In Africa, smuggled phones cost more than they seem

Counterfeit phones can be hazardous to consumers and leave legal companies out of a larger mobile device market.

Today, almost 22 million South Africans -over one third of the population- use a smartphone. The number has more than doubled since 2014 and estimations show that local smartphone users could easily reach 26 million by 2023. The mobile phone sector was also one of the few markets to show resilience to the effects of the pandemic. In spite of the sanitary and economic crisis, 20 million units were sold in the first half of 2020.

Yet, official data fails to report how many -if any- of these devices were issued from unlicensed providers selling fake or cloned devices.

Counterfeit mobile phones amount to nearly 20% of all of the handsets sold globally, according to the OECD, making them some of the most trafficked electronic goods in the world. It is believed that 10 to 20% of mobile devices currently connected to the African telecom networks are counterfeit, and the number continues to grow. For governments, limiting mobile devices smuggling optimizes revenue collection from mobile operated devices, so the stakes are high.

Counterfeit phones are built upon the designs of some of the most sought-after cellphone brands and companies. They are then falsely branded and introduced at cheaper-than-normal prices in distribution and retail chains to lure the unsuspecting buyers. Nokia, Samsung and Apple devices are among some of the most copied.

As emerging economies, the African nations are easy prey to electronic goods smugglers. These illegal retailers benefit from the communication needs of lower-income populations to effectively position their bogus devices.

While affordable, the ultimate cost of counterfeit devices both for the final user and for the industry as a whole is high.

Firstly, unlicensed mobile phones fail to adhere to quality norms. This results in reduced durability as the units’ unregulated manufacturing processes often lead to internal failures. The substitute devices also usually enclose non-standard or hazardous elements -such as lead- and can produce higher than normal levels of radiation.

Other than posing serious safety and health risks to the final user, these phones are more difficult to trace than regular devices, making them the go-to tool for orchestrating criminal activities.

But the prevalence of smuggled phones also means that legal companies have been left out of a larger mobile device market. Mobile phone makers, licensed distributors and even government instances are estimated to be losing billions of Rands annually to the counterfeit market.

A 2015 study on the economic cost of the fake phone market led by the European Union Intellectual Property Office (EUIPO) and the International Telecommunications Union (ITU) revealed that companies lost 1-billion-euro (R17b) worth of smartphone sales in Africa due to pirated goods. That is 20 % of the continent’s market. Globally, the losses add up to 45 billion euros. 

African countries have been making efforts to help revert this trend.

Police raids in Tom Mboya street and Luthuli avenue have been carried out in Kenya’s capital to limit counterfeit phone trade. About R1m worth of pirated devices were confiscated in February 2019. Similar operations were executed in Lagos by the Standards Organisation of Nigeria (SON), but according to local media the counterfeit market has continued to grow over the years in spite of this. Recent research estimates that more than 350 million substitute phones have been traded in the country.

While seizing illegal products both in retail stores and in customs controls does alleviate part of the fake phone problem, ITU experts have expressed the need of a harmonized set of additional measures to effectively halt the trade of grey market devices.

Smuggled phone identification and blocking through IMEI registration control is deemed one of the most effective ways to deter counterfeit device selling while limiting company and government losses.

In 2012, the National Commission of Communications in Nigeria and authorities in Kenya pulled the plug of nearly 1.5 million grey market phones in both countries. Tanzanian agencies took similar actions in 2016 by disconnecting more than 600 000 counterfeit handsets from the national grid.

More recently, the Uganda Communication Commission installed a central equipment identity registry to identify and blacklist counterfeit devices in the network according to their imprinted IMEI code. The system is linked to each of the country’s telecoms operators.Regulations in Kenya require all imported handsets to be approved by the local Communications Commission (CCK) before being shipped to the country. Here, cooperation between government agencies, GSMA, handset manufacturers and mobile operators is key to limit the spread of smuggled devices.