Huawei’s sub-$70 smartphone shows MTN’s $50 Steppa gamble’s already paying off

If MTN needed any vindication that its gamble to launch a sub US$50 MTN-branded smartphone will pay off, here it is: Chinese manufacturer Huawei has confirmed it will price its Ascend Y220 device at R449 (US$41) on MTN in South Africa.

First, MTN’s move was not that unusual to begin with. Globally, operators often launch branded-handsets to fill obvious gaps in the market. Typically this is at the lower end. What operators end up doing — practically — is driving the cost of a particular entry-point or segment down by “using” some of the OEM margin that is left on the table (without a manufacturer like Samsung or HTC or Nokia and their margins in the picture, operators can sacrifice a portion of that to force phones cheaper).

This is why, for example, Nokia struggles to compete in these market segments (without deliberately obliterating its own margins).

What’s interesting about the price point of the Ascend Y220 in South Africa is that this price is below what this same phone retails for in other markets. There are reports of the Y220 being available for US$70 in some markets. At R449, that’s barely more than US$40.

That’s a big difference. Pricing worldwide could now be lower than the US$70, but its highly likely MTN is willing to subsidise the price of these devices to force those entry points lower. What’s stopping MTN paying US$60 or US$50 per device to Huawei and swallowing the loss? After all, operators do this all the way up the market-segment ladder. (Add the fact that this Huawei deal on MTN has a bundled 4GB SD card (worth R199) and you can bank on this all being subsidized.)

Yes, the Ascend Y220 also runs Android 2.3 (Gingerbread). But again, its more about what the phone can “do” than whether its going to be upgraded to software which somehow activates a fingerprint sensor anytime soon. Gingerbread is a significant improvement on BlackBerry OS7 (no matter what BlackBerry believes). The Y220 is based on a Mediatek chipset (offering up to 21Mbps HSDPA!) and includes an FM radio (a must-have in Africa).

Why is MTN subsidising smartphones at sub-$50?

Ignore smartphones and compare the Y220 and the Steppa to what’s available at these price points… not much. The odd feature phone. Some of the Nokia Asha devices.

MTN has to get a compelling range of devices in this price bracket. Put another way, MTN cannot afford to not subsidise these phones. This is about driving smartphone penetration into the next ten million subscribers across the continent.

Yes, there’ll be quality smartphone subscribers with high average revenue per user (ARPU) metrics at the mid-to high-end.

But right now, MTN needs subscribers across Africa and the Middle East to start using data at almost any price. It’s an unstoppable tsunami and if MTN doesn’t offer a compelling option, someone else will. Besides, in a few years’ time, there won’t be feature phones on the market. I’m sure MTN doesn’t want to be the last to turn off the lights.