The past two years have seen a shift in buyer preferences in the Lebanese handset market. Anecdotal indicators – in absence of trustworthy statistics – show that residents are resorting to longer device usage before buying a replacement handset, and opt for seeking to repair malfunctioning but still serviceable smartphones.
When buying a new smartphone, they have been down-shifting from flagship and high-end models to perhaps less sleek, less powerful, and less glittery but utilitarian devices, seemingly infusing moments of rational choices into the country’s previous culture of business glitterati and at-any-price buyers of the latest ICT gadgets.
Thus, where once the latest iPhone and Samsung Galaxy flagship (great for the casual show-off) was considered a reputational necessity and the, mostly bygone, bling brand Vertu glowed in a few select showrooms, there appears today to only be subdued hampering for the global top brands’ latest flagship models by the few that have intact purchasing power.
For the vast majority of Lebanon’s four-plus million mobile phone users, the game has turned into a cost-conscious hunt for new down-market smartphone makers and, at best, their plastic flagships, many with names that the image-conscious Lebanese buyer in the past might not even have cared to know the correct pronunciation of.
It is not quite clear how the overall burdens of communication costs, which have for many years been exorbitant in terms of government levies that were more or less poorly camouflaged as mobile phone and data connectivity charges, will develop once the government gets serious about telecommunications sector reforms (see overview story), adjusting the telecommunications charges.
But for the time being, the handset market exhibits a new equilibrium that is reflective of people’s applied coping strategies in the Lebanese electronics market, which like all markets of imported durable consumer goods, has long had to contend with Lebanon’s comparably small size and communal fragmentation, along with being plagued with exclusive dealership and import rights.
The latter barrier is rooted in a legal decree issued in 1967, which allowed importers of durable consumer goods such as electronics to assert exclusive agency rights in the Lebanese territory. The Lebanese parliament voted in early 2022 in favor of a new competition law that according to Amine Salam, the minister of economy and trade, abolishes legal backing of exclusive dealership privileges in connection with opening the entire private and public sector to competition.
“This law, according to various studies, will affect pricing in Lebanon by decreasing prices up to 40 percent. Once the competition law is in full execution, you will definitely see between 20 and 40 percent decreases in prices of goods and services where the problem was in the past that a few business tycoons were controlling markets with pricing and distribution,” he tells Executive.
On the hardware side, from computers to smartphones, the market practices have long circumvented some of the restraints that exclusive agencies posed more strongly in other import segments. “The market is free for all; you will find four importers for HP, three for Lenovo, and nearly six for Apple products,” says Bernard Feghali, owner, and operator of specialty electronics shop EnterSpace in Jbeil. He describes the ability to import computer products as a matter of a small operator’s network, with the main shared denominator of taxes and import duties affecting all resellers.
“Independent businesses can import any brand provided the supplier abroad can cover their needs,” says Fouad Karam, owner of Mass Electronics, a radio, and cellphone business also located in Jbeil. According to him, manufacturers that have entered partnerships with Lebanese distributors may exclusively deal with those local channel partners, but third-party resellers, namely in the GCC, are allowed to act as wholesalers for retailers in Lebanon.
Whereas the state’s control over telecommunications operators has been undeniable since before the first two build-operate-transfer contracts were signed in 1994, the handset market has by comparison been freewheeling. The bypassing of exclusive agencies in the mobile phone market in this sense was mirrored by the fact that governmental efforts to curb the wild flows of smartphones and portables into the Lebanese market during the 2010s have not lasted long.
In an attempt to force official declarations and registrations with tax authorities on inflows of mobile handsets, the Ministry of Telecommunications in 2013 decreed that phones would not be logged into the country’s two mobile networks if there was no record of import duty having been paid by an importer or even the end-user. All mobile phone users in Lebanon received alerts demanding payment of import duties and registering their phones’ International Mobile Equipment Identity, or IMEI, a unique phone identifier code, with the telecom’s ministry within 60 days of its activation on Lebanese networks.
This decision was canceled in 2016, before being reintroduced in 2017 by then Minister Jamal Jarrah, whose ministry awarded the IMEI registration contract to Immobiles, a private enterprise.
In the Lebanon Economic Vision (LEV) document – which by some was praised as a holy writ for the Lebanese economy and to others was a notorious and wasted expenditure – by international consultancy McKinsey, the telecoms sector’s contribution to Lebanon’s GDP was cited as amounting to $1.3 billion in 2017, or 12 percent, up from $0.9 billion in 2006. However, the 2006 figure represented a higher share of GDP, at 19 percent.
