When a little-known Indian company, Ringing Bells, unveiled their grand plans for the world’s cheapest phone – Freedom 251 – at less than $4, suddenly they had the entire world’s attention. Along with that, the phone managed to garner a healthy dose of skepticism from the naysayers, with some people going as far as to say that the entire operation was a scam. To put all such rumors to rest, and answer the burning questions raised by the media and veterans in the telecom industry, the duo of Mohit Goel and Ashok Chadha, director and president of the company respectively, made an appearance at NDTV Gadget 360.
While many of the questions that we raised in our initial assessment of the company had been answered, most of the responses are lacklustre and fail to hold their own under thorough scrutiny. The fact that the company has till now been less than transparent in most of its dealings and have chosen to hide important details such as who has been funding the company and partnering up with them to provide the smartphone at a subsidised price. Their ploy of playing the NDA card to circumvent the glare of economists may have bought them a momentary relief from the barrage of questions being flung at them, but we are determined to get to the bottom of this. So if the 251 INR smartphone has your head buzzing with questions that have no answers and figures that have no data backing them up, join us as we find out if we are Ringing Bells of impending doom or commercial success!
Freedom 251: Beyond the Smoke and Mirrors
We start off at first with the BoM for a similarly spec’d device as the Freedom 251. The figure comes down to 2546. Of course, this doesn’t yet include added costs such as import duty, sales costs, distribution and even repair. Now how does this sum of Rs 2546 wind up losing a 6 at the end when it comes to the Freedom 251. Mr Chadha has outlined that to bring this vision into reality he’ll depend on four main pillars. Let us now take a close look at each of these ‘pillars’ and see if they’re grounded in reality and can keep themselves from toppling over.
The first pillar which Mr Chadha choose to mention is technology. Now, while he chose to avoid this topic and move onto other matters related to business side of things; we will choose to spend just a tad bit more time on this topic to point out the technical hurdles and discrepancies that have cropped up with this device.
Firstly the phone that was showcased at the launch event was an Adcom device that sells in the Rs 3,700 price range through various e-commerce sites in India. Adcom is an India based IT products importer, and this is what their marketing head Deepanjali Arora had to say when quizzed about their involvement with Ringing Bells
We have no idea that our branding is being used on the Freedom 251.
To top it all off, Ringing Bells used the crude method of dabbing whitener on the Adcom branding on the units that has been handed out to the press. When quizzed about this not so transparent practice on the interview, Mr Chadha replied that this was done for time constraints. Considering that the device begins shipping in June, a good 4 months away still, the hurry in releasing the product escaped us.
Not only was their fishy business on the outside, but the insides also had several eyebrow raisers. The unit handed out to the press had a 5 MP camera instead of the 3.2 MP camera hence could be a blatant case of trying to sway public opinion towards buying the device by fudging the specs between consumer phones and review units.
Ringing Bells the company had come into existence only 8 months before the grand reveal of the Freedom 251 and the founders of the company have no technical background as well. Even if we choose to overlook all these warning sounds, the chances for a new company to pull off the world’s cheapest smartphone seems slim. Especially at the volume that they’re aiming for. More on that, as we hop onto the next pillar!
Economies of Scale
The basis of ramping up production volume to bring down the cost of manufacturing is as old as the industrial revolution itself. So how is this age-old theory going to help in rendering the cost down to almost 1/10th of the current BoM? According to Mr Chadha, the impossible can be achieved once they can sell the phones in huge numbers. Numbers to the tune of 50 lakh units in the next 4 months have helped them slash off as much as Rs 400 per unit off the bottom line.
If those numbers sound impossible to you, that is because they very well might be. While companies like Xiaomi and Motorola have managed to sell more than a million devices in 5 months period in India, to expect the same out of a new company is downright impossible. Adding fuel to the fire is the fact that their websites collapsed on the first day of the sale and with 1/3rd of the time gone, Ringing Bells has managed to accrue only 30,000 registrations so far, a far cry from their target of 25 lakh online units.
The question remains that if Ringing Bell fails to entice 50 lakh people to fork over their money during this 4 month period, then how well their pricing scheme can scale to a much lower sales figure. Even if we consider that Ringing Bells is successful in their quest of 50 lakh registrations, one question remains is that how they’re going to pay for customs and import duties on such a thin margin The answer or a semblance of it is on the next part of the analysis.
