Mobile mayhem

Axiom Telecom teams up with Brightstar, Dangaard and RadioShack to form Braxda. Aptec Mobiles sells a 51% stake to Brightstar. Smart mobile device shipments soar in the Middle East.

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By  Stuart Wilson Published  May 24, 2006

Axiom Telecom teams up with Brightstar, Dangaard and RadioShack to form Braxda. Aptec Mobiles sells a 51% stake to Brightstar to create a new company called Brightec. First quarter 2006 smart mobile device shipments in the Middle East and Africa double year-on-year.

Meanwhile, in the UK, Her Majesty's Revenue & Customs highlights the growth of ‘missing trader’ VAT fraud, citing Dubai as one of the non-EU locations increasingly used by the carousels. Maybe it’s time to scratch beneath the surface of the mobile phone channel in the Middle East…

It is important to stress the point that the Middle East and Africa is — without a shadow of a doubt — one of the fastest growing regions in the world when it comes to sales of mobile phones. Keeping pace with this development — and ensuring that it is the right type of growth occurring — remains an ongoing challenge for vendors and distributors alike.

Industry estimates reckon that some 80 million mobile devices were sold in the Middle East and Africa (MEA) in 2005. That number is expected to nearly triple to 218 million by 2010 making MEA the largest wireless market in the world.

The major A-brand phone vendors are working hard in the Middle East alongside their authorised distribution partners to keep pace with this market growth and create strong, structured channels; but it is often difficult to keep track of the product flows happening behind the scenes on both a global and regional level. The sheer number of mobile phone traders, resellers, brokers and re-exporters setting up shop in Dubai is certainly testament to this fact.

One of the greatest parts of the missing trader intra-community (MTIC) fraud — or VAT carousel if you prefer — is that quite often the trader does not actually have to touch the product itself. All that exists is a paper trail, which points to the fact that the product moved around the world, when in reality it was in one place all along. Now that looks like a fantastic channel business model to me: no warehousing requirements; no logistics costs; no worries about getting caught holding old stock, decent margins and a glamorous lifestyle in a sunny location just for pushing some papers around.

The EU has been cracking down hard on MTIC within its borders in recent years. In so doing it has precipitated an increase in EU carousel chains that now include non-EU countries. Dubai and Switzerland have both been cited in recent reports from the UK Office for National Statistics as locations that are increasingly playing a part in the carousel chains. With UK VAT at 17.5%, there are rich pickings available for the missing traders that manage to set up a carousel and not get caught.

How much is the MTIC scam worth? In the UK alone it is now estimated to account for 10% of total exports — that's some GBP5.5 billion in the first quarter of 2006. The profits being made from this criminal activity easily run into hundreds of millions of pounds.

It is little wonder that missing traders are favouring mobile phones as their product of choice. Mobile phones, much like CPUs, lend themselves to grey marketing on a global scale. These are small expensive devices with a rapid product lifecycle — a dream ticket for some of the less scrupulous technology traders in the world. The fact that mobile phones are sold in different ways in various regions of the world adds to this volatile mix.

In some regions, mobile phone operators make bulk purchases and then sell specific models to customers at subsidised prices based on the subscription contract that the end user selects. However, if an operator (or even a distributor) misjudges the market and buys too many units of a certain model they can be left holding huge quantities of depreciating and obsolete stock. And at times like that, who can blame them for looking at the opportunities the grey channel presents?

I have had some conversations with the genuine mobile phone distributors in this region recently about investigating the antics of some of the dodgy traders not quite sticking to the behaviour expected from authorised channel partners. Their advice was simple: be careful and don’t dig too deep. (I guess that’s a bit like waving a red rag in front of a bull)

It is important not to confuse the issues when looking at the mobile phone channel. MTIC is just one segment of the total market. This exists in parallel to the authorised distribution channels and also the various shades of grey product moving around the world at lightning pace. It's mobile mayhem out there and the channel is in the thick of the action.

As always, I’m keen to hear your views on the mobile phone channel in the Middle East and if any missing traders want to share the tricks of the trade, please e-mail stuart.wilson@itp.com

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