5 Oct 2015
Iranian Smartphone Market Readies for Post-Sanctions Spending Boom
Iranian consumers are postponing purchases in the expectation of cheaper prices and expanded options once sanctions are formally lifted, while the government continues in its latest bid to stem the free flow of illegal electronics imports.
Iran is a country ripe with expectation. Internally, its populace is readying itself for life free of the sanctions that have blighted it economically for a generation. Externally, many exporters are eyeing the country as a vibrant new market, a welcome shot in the arm for a world still defined by financial uncertainty.
The signs of this expectation are legion. Since 14 July, when a deal was first struck that could see the country readmitted to global trading, a welter of high-ranking delegations from Europe and Asia have touched down at Imam Khomeini International Airport. For many local traders, such visits are a sure sign that increased foreign investment and enhanced business prospects are now very much on the agenda.
So far, though, these visits are yet to translate into increased trade. In fact, according to a number of local business operators, they have acted to deter people from buying, with many expecting lower prices and enhanced product ranges in the none too distant future.
In line with this, Behroz, the sales manager of a sizable outlet selling Samsung televisions, said a number of his costs – including transportation, insurance and salaries – have been on the rise. At the same time, he has also seen sales declining, with many consumers delaying purchases in the belief that new products with lower prices will enter the market.
Visiting Vali-asr Street, home to one of Tehran's leading commercial districts, there are many stores offering laptops. All of them are suffering from a similar downturn, with the reasons only too evident.
Mehdi Sabzali, an engineering student at Azad University, typifies the state of mind of many Iranian consumers. He said: "I need a new laptop with more capabilities, but I don't plan to buy it right now. I have come to Vali-asr Street to get more information about new products and prices.
"I prefer to wait for a few months before buying, as I think new brands with more affordable prices will enter the market."
Already, despite the sanctions still being in place, every kind of smartphone is available in Iran. According to the traders selling such devices in Ala-addin Passage and in the electronic market on Jomhouri Islami Street, Apple and Samsung are the best-selling brands on the market.
According to one iPhone purchaser, Negin, operating the device is very easy in Iran, although a number of its functions are blocked. She said, due to the continuing sanctions, it is impossible to create the required iPhone account in Iran, although some people attempt to circumvent this by registering their handset in another country.
According to one salesman working in the Ala-addin Passage, Apple users face a number of problems in Iran. He said: "As the Bluetooth options are limited on older Apple devices and internet connections are typically slow in Iran, some users find it difficult to work with the device."
A number of sellers maintain that Samsung currently has the upper hand in Iran, as users face none of the restrictions that often confound iPhone purchasers.
One sales manager at the Bazaar Mobile Iran said many of the locals often opt for a smartphone with a rapid CPU facility, believing this will help compensate for low internet speeds. In particular, they prefer Samsung and Sony branded phones, lured by their available range and affordability.
He said: "While the iPhone is good, it faces two restrictions. Firstly, you can't download a number of programs or updates, due to the restrictions on the use of the device inside the country. Secondly, you can't create an Apple ID. As a result, users lack the personal account that gives them access to many Apple features and services."
Aside from the global smartphone brands, there are a number of domestically produced handsets available on the Iranian market. The three best-known home-produced brands are Dimo, GLX and Divala. These, however, only account for some 2% of sales in the Iranian market.
In a bid to protect these domestically produced brands – especially Sa Iran, a locally assembled version of Sagem that has now all but vanished from the market – a number of government initiatives have had a huge impact on the smartphone market. Most significantly, nearly eight years ago, the administration of former President Mahmoud Ahmadinejad, raised import tariffs on overseas-sourced smartphones to 60%.
These higher tariffs saw smartphone smuggling become commonplace. Although import tariffs have subsequently been reduced, a substantial number of smartphones continue to be illegally imported. According to a 2014 statement by Iran's parliament, some 90% of the country's smartphones have been illegally imported with no duty paid. Even this may be an understatement, with Saeed Ahmadkhani, Head of Public Relations for the Iranian Customs Administration, saying: "Due to the lack of registration, nobody knows the exact number of smartphones that are entering the country illegally."
An official of the SIM Card, Mobile and Accessories Sale Syndicate (SCMASS), acknowledged that a high level of smuggling persisted. He said: "The inappropriate policies of the former administration with regard to import tariffs on electronics, together with bureaucracy and the lengthy procedures involved with placing import orders, all created substantial incentives for smuggling smartphones into the country."
Even without the formal lifting of sanctions, however, things have already begun to change. In September of this year, the government took steps to counter the widespread smuggling of smartphones.
Under the new regulations, mobile operators can no longer activate any SIM card until its serial number has been registered with the Customs Administration and Communications Regulatory Authority. The implementation of these regulations is expected to raise the smartphone-derived annual income of the Customs Administration by 11 trillion IR rials (US$324 million).
Following last month's announcement of the decision, SCMASS said, while it welcomed any initiative aimed at reducing illegal imports, it believed the government plan was not the best option. Instead, it advocated lowering tariffs from their current level of 20% as the best way of boosting legal imports.
Commenting on the change in policy, Afshar Forotan, Head of SCMASS, said: "Ultimately, the removal of sanctions will help the government to significantly curb smuggling, with a variety of electronics companies permitted to open their own outlets in Iran. This will allow them to offer their products directly and to provide reliable guarantees."
Despite these latest developments, a number of the country's smartphone distributors remain unconvinced as to the likely efficacy of the government's new regime. One said: "The registration of smartphone serial numbers is not a new idea. Similar regulations were introduced several years ago but failed to make any impact."
Heshmatollah Razavi, Special Correspondent, Tehran