China's Cell Phone Pirates Are Bringing Down Middle Eastern Governments | Hacker News Reader

China's Cell Phone Pirates Are Bringing Down Middle Eastern Governments

fastcompany.com

86 pointscodelion31 comments

Um, these are not counterfeit phones. They are just cheap phones.

"some analysts believe China’s bandit phone makers may now be targeting the GCC region,"

What exactly makes them bandits? Sounds to me like they are totally legit. The "Pirate" in the headline makes it sound like they are stealing bandwidth or something, or perhaps hiding from the "Middle Eastern" government, when they are doing no such thing.

It's just cheap phones. There is no law that says only Nokia is allowed to make phones.

"Established players like Nokia were soon crying foul"

So only established players are allowed to make phones?

Does an otherwise good article really need "bandit" as bait to get people to read it?

Retitle to it: "Cheap Chinese Cell Phones Are Bringing Down Middle Eastern Governments".

I think any phone with the words "Nkia" or "Blockberry" on could reasonably be called counterfeit.

At the same time, I imagine that the buyers of these phones know exactly what they're getting, so whether the companies in question have really lost out is another question.

Actually no, it needs to say the name properly to be counterfeit. (i.e. you have to claim to actually be the company, not merely imitate their goods).

Messing up the name makes it a knockoff. Basically if you can easily tell by looking who really made it then it's not counterfeit.

And either way it's certainly not "pirate" or "bandit".

I think the problem is that they don't own or have a license for the patents.

If that were the case, then they would sue MediaTek.

Unlike the small manufacturers MediaTek is easy to find and it's a pretty large company.

Near-matches suffice for trademark infringement, if not straight-up counterfeiting. I am unsure as to which one piracy refers to.

Yes. They are great phones for the price! I have a couple and I love it. See here for example: http://www.etotalk.com/Wholesale-android-phones_c1001?zenid=...

"[...] the strange way India’s mobile spectrum was auctioned off in 2008. A last-minute rule change in the auction declared that licenses would be granted on a first-come, first-served basis to anyone with completed paperwork and $355 million in cash. [...] a haphazard process that netted only $2.7 billion in licensing fees and may have left $39 billion on the table, according to outside auditors."

This is billed by the FastCompany article as corruption, and is apparently being investigated as such, but it's not necessarily the case that the country would have been better off if the government had collected that extra $39 billion. A proper auction will end up selling spectrum to those rentiers who expect to get the most profits from the spectrum out of the public, and (likely) can convince banks etc. to borrow enough to buy it. That in turn will set a cost floor, and winners of the auction aren't able to reduce prices below the cost of the capital. But by selling the spectrum cheaply, telecommunication benefits have potential to be spread more widely, because the cost floor is lower.

You're assuming the companies who got the spectrum did something with it. From what I've heard, most of them just grabbed the spectrum and are sitting on it, to collect the $39 Billion that would otherwise have gone to the government. Imagine, a 1344% ROI!

That's actually a separate issue: lack of genuine competition.

I'm all for non-profit use of spectrum. The government could have given steep discounts to companies planning to offer discounted deals to the poor. Instead, they've most likely given steep discounts to companies who will squat on the spectrum till they are bought out by whoever expects to get the most profits (and convince banks to lend them the money).

I'm not arguing for non-profit use of spectrum. I think the most profitable use of the spectrum should be made. My point is that the government getting a windfall from this would put a price floor on the market, i.e. the cost of capital needed to purchase a license to the spectrum. That price floor would mean servicing the poor would have to be done by discounting, rather than mere price competition.

Very little is certain in economics. Possibly the best thing for our economic future would be unemployment in excess of 63%, high enough for the two programmers in Atlanta who currently carry in their brains the complementary halves of an all-important tech insight to meet in an unemployment line, put their heads together, and revolutionize our economy! But that's not the way to bet.

