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Illicit-phone producers grab 25% market share
2007-08-08 02:11:24 Shanghai Daily

SHANGHAI, Aug. 8 -- A QUARTER of all the mobile phones sold in China during the first half of this year were illicit, a Beijing-based research firm said yesterday.

The growth of black-market phones is hurting legitimate manufacturers, and regulators are taking new measures to crack down on the production of the unauthorized handsets.

The problem phones fall into three groups. Some are smuggled from abroad, evading customs duties. Others are knockoffs of famous brands, and the third category involves off-brand phones that use proprietary chipsets and other high-tech parts without paying patent fees.

From January to June, 23.43 million "black phones" were sold in China, compared with 71.47 million licensed handsets, according to CCID Consulting, a research firm under the Ministry of Information Industry.

"In south China, especially Shenzhen, a complete industry chain of black phones has been established, and its sales have jumped rapidly," CCID President Luo Wen told an IT forum in Shanghai.

Producers and vendors make huge profits selling the illicit handsets, the CCID said.

Companies can easily buy full chipsets for mobile phones from chip design firms such as MTK, which also provides products to domestic firms including Lenovo, Bird and TCL, according to Li Shuchong, CCID's semiconductor analyst.

"The copycats never pay patent fees or taxes, so their products are price-competitive in the low-end market," said David Wang, BenQ China's marketing director.

Those fees typically add 20 percent to the cost of a phone.

Domestic handset makers, which depend on the mid- and low-end markets, have been hit hard by the problem phones. Legitimate homegrown handset makers have seen their market share plummet from 50 percent several years ago to 30 percent today, according to the CCID.

Giants fall

Even the foreign giants such as Nokia say they've suffered a loss of market share to the "black phones" in south China, especially in the 1,000 yuan to 1,500 yuan (US$197) model segment. The situation in Shanghai is much better, Nokia said.

But the problem here is phones smuggled in from other countries and regions.

"Some models with 3G or Wi-Fi functions have not been launched in China, but some people are buying smuggled handsets," said a Nokia manager in Shanghai who asked not to be identified.

Apple's new iPhone was being sold on domestic Websites only two days after its debut, even though calls can't be made on the device in China.

Multinationals haven't launched third-generation models in China because the country has not yet issued licenses for the technology.

The Ministry of Information Industry, in cooperation with the State Administration for Industry & Commerce and other bureaus, has launched an investigation into the "black phone" market in an effort to track down manufacturing, distribution and retail facilities.

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