India: Rising price of smartphones stalls the growth of internet users

The new statistics from the Telecom Regulatory Authority of India (TRAI) show that costlier smartphones have stalled the increase in new Internet users in the country. The Internet sector is one of the largest online markets in the world which has been adding new users every year at a rapid rate. But after seeing rapid growth in this sector for nearly a decade, the numbers seem stuck now at 800 million users for two years.

The data from the telecommunications regulator show that the country earlier had 837 million Internet subscriptions as of June 2022, out 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.

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The number of connections in January 2021 was 734 million, and in October 2022, the latest month for which data is available, it was 789 million, with an increase of only about 7 per cent. In contrast, from 2016 to 2020, the number of mobile Internet connections doubled every year.

Analysts of these trends say that this is due to the rising price of smartphones which is, in turn, driven by global supply chain problems and chip shortages.The Indian government has said in the past that the country is the world's second-largest mobile phone manufacturer after China but still relies on imports for semiconductors that power smartphones.

A market research company, International Data Corporation also 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.

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Another market research company, Counterpoint, also researched this area and found that the smartphone market in India had failed all the growth expectations n 2022. The reasons they cited were-

1) First, it was due to the shortages in mobile components
2) Second, it was 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.

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On an earnings call in November 2022, Mr Gopal Vittal, chief executive of Bharti Airtel, 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 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 for the smartphone market is not rosy, as many telecom analysts believe that any significant growth in this field will be seen only in three to five years from now. And this growth will only be possible when new production incentives will be given to 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 Indian phone is made in India. The government aims to increase this from 35 per cent to 40 per cent.

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