In general ordinary limited assets like spectrum space, or agricultural land, or airport landing slots, or electricity, or food can be used better by some actors than others. If your economy doesn't allow them to be traded freely, it's an extremely good bet that the economy will throw away important efficiencies, because whoever currently has the right to control the asset doesn't have good incentives to pass it on to someone with a really good use for it. Thus e.g. human food being fed to pigs, or water being used to grow rice in a desert, or various ways that rent-controlled properties get underutilized. You seem to be assuming that the allocation of spectrum will be like that (that now that they're "spread more widely" that pattern of control is fixed in stone). If so, the Indian economy can expect to lose a lot of the potential value of the spectrum because people who in 2012 have really effective ways of using it can't get to it, and it instead it gets used in whatever way is technically feasible for the organization which was ushered to victory in the race through the permit Raj ca. 2008.

This isn't just some obscure academic possibility. Consider various historical uses of spectrum in the US. E.g. various religious organizations had valuable spectrum they couldn't sell freely, or even use freely, but they were allowed to use it to broadcast sermons and the like, so they did. I dunno what the analogous lockup of assets in India will look like in detail, but in broad outline the gross waste could easily be similar.

Conversely, if you allow spectrum to be traded freely, that disadvantage goes away, but then the "spread more widely" pattern that you consider an advantage, or for that matter anything else you like about the distribution of handouts, tends to go away too. The runout effect tends to be what another poster already pointed out, that the sham auction effectively gave the assets away for arbitrarily low prices to selected customers, and now those selected customers will be able to collect a fortune by exchanging their control of those assets for something closer to the assets' market price.

I think you're putting words in my mouth: words like "handouts" and "fixed in stone".

But with respect to "spread more widely" that you quote twice, for common resources that is explicitly the goal of democratic government; most efficient use of the resource is not (it might be in anarchy, or oligopoly, or some other system not based on one person, one vote).

Let's not forget that auctions won't necessarily predict the market price; in fact, they're unlikely to, because in this kind of case they rely too much on prediction of future value, and the structure of such licenses will be that they won't trade freely on a market, so normal pricing mechanisms won't work well. There are lots of inherent rigidities: hardware dependencies limit the pace of change. If a government is to get the windfall, it would probably be better (IMO) to tax profits at a later stage.

My perspective is coloured by some of the worse effects auctions of public telco assets had in Ireland; we ended up with telcos deep in debt, owned by foreign private equity (effectively purchased with the company's own debt), starved of revenue to invest and almost completely focused on servicing the debt. I remember at the time the alternative method being used in Sweden[1] and Finland, focused more on so-called beauty contests than auctions.

[1] http://www.sciencedirect.com/science/article/pii/S0308596105...

I don't see Android anywhere on there, but it's acknowledged that Android's massive numbers are due in part to chinese manufacturers like Huawei and ZTC and Android-derived OSs (OMS, Tapas: http://www.asymco.com/2011/02/01/google-as-android-vendor/ )

Hardware is cheap and commoditized in China due to the lack of IP restrictions. However, smartphone software isn't so easy.

Are some or all of these "pirate phones" running a version of Android?

No, mostly not. The software usually looks like Android or iOS but not with the same functionality. When using an "aPhone" or similar device for a minute, you quickly notice the difference. But there are different quality and price levels among the copied stuff too.

Most accounts of OMS and Tapas (including Asymco) seem to do their best to talk up their share in an attempt to downplay Android's success, and Google's ability to profit from it.

However, OMS appears to be a failure as their fork couldn't keep up with mainline Android, they missed their sales targets and accounted only for 0.3% of Android sales last year rather than the 1% they hoped for.

But having said that, Mediatek have already announced a couple of revisions of Android based boards including tablets. I'm sure they'll play an important part in the Android story in future.

Also, Huawei and ZTE are amongst the biggest telecoms companies in the world. You may not be familiar with the names (yet) but they probably built any network branded 3G dongle you own as well as provide the equipment used to run that network. They're a different thing from these "white-box" manufacturers that are building phones like people built PCs from commodity parts.