Perks of the Made in India Initiative
Mr Chadha claims that the Made in India initiative will help the company immensely in making the phone. In fact, Director Mohit Goel went so far as to say that the benefits of these schemes have helped them as much as a government subsidy on the product might have. The primary point being raised here was that, by assembling the phones in India, Ringing Bells would be able to save as much as 13.5% in import duties under the Made in India initiative. All fine and dandy so far except that Ringing Bells doesn’t have any manufacturing or even assembling plans in India thus far!
However, they’re slashing off Rs 400 off the BoM using this very same excuse while it was clearly admitted by both senior officials in the interview that the first batch of devices would have the phones imported as the factories would take some time to become operational! This will lead to a huge loss to the tune of 200 crores for the first 50 lakh devices.
Assuming that they can stomach this huge loss, it still leaves us wondering how the rest of the cost-cutting measures will be implemented and more importantly, how the investors for these factories will be found! This leads us to the strategic partners of Ringing Bells, partners who have already and will also in the future pour in crores of rupees into this new company. Things get murky, and the executives of the company choose to hide behind NDAs as we look into the last part of Freedom 251’s grandiose scheme.
Strategic Partners and Third Party Vendors
Now taking off Rs 400 each for each of the three pillars above and doing some sketchy math and extremely optimistic BoM calculations, we still land short of around Rs 500 in the best of scenarios to more than Rs 1,000 in the worst. Giving the new company the benefit of the doubt, we proceed with our lowest estimate of Rs 500 per phone invested by the mystery strategic partners.
While it would make sense for the telecom service providers to join in such a disruptive project, as per latest reports, no telecom company has released any announcement of being involved with Ringing Bells. Let’s not, however, waste time on a wild goose chase of potential investors and instead look to concentrate on the numbers that these investors are supposed to be funneling in to make this pricing strategy feasible! A moderate estimate reveals that for 50 lakh units, 250 cores have to be invested into the company by their partners.
In fact, when operations are in full swing, Ringing Bells expect that their partners will invest Rs 500 crore a month at the very minimum when they are manufacturing in full swing of 1 crore units per month! Let’s now take a look at the little matter of setting up factories and the associated costs with the venture.
The phone will be manufactured in Noida and Uttaranchal. Two plants will be set up for Rs 250 crore each with a capacity of 5 lakh phones. The money will come in the form of debt and equity (1.5:1). says Chadha when quizzed about the manufacturing plants that are yet to see the light of day.
The equity is apparently coming from an agri-commodity based business family of UP and without any more details on the same, it becomes impossible to track the validity of this claim.
Generally, this section of the article is reserved for summing up our observations for the entire analysis. But the severe lack of data and questionable assumptions provided by the Ringing Bells company has made it nigh impossible to come up with a conclusion. But even before we try to attempt at making sense of the scenario, here are a few more questions that have been plaguing us for the last few days. Interestingly enough, none of these have been answered at any point in time by the company, or its executives.
- Why hasn’t the Freedom 251 gone through the certification process from the Beaureu of Indian Standards? It is quite a long and expensive process and Ringing Bells doesn’t yet have their names etched on the list of permitted sellers of smartphones.
- Why do the projected sales numbers keep changing? The officials from Ringing Bells have been all over their place with their numbers and the projected sales numbers are no different. Contrary to the BoM number which has been on a steady downward curve, the projected sales numbers have shot up from 2.5 lakhs to 25 lakhs in the space of one interview!
- Is this a KickStarter Campaign? While Mohit Goel has been gung-ho about refunds claiming that anyone can refund their money before their delivery has commenced, when grilled about it in the NDTV interview his answer was “hopefully” the money being raised from Freedom 251 sales will be held in escrow until deliveries have been confirmed.
We will leave the astute reader to interpret all of this as he will! While we wouldn’t go as far as to say that the entire operation is a fraud, we would echo BJP MP Kirit Somaiya’s thoughts on this issue. The numbers have made it clear that all is not merry in the land of the Ringing Bells and it’d be wise for the Indian Government to look into the issue, lest the unsuspecting consumer be handed an empty box of hope.