Slow Smartphone Sales Growth may Hurt Telcos’ Data Revenue
Jio, falling pace of user additions may drag Q4 ARPU by 10% sequentially: Analysts
Kalyan Parbat & Gulveen Aulakh
Kolkata | New Delhi: Bharti Airtel, Vodafone India and Idea Cellular, the nation’s top telecom operators, have to not only contend with new rival Reliance Jio Infocomm’s free voice and data services, but also with slowing smartphone sales growth, a double whammy for increasing data revenue in the current quarter.
The pace of annual smartphone sales growth in India has eased steadily – from 161% in 2013 to 18% in 2016 – even as feature phones remain a strong segment. While the handset industry had pinned its hopes on a recovery this year, the aftershocks of demonetisation put paid to those hopes. Also, the anticipated entry of 4G VoLTE feature phones may put further pressure on smartphone sales.
“Continuing fall in smartphone sales growth will impact penetration and negatively impact data revenue growth, but in the short term,” said a senior executive of a mobile carrier. The view was backed by Nitin Soni, director at rating company Fitch, who described the effect as “a temporary blip”.
Analysts expect the impact of Jio’s free services, coupled with the slowing pace of smartphone user additions, to drag data average revenue per user (ARPU) by about 10% sequentially in the JanuaryMarch quarter. A senior industry expert said data growth is directly proportionate to smartphone penetration levels. “So, if smartphone penet- ration slows, data revenue growth would automatically slow down too,” he said.
Handset industry experts said feature phones will continue to account for 54-55% of all phones in India in 2017, as was the case in 2016. Tarun Pathak, senior analyst at Counterpoint Technology Market Research, added that smartphone shipments are likely to decline to 28 million in the March quarter from 29 million in the previous quarter. Industry watchers and handset makers expect a 20-30% fall in smartphone sales in the March quarter, from levels typically seen at this time of the year.
Even after March, experts expect replacements to drive smartphone sales, indicating the limited interest among users of feature phones in upgrading to smartphones, due to factors such as affordability and battery life. Airtel, Idea and Vodafone India did not immediately reply to ET’s queries on slowing smartphone sales adding to the Jio impact on data revenue growth in this quarter.
After Jio started its free voice and data services in September, market leader Airtel and Idea reported a 13% and 14.6% sequential fall in their data ARPU, respectively, in the December quarter. Vodafone India’s data browsing revenue growth slowed to 0.6% in the fiscal third quarter from 16% in the second quarter. Vodafone Group CEO Vittorio Colao said the company anticipates intense competitive pressure in India in the fourth quarter as well.
The introduction of 4G feature phones at a price of about ₹ 1,000 — said to be pushed by Mukesh Ambani’s Reliance Industries — could further dent adoption of smartphones, experts said.
Idea Cellular managing director Himanshu Kapania argued that cheap 4G VoLTE-capable feature phones could actually drive up 4G data adoption and asserted that large operators had the pan-India coverage in place to cash in.
“Any effort, which will bring down the overall handset prices will definitely increase the momentum of customers upgrading their existing handsets to 4G and will increase adoption levels,” Kapania said at an earnings call Monday. HSBC analysts Rajiv Sharma and Adam Fox-Rumley, however, said if Reliance were to bring out a low-cost 4G feature phone, rivals would find it difficult. “The tough element would be matching Jio’s offering in the short term, given that incumbent telcos have not yet built their VoLTE capabilities, but if they start collaborating with handset vendors to also proactively offer low-cost 4G handsets, they may narrow the window in which Jio can run such exclusive offers,” they said in a note seen by ET.
After Jio started its free services, Airtel’s data ARPU fell 13% and Idea’s by 11% during the quarter ending December