Tim Cook Is Wrong: The Problem For Apple Inc. (AAPL) In India Is Not LTE, It’s Price

Tim Cook is wrong. On Monday, the Apple chief told CNBC’s Jim Cramer that there is zero LTE penetration in India and, therefore, the iPhone is simply not selling in the subcontinent. While he’s slightly wrong about LTE penetration (it’s about 2 to 3 percent of the mobile phone subscriber base at the moment), what he’s most wrong about is the contention that a lack of LTE is the reason no one in India is buying an iPhone.

According to Counterpoint Research analyst Neil Shah, LTE adoption is actually “rampant” in India, with two out of every three smartphones purchased in the last quarter being LTE-enabled. The country may not have much LTE coverage, but it soon will, and consumers are making sure they have the smartphones to take advantage, Shah told International Business Times.

Consider that in the first three months of 2016, a new smartphone brand from Jio, an LTE operator, broke into the top five smartphone brands, highlighting just how important this technology has become for Indian consumers. “Jio with its massive LTE network and scale could be the key player to watch out for as it has already become the second largest LTE phone supplier during the quarter,” Tarun Pathak, senior analyst at Counterpoint, said in a blog post.

The reason Apple is not selling a huge number of iPhones in India is simple — they are much too expensive. Take, for example, the company’s newest smartphone, the iPhone SE, which is the cheapest smartphone the company has every launched. It sells in the U.S. direct from Apple for $399. In India, where the average industrial wage is a fraction of that of the U.S., the new Apple phone sells for $550.

Unlike most other developed markets, the majority of smartphone sales in India take place at retail stores, and while Apple is attempting to build a retail presence in the country — a change it needs to make if it wants to increase its market share — that will take time.

In the first quarter of 2016, when smartphone sales around the world were stagnating, India saw growth of 23 percent compared with the same period last year. It’s not surprising given that the country has a population of over 1.25 billion people and smartphone penetration there is still under 20 percent.

Apple saw shipments grow in India by 56 percent year-on-year according to its own figures. And while this sounds positive, the reality is, according to figures from Counterpoint, the company commands just 2.5 percent of the smartphone market in the country.

Meanwhile, Apple was dealt another blow in India on Tuesday when regulators said the company would not be allowed to sell refurbished smartphones in India, due in part to the Indian government’s promotion of the “Make in India” initiative, which aims to bring as much manufacturing as possible to the country.

Refurbished iPhones would have helped Apple compete with the droves of low-cost smartphones from the likes of Samsung, Intex, Micromax, Lenovo and Xiaomi that make up the majority of smartphone sales in India. However, Shah said he believes the plan could have harmed Apple as much as helped them in the long run: It’s hard to tell if Apple’s refurbished strategy will do more good than harm.

“Although it would lower barriers for some users below the $300 price point, it also means that most of the components would be closer to the end of their life cycle, [making] returns or service support a headache,” Shah told IBT.

Shah said he thinks a better approach for Apple would be to consider local manufacturing and ecommerce partnerships, which could save up to 15 percent of the price of a new iPhone, a saving Shah says could be passed on to consumers.

Contrast Apple’s fortunes in India with Samsung, which is struggling elsewhere in the world but continues to dominate the smartphone market in India, growing by 27 percent to capture almost one-third of the market. This, according to Shah, is thanks to having “invested tremendously in offline distribution, brand, after-sales support and heavy promotion.”

Samsung also sells a lot of phones at very low prices, offering consumers a wide range of options. Prices are as low as $50, while its flagship Galaxy S7 smartphones start at $750.