This could be a huge opportunity for any aspiring entrepreneur with a background in electrical engineering. Get hold of some mediatek kits and start producing phones in africa.

There are 2 problems with that strategy. First, its unlikely that the locally produced phone will be at a price advantage. There's not much of a difference between importing components and assembling the phone on-site and importing a pre-assembled phone.

Second, the Chinese phone scene, in terms of innovation, is bigger than the software scene in Silicon Valley. Its unlikely that any African manufacturer would be able to match the Chinese hardware community in terms of innovation.

Indian telcos are not affected much by handset prices per se. Carrier-locked phones are getting rarer, as even providers who were CDMA-only are supporting unlocked GSM handsets.

So, it's baffling why there is any link between the glut of cheap Chinese phones and the spectrum scam !! Or why the availability of cheap handsets should start a price war between carriers ?!

I wonder if this caused the demise of Nokia?

Nokia's "feature phones" have experienced a decline in design quality as well. My last Nokia Xpressmusic brick/candybar had no "stop" button, so if you put it in your pocket the wrong way, a song called "Dance of Shiva" that was loaded by default (and couldn't be erased) would switch on, and you'd have to hit pause a few times. Very embaressing to hear mysterious oriental music in a meeting, and suddenly realize that it's coming from your pocket.

Want to send an sms to a number not in your phonebook? No way to do that either...no numeric inputs allowed in the number field when sending SMSes - you had to look up a number in the phonebook.

Nokia's feature phones are often described as their last hope, but, given the declines in design quality over time, I think they won't be.

My impression is that Nokia Xpressmusic is cheap smartphone very popular in India. Since Nokia must compete on price and not on quality in that market I wouldn't expect high quality there. As well it is quite old phone (released on April 27, 2008). I'm not sure if it is even fair to compare it to anything and make conclusions about Nokia's decline from 3 years old product.

I personally have Nokia N8 ("Made In Finland"). It is really solid and good made phone. I have not seen any of the problems you have with your Nokia. As well there are reasons why I wouldn't change this phone to iPhone and Android (like stable performance, good camera and free navigation). There are reasons why I don't like my phone: like browser that does not support HTML5 (while Qt has webkit that supports HTML5 features) but Nokia is working on those issues (google Nokia Anna).

P.S. Maybe I'm just lucky to get good Nokia smartphones :)

I was referring specifically to the cheaper "feature phones" (such as the Xpressmusic, which certainly isn't a smartphone). We often hear that they rule the low end market, but even in that segment, their design and quality seem to be slipping.

I would like to know why it is not smartphone? I don't see the difference. As well I think I agree with you that in low end market design and quality is slipping because Nokia has to compete with cheap phones from China. Wikipedia article on your phone lists visible things that were done to lower the price of this phone (http://en.wikipedia.org/wiki/Nokia_5800_XpressMusic#Price_Dr...). I'm more than sure that there are invisible ones as well. But as I have noted that says nothing about Nokia overall. If you want good Nokia phone buy good Nokia phone but not cheap one. You got what you paid for. That's like buying Toyota Yaris and complaining about lowering quality of Toyota cars overall.

The "burning platforms" leaked email specifically named this company as a problem on the low-end and developing nations:

"Let’s not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets."

Mediatek now have complete Android reference platforms, and seem set to do the same to the low-end of the smartphone market as all phones become smartphones.

Of historical note - the IBM PC was a de facto reference platform and the Taiwanese were there too.

This is not the link to the article. It shows a "Skip Ad" and then goes to the homepage.

It showed me a "Skip Ad", which when clicked on took me to the article.

This is getting ridiculous - Facebook, Twitter and not cheap cell phones aren't bringing down governments - discontent people do.

Discontent people; communicating with each other, and the wider world.

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