Slow Smart­phone Sales Growth may Hurt Tel­cos’ Data Rev­enue

Jio, fall­ing pace of user ad­di­tions may drag Q4 ARPU by 10% se­quen­tially: An­a­lysts

The Economic Times - - Companies: Pursuit Of Profit -

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

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