Freedom 251: Who’s filling the Rs.200 crore black hole?

The Freedom 251, the Rs.251 smartphone from Ringing Bells is certainly turning a lot of heads. That said, the amount of controversy and mystery surrounding the phone is also staggering. Yesterday, Akash Chadha, President of Ringing Bells, went on air with NDTV in an attempt to lay the controversies to rest and lay their cards on the table. The interview however, raised more questions than it answered. We got in touch with an industry expert in an attempt to get to the bottom of the mystery.

It’s all about numbers

Considering the specs of the phone and the early “prototype” that was handed out to journalists in Delhi, Ringing Bells readily acknowledges that the phone costs around Rs.2000 to manufacture and that it was made by Adcom. How is he bringing the price down to a 10th of that? Akash Chadha states that four factors are responsible for this:

1. ‘Economies of scale’ bring down the price by Rs.400 (they’re claiming to sell 50 lakh units by June, online and offline).

2. “Manufacturing” in India and the subsequent benefits of that bring down the cost by another Rs.400. This is an intriguing statement considering that the phone is not yet being manufactured in India.

3. Selling the device via their own portal and online slashes another Rs.400. Manufacturing cost: Rs.800

4. “Other partners” will make up the deficit. By our calculations, that amounts to at least Rs.551 (though the figure might be closer to Rs.1000). The nature of these partners is unknown because Ringing Bells insists that they’re operating under a non disclosure agreement and can’t reveal details.
While the first three factors do make sense, the fourth one raises a very big question. Where’s all that money coming from?

Back of the hand calculations suggest that if Ringing Bells is going to be selling 50 lakh phones by June this year, their “other partners” have to give them Rs.200 crore just to bring the manufacturing costs below Rs.251. To put that number in perspective, Facebook is estimated to have invested around Rs.170 crores ($25 million) in India to promote their FreeBasics project. Who are these other partners and why are they willing to invest so heavily in this project?

If all goes to plan, Ringing Bells hopes to sell 1 crore units a month. This means that they’re going to be expecting almost Rs.500 crores a month from their “other partners”. No matter how you look at it, that number is staggering.

Where is all that money coming from? The company has relatively little experience in this field, don’t even have a production ready model and claim that they will import, assemble and ship 50 lakh units by June this year. We’re already getting reports that the device isn’t certified, that their company has no license and a host of other issues.

Too surreal

When asked for comment, Vijay R. K., GM – Technology, Operations, Pre-sales at Sakri Group, said, “I did some analysis on the smartphone domain through my contacts in the industry here in India and from China. A bill of materials(BOM) of $5 might be possible later when Digital India initiative is really implemented but at this moment it is too surreal. Typical phones with Intel Sofia, Qualcomm, MTK chipsets range between $26 to $30.”

Here’s what Vijay had to say on the Freedom 251 and Ringing Bells:

Supposing we wanted to build a smartphone for Rs.250. Would that be possible?

In my opinion, this is a far cry if legitimate chipsets, and other BOM (Bill of Materials) validated by OEM’s (Original Equipment Manufacturers) like Intel, Qualcomm, MTK are to be considered. Given the fact, that these are imported in SKD (Semi-knocked Down) or CKD (Completely Knocked Down) as the company claims, in the initial run up, these have to be imported as a final product so it looks dicey to me.

What would a bill of materials for such a phone [the Freedom 251] normally look like?

Considering the BOM of any average performing smart phone it ranges in between $26 to $30 (Rs.1,800-2,100) and this does not even include shipping, customs costing.

What sort of life expectancy can we expect from such a phone?

It’s good for as long as it goes. Just as they typically say for Chinese imports. It can run for years or die without warning. You definitely can’t expect the same quality as you’d find on an iPhone or Samsung device.

If we can’t build a phone for Rs.251, how’s Ringing Bells doing it? Especially as they claim that they’re selling a phone that would normally cost Rs.2500 to manufacture.

Now their claim of Rs.2500 is legit and given the above figures, it roughly falls in that ball park figure adding customs, logistics etc. Now how are they doing it? I am clueless and hopefully these are not low end or refurbished dumps.

Overall, he concludes saying that it’s “definitely a volume game” and that their [Ringing Bells’] estimates as far as tax exemptions are correct. He goes on to add that, “In all fairness, their bold idea to launch [the Freedom 251] at a throw away price is a challenge for both the manufacturers and the customers as durability, performance parameters are to be judged in the long run.”

Vijay R. K., GM – Technology, Operations, Pre-sales at Sakri Group, is responsible for defining the Technology and Engineering aspects of various products across AV (Anti-Virus), Electronics, Network Security and IT&ITES.