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Will your phone soon be free? DataWind announces $15 smartphone

With free internet service and the lowest price in town, DataWind wants to impress rural India.

Could the era of the free smartphone be around the corner? Yesterday, Canadian-UK company DataWind announced a 999 rupee ($15) linux-based smartphone, to be launched in India towards the end of December. If the launch goes according to plan, customers will get a year's worth of free internet along with the phone, which will use a Linux-based operating system.

If you wanted proof that the phone industry is going to rapidly emulate the PC one in terms of becoming rapidly commoditised, you can't get it better than this. Of course, that is difficult to imagine right now in India, with phone sales reaching stratospheric levels. (Only 30 percent of 1.25 billion people have smartphones, so many phone companies are still going to continue to enjoy their day in the sun for a little while.)

People like Suneet Tuli, the founder of DataWind, want to usher in that day of reckoning a lot quicker: "We want to replace feature phones with low-cost smartphones and hope to shrink the feature phone market base to 5-10 percent from the existing 60-70 percent in the next one to two years," Tuli said.

Tuli has made a name for himself by selling phones for next to nothing, with specs that are becoming better day by day for no other reason than Moore's law, which postulates that the number of transistors in a CPU doubles every two years.

The company's phones are known for their rock-bottom prices and decent specs. DataWind, along with telco RCom, hawk seven variants of Android-based smartphones and tablets. These include the PocketSurfer 2G4 for 1,999 rupees ($30), and the PocketSurfer 3G4 for 2,499 rupees ($38). Both come with free internet for a year, which is a big draw for the thrifty Indian consumer. DataWind said it has flogged more than 400,000 phones in the past six months, according to the Economic Times.

Both the PocketSurfer models give us some idea of what kind of phone the $15 model is going to look like. The $38 3G4 has 3G connectivity, a 4-inch display, 480p resolution, a 5 MP front-facing shooter and a VGA selfie, a 1GHz chip, and 256 MB RAM -- in other words, specs that would have satisfied a budget or mid-range phone buyer in India three or four years ago. The Moto G it ain't, but industry observers feel that these units will be quite acceptable for a first time phone user who needs it for basic surfing, especially in rural parts. The new phone will undoubtedly share some of these specs.

So how does Tuli make all this happen? The willingness to throw some money at the problem helps. Tuli said he is willing to lose money on the hardware, according to the Economic Times article. "Our big focus is on network services, apps and content. Hardware today is a customer acquisition tool. Once people start using it, we can make money through service offerings," he said.

This is the kind of strategy that made Xiaomi a giant killer in the mid-price segment in China, sky-rocketing it to the top of the phone-selling heap and causing Samsung to have a meltdown. The company's online sales for services and other products, such as emoticons and headphones, does a pretty brisk business.

With phones -- we're basically talking Android here -- having little differentiation and uniqueness, and where profit margins become increasingly thinner, phone makers have no choice but to integrate services into their offerings. Phone makers who do that earlier, along with smart branding and deals with telcos, stand to be ahead of the pack in India.

This doesn't mean that DataWind will blow through many of its rivals in India. If cheap equals popularity, that would have already rung true for the company. Instead, in many quarters, they are still associated with one of the biggest hardware fiascos in recent history in India, something I mentioned on ZDNet last year.

The company was crucified in the press for what was generally described as an epic failure in the delivery of their much-touted, low-cost tablet Aakash. This was a project led by the Indian government that aimed to place tablets in the hands of rural schoolchildren, and was entertainingly detailed in a Fast Company article. DataWind defended itself by accusing the Indian government of constantly changing its specifications.

DataWind's phones and phablets have been generally better received since then, but they still need to make sure that their cheaper products offer value. The Indian consumer is a discerning buyer and would rather pay a little more for a phone that is qualitatively better.

Local leviathans such as Micromax, with a vast range of phones and a massive advertising budget, equally hell-bent on making a name on the low-end of the smartphone spectrum (in addition to its popular budget and mid-range offerings), are also churning out cheaper phones. They are going to offer DataWind a pretty fierce challenge in the hinterland. Then there are local players like Intex, Lava, and Spice, who are all gunning for larger market share with cheaper phones, knowing that one of the biggest selling opportunities in a lifetime stares them in the face.

To counter this, DataWind said it will deploy 200 crore rupees to put up two manufacturing facilities in the country in the next six months. It has also inked another agreement with low-cost telco Telenor to sell more of its phones in six additional "circles" in the country (out of 21), which also includes free internet access.

With Moore's law working in DataWind's favour, its willingness to take a financial hit for market share, and its determination to get as low as possible price-wise, the phone maker has just upped the ante. Now, it's just got to make sure its phones do the talking.