Ringing Bells' Freedom 251 smartphones will be delivered at a huge loss. How far can they go?

He has done the easy part. On July 8, Mohit Goel, founder of Ringing Bells, the maker of what has been touted — with more than a fair bit of derision — as the world’s cheapest smartphone, personally hand-delivered the first Freedom 251 to Ankita Birla, a 27-year-old vendor coordinator at an electronics company in Noida’s special economic zone.

Like many who would have placed an order for the smartphone, Birla was sceptical about actually receiving it. “I never thought they would deliver. I too thought that the company is a fraud,” says Birla, who had become the butt of jokes in her social circle for registering with the firm online. A flurry of negative reports about the company and the controversies they were mired in, such as relabelling an existing brand, defaulting on vendor payments and flouting safety norms, only reinforced her suspicion.

Goel uses the moment — and the photo-op — as an opportunity for redemption. From being branded a fraudster to being accused of running a Ponzi scheme, Goel was “crucified” on the cross of cynicism. “They wrote my obituary,” says the 29-year-old Goel, visibly relaxed in the corner room in his office in Phase II of the Noida SEZ. “But I have delivered what I promised.”

The last statement may, of course, be premature. Goel may have convinced Birla that Ringing Bells “is for real” but now he’s got to do it at least another 1.99 lakh times. After all, the company had promised to deliver 2 lakh handsets out of 7.5 crore people who registered for Freedom 251.

On Friday, Goel claimed Ringing Bells delivered some 2,200 handsets — most of them via courier. He promises to deliver the remaining 2,800 — 5,000 is the target set for the first phase — by Monday.

Now for the Hard Part
Ringing Bells recently relocated to a new office in a swank multistorey commercial building in the Noida SEZ that has many IT firms. In stark contrast to their sparsely populated earlier office, which ET Magazine visited in March this year, the present one is buzzing. Over 20 employees in Ringing Bells tees are busy packing handsets to be delivered across India. The irony, though, is that the more phones the company delivers, the deeper it maybe digging its grave. Here’s why.

For every handset sold at Rs 251, Goel is taking a hit of Rs 270. The original plan was to cover the cost of the handset — Rs 1,165 — by pre-installing apps, with the hope that app makers would pay Ringing Bells a fee; create a marketplace model and invite sellers to the site and leverage the 7.5 crore registered base of consumers; bundle offers from telecom operators; and get advertising on the site.

Those plans have come a cropper and Goel blames the negative news flow about the company for that. “Many app makers deserted us after the company got embroiled in controversies,” he shrugs. “That upset our original plan.” Goel, though, is not the sort to give up, and audacious gambits are second nature to him. He’s now talking about selling LED TVs at just under Rs 10,000, when the cheapest LED model in the market is available for Rs 14,000. “We will make a profit of 15% on each unit,” he claims.

The danger of this gamble is its Ponzi scheme-like nature, with Goel hoping to cover up losses on Freedom 251 with LED TV sales. He is also counting on the sale of the recently unveiled feature phones and smartphones, ranging from Rs 699 to Rs 4,499, to come to the aid of his pet project. “We are also talking to some brands for exclusive tieups,” he claims, refusing to divulge details.

You don’t have to be a spreadsheetporing analyst on Dalal Street to conclude that Goel’s bubble may be headed for a spectacular blowout with every new ambition. The scale of the looming disaster is evident from the amount the founder has asked from the government to stay in the game — all of Rs 50,000 crore. Goel insists that is only a suggestion, which would help empower over 7.5 crore people under the government’s digital India campaign. “We are not dependent on government funding,” he says.

“That was just one of the ideas.” Goel insists there is no dearth of funds. The company has got the strong backing of its distributors, he claims, adding that his biggest investor is a distributor who has pumped in Rs 10 crore. The company has so far invested Rs 80 crore, he adds. Clearly, he may be hoping that financiers get emboldened to invest in his project on the back of his “success” so far in actually delivering the smartphones. Goel may be able to deliver a few thousand smartphones, but that’s hardly enough to uncork the champagne.

That can only happen when he is able to sell the handsets without incurring a loss of even a rupee. “Not a single unit must be sold at a loss,” says brand strategist Harish Bijoor. “It is crucial for the company to ensure that the revenue stream is rejigged fast.”

Ringing Bells may have begun to toll but, despite his bluster — “kuch to log kahenge” — Goel may be well aware that the bell also tolls for his dream venture.