BENGALURU - Costlier smartphones appear to have stalled the increase in new Internet connections in India, one of the world’s largest online markets, according to the latest data from India’s telecommunications regulator.
After nearly a decade of adding Internet users at a rapid rate, the number of mobile data users, the country’s biggest section of Internet users, has been stuck at under 800 million for two years now.
Statistics from the Telecom Regulatory Authority of India (Trai) show that the country had 837 million Internet subscriptions as at June 2022, of which 92 per cent were mobile broadband connections. Trai defines broadband as a connection with a speed of at least 512 kilobits per second.
The number of connections in January 2021 was 734 million, and in October 2022, the latest month for which data is available, was 789 million, an increase of only about 7 per cent. In contrast, from 2016 to 2020, the number of mobile Internet connections grew in double digits every year.
Counterpoint, a market research company, said that means telecoms companies would have lost out on an additional revenue of about US$300 million (S$397 million).
Analysts say the plateauing of Internet use may be caused primarily by the rising price of smartphones, which is, in turn, driven by global supply chain problems and chip shortages.
The Indian government has said that the country is the world’s second-largest mobile phone manufacturer after China. But it relies on imports for semiconductors that power smartphones.
International Data Corporation, another market research company, estimated in 2022 that smartphone prices had risen by 20 per cent on average since the Covid-19 pandemic began. Several leading phone manufacturers such as Xiaomi, Oppo and Samsung increased prices after launching phones.
Counterpoint’s research found that the smartphone market in India had failed expectations in 2022, first because of component shortages and then due to higher retail prices and inflation. But despite having the supply chain back on track by the first half of 2022, demand did not improve as expected.
“The weak demand was especially felt in the entry and mid-level price bands,” said the company, which estimates that smartphone sales in India could fall by 5 per cent until March 2023.
On an earnings call in November 2022, Mr Gopal Vittal, chief executive of Bharti Airtel, a large mobile phone operator, said: “Imagine a poor customer who has a feature phone and who’s made a decision to change to a smartphone. And he’s… been told that the price is about 6,500 to 7,000 rupees (S$105 to S$113). But he lands up in the store and finds that it’s actually 10,000 rupees. He will go away.”
As a result, the market for used phones has grown. Cashify, an online resale marketplace, recorded a 50 per cent growth in revenue from 3.3 billion rupees in 2021 to 4.9 billion rupees in 2022.
The immediate future is not rosy for the smartphone market. A report by International Data Corporation said: “The major challenges going into 2023 are the impact of inflation on consumer demand, increasing device costs, and slow feature phone-to-smartphone migration.”
Telecoms analysts believe that smartphone users – who power the digital economy and attract foreign tech companies – will grow significantly only in the next three to five years, after new production incentives spur domestic chip manufacturing.
In April 2021, India announced incentives worth 760 billion rupees to companies manufacturing mobile parts, semiconductors and displays in the country. Now, about 15 per cent to 20 per cent of an Indian phone is made in India. The government aims to increase this to 35 per cent to 40 per cent.