Data on the real performance of the telecommunications industry to GDP in the crisis years from 2019 onward have not been reliably assessed or communicated to the public but have by consensus of telecom and financial experts dwindled. Operators and officials have since the start of 2022 lamented publicly that the sector has not only become unprofitable for the state as its ultimate beneficiary, owing to the continued “official lira rate” (1,500 LBP to 1 USD) indexation of tariffs in customer invoices but also threatened with breakdowns due to inability to pay for fuel for the generators powering its substations or replace stolen cables and fix broken equipment.
The best that one might say on the basis of observations of heavy marketing of mobile handsets in the leading e-commerce marketplaces and the consistent presence of small smartphone retailers and repair places around the country is that the sector remains active in retail and aftermarket support, but apparently showing varying degrees of strength depending on the client base.
Both Karam and Feghali said they maintain consistent sales of new phones, particularly high-end products, to clients who have financial inflows from abroad, usually from expatriate family relations. Additionally, handset and device vendors can tap into the purchasing power of young professionals who stay in Lebanon but derive their income from working remotely for international companies or clients in the diaspora.
Owing almost entirely to the sharp fluctuations in the overall vastly deteriorating foreign exchange rate, local market prices have, according to Feghali, undergone large swings with intermittent down phases. By comparison to the impact of currency fluctuations, international supply chain issues and escalating global shipping costs have been minor factors that weighed on the local market, he added, attributing the relative insignificance of these global price drivers to the fact that phone importers had seen lavish profits in the past. Thus, they were able to absorb regular swings in their cost base and could adjust their pricing to the market’s diminished purchasing power in the recent past while retaining their margins.
Numerous entry-level brands have newly entered the Lebanese market in the past two years and have in Feghali’s view been essential in this process of aligning handset market realities with the shrinking purchase power of consumers who ever-increasingly depend on mobile communication when facing near-catastrophic hikes in transportation costs and general living expenses.
Several brands that entered the market from East Asia, namely China, and gained market prominence in the past two years since the crisis are Vivo, Oppo, Honor, and Tecno – in comparison to those who entered pre-crisis such as Huawei – brought extremely competitive prices and bundle deals. Covering market demand with models carrying a $100 price tag, such as Vivo, or $130 in the case of Oppo, address the large and highly price-sensitive segment of utility-first phone users. And while legacy manufacturers retain their share of the market, resellers are seeing manufacturers like Xiaomi offer some higher-end models which retail at little more than half the price of the big-mane flagship phones of Samsung and Apple that generally start around the 900$ mark.
In Feghali’s opinion, this is not an indicator that the market shares will shift in the longer term towards the cheaper newcomers. “The market is always rolling, there’s consistent demand as clients depend on technology the same way everyone depends on a pharmacy,” he says, adding that phone buyers generally tend to switch to higher quality alternatives over the long run and that phone sellers in Lebanon will regularly adjust their prices in accordance with fluctuating prices offered by their international suppliers and also in accordance to issues of a handset’s origin and taxation.
With import taxes and telecom provider service rates at the time of this writing still being calculated at the “official” FX rate, and thus providing consumers with affordable services packages by operators and also bringing new handsets into easier financial reach, the market is faced with an immense risk of new price shocks in case of resetting of either importation levies, mobile communication tariffs, or a further deteriorating currency.
On the upside, the market for telecommunications devices has benefited in the past two years from the restrictions and behavior changes enforced by the pandemic. “COVID-19 gave us a bump, but mainly through parents who could afford to purchase a tablet and allow their children to pursue their education remotely,” says phone retailer Karam.
Feghali notes that aftermarket support is functioning well but can be hampered by a lack of standardization for importing specific replacement parts such as batteries. “While many importers are bringing in low-quality products to cover the market’s needs, [Original Equipment Manufacturer] support is limited to larger market players, with support limited over a set period,” he says. For Karam, households and small businesses alike also face uncertainty because of the extent of what is a poorly regulated market for telecom devices. Opening a shop that offers to repair smartphones and portable devices does not require much capital or technical expertise. “Anyone can do it, but few can do it right, particularly when it comes to bringing quality OEM or near OEM products,” he says. Karam similarly points out that the market is being exposed to flying vendors who would descend on his shop with travel bags full of displays, batteries, and accessories, with little regulation affecting the way people do business.