The increase in smartphone pricing due to the ongoing component shortages might be slowing down 2G mobile subscribers from transitioning to 4G mobile plans. According to the subscription data released by the Telecom Regulatory Authority of India monthly growth rate in broadband users was minus 1.16 per cent in January 2022 compared to a 1.35 per cent monthly growth in the same month last year. The slowdown in growth appears to start from August 2021.
Experts who track mobile handset prices believe that there has been a 10-15 per cent increase in the entry-level smartphone price range compared to their prices in 2019. Navkendar Singh, is a Research Director with IDC India, told BusinessLine, “Due to component shortages, prices of smartphones have increased across all price ranges. Entry-level users would have faced the highest proportion of increase, compared to their lower base price. Demand for entry-level smartphones has certainly been impacted.”
Industry sources said that operators are facing difficulty convincing their 2G users to convert to 4G mobile plans, giving the telcos higher average revenue per user. As cash strapped telcos look for revenue sources to pad their balance sheets, India’s 350 million 2G users remain the biggest untapped market for them. However, these users cannot transition to higher tariff plans as they typically use feature phones, which cannot support 4G technology. A typical feature phone costs anywhere from ₹1,000-2,000 in the market, meanwhile entry-level price for a smartphone will range from ₹8,000-10,000. With the ongoing component shortages plaguing OEMs for more than a year, the cost of entry-level handsets has been creeping up, affecting their demand.
The cost of handsets has thus wielded a major blow on the operators according to experts, who believe that operators see migration from 2G to 4G services slow down. This trend is backed by the monthly subscriber reports released by the TRAI. Bharti Airtel, for instance, has seen a major drop in monthly additional wireless broadband subscribers. In the first half of 2021, Airtel added 3-4 million users to its overall wireless broadband subscriber base. However, as the component shortage worsened in the latter half of 2021 and the operator took on tariff hikes, Airtel’s monthly wireless broadband additions have reduced from 1 to 1.5 million. Right after Airtel announced its November tariff hikes, the operator, in fact, saw its wireless broadband user base decline by 150,000 users. In the following month (January) the operator could only add 550,000 additional subs.
Another reason behind the lack of availability of entry-level smartphones in the market is the general decline in OEM interest to manufacture smartphones at lower prices. Faisal Kawoosa, Founder and CEO of TechArc explains, “It is not that smartphone makers cannot make phones at low prices. However, OEMs are noticing that demand for these phones has reached its saturation point, and makers are unable to have large sales volumes. We have noticed that many brands have gradually moved on to the middle and upper consumer segment.” The Hindu BusinessLine