM card not recognized" suddenly flashed on the phone's display screen.
"I took the phone back to the store. They acknowledged the problem and explained that the phone was made for the German market, but they refused to take back the phone."
Unwittingly, Windi bought a black market phone set, known as BM or Nonguaranteed (Non-G) goods among cellular phone vendors.
High demand from consumers and the exceptionally competitive market are driving the black market. Of course, no taxes are paid when the goods are smuggled into the country and the purchaser does not receive a warranty.
The price difference between a phone bought from a certified vendor and one from the black market is about Rp 200,000.
A cell phone distributor, "Boy", said the items were smuggled into the country through forwarder companies who "take care" of the delivery and customs.
Most of them arrive at major gateways of Batam, Jakarta and Surabaya as hand-carried cargo goods.
"Want to order 100 sets of phones? Just call a distributor in Singapore or Hong Kong. If the price is right, they would then contact a forwarder who would offer their services for a mere Rp 60,000 per piece. Tax free and right to your door," Boy said.
Services are abruptly halted when the customs agency declares "red light" operations, a code that means it is tightening its inspections.
Tax free? Seems like an offer no profit-minded businessperson could refuse.
Yet the government is losing a lot of money but doing nothing, despite the ailing economy, to stop the inflow of smuggled phones.
Currently, 50,000 phone sets are sold in Indonesia every month and luxury taxes and customs duties are not paid on about 50 percent of the sales. With the average price of a cellular phone costing about Rp 1.5 million (about US$200) each, the state's monthly loss is estimated at Rp 8 billion. The number accounts for nearly one third of the state's total tax losses for all electronic goods combined.
Customs officials appear to have turned a blind eye to the problem.
"Well, yeah, sometimes there is hand-carried (cargo) but the amount usually is not enough for trading. If we caught a shipment, we would impose the usual custom duty," said Tony Soesanto, head of the customs service office at Soekarno-Hatta International Airport.
Tony also denied knowing of the terms "red light" or "green light".
Still, he cannot deny the fact that many cellular phone vendors are more than happy to sell warranty-less phones.
"The market is so competitive nowadays and our customers always want to have the lowest price," said Boy. He added that the net profit for vendors is low; for each phone set sold, the margin for vendors usually does not exceed Rp 75,000.
What the vendors lose in profit they make up for in volume. On average, a small vendor in Roxy Mas easily sells 100 phone sets per month.
The demand for cellular phone sets, assisted by the introduction of the prepaid GSM card, is exceeding what suppliers can handle. Prior to the economic crisis, there were 1.2 million cellular service subscribers. The number tailed off to 800,00 when the economy stumbled.
Industry experts predicted the number would not recover until the end of this year. But reports reveal that the number of subscribers exceeded 1.6 million by the middle of the year.
Cellular phones have only recently come into their own as a mass consumer product.
Many remember that the only thing close to a cell phone in the 1980s was a dull, heavy black box connected to a long antenna.
The phone, either produced by PT INTI, Dancall or Ericsson, was only practical for use as a car phone.
Costing from Rp 14 million to Rp 18 million apiece when the rupiah still traded at about 1,200 to the U.S., its price kept it out of the hands of all but the wealthiest of consumers.
It is only in the past three years, riding the wave of the decade's boom times, that ownership of a cellular phone developed into a trend.
The strengthening of the rupiah in recent months before last week's plunge also increased the sales of cellular phones in Jakarta. The Ericsson GF788, which cost Rp 2.2 million last year, now is offered at Rp 1.35 million. Some models even sell for less than Rp 1 million.
"We usually keep our price close to the phone's real value in dollars. As the average price decreases by Rp 600,000, demand starts to hike up," said Adi Saputra, director of PT Sarindon Nusapersada, a distributor of Samsung cellular phones.
Adi said consumers increasingly sought sophisticated phones as status symbols. "It's the prestige over price and functionality."
Dual-band
Dual-band phones, which can receive signals on both the GSM 900 and GSM 1800 frequencies, are the sought-after choice at the moment.
Indonesian operators can only support the GSM 900 frequency currently and the prohibitive cost of the dual band makes the prospect of an upgrade unlikely at any time soon.
"Although nobody could fully use the feature unless they go abroad, it seems that dual-band is the trend for now," said Adi.
The same trend is also noticed by Susanto Susilo, a director of PT Ericsson Indonesia.
Susanto said the company did not lose money to the black market. "It just adds an extra job for us, since we receive more complaints. But as long as consumers still buy Ericsson, it's fine with us."
To educate its consumers, Ericsson places advertisements in the media and has set up a consumer hot line.
Consumer ignorance about the advantages of purchasing a model inclusive of a warranty appears to fan the growth of the black market.
The Indonesian Consumers Foundation (YLKI) says that consumers' lack of trust in the warranty system reflects their preference for choosing black market goods.
"In their mind, consumers are asking for thorough coverage from the warranty. In reality, most warranties only cover the service charge, which is actually not expensive," said YLKI's Tini Hadad.
Most of the complaints to the agency concerning electronic goods involved poor after-sales service.
YLKI said companies should provide complete warranty terms and also assure that they cover not only services but spare parts.
Consumers also are advised to shun the black market because it they could end up with a dud.
"Buying a black market phone means that the service terms for the set are uncertain and there is a chance that no compatible spare parts are available in Indonesia," Tini added.