“The number of new subscribers using the mobile internet per year plunged from pre-Covid levels of 60-70 million to around 35-40 million in CY2022, which has resulted in telcos potentially losing out on around a $300 million additional revenue opportunity, assuming that the extra 25 million new mobile broadband users would have easily generated at least $1 of incremental monthly ARPU for the operators,” said Tarun Pathak, research director at Counterpoint.
The growth of India’s internet user base is likely to stay subdued in calendar 2023 with smartphone prices unlikely to drop anytime soon. This scenario could potentially drag telcos’ revenue and average revenue per user (ARPU) growth levels in the current year, said the analysts and experts cited.
Data collated by the Telecom Regulatory Authority of India (Trai) show India’s overall internet user base grew 4.3% on-year in CY2021 to 829.3 million after steady double-digit growth during 2015-20 amid the rising prices of entry-level smartphones that slowed down 2G-to-4G conversion.
Trai data show the overall internet user base fell marginally (0.5%) in the January-March period last year to 824.89 million. The wireless internet user base also remained almost stagnant between end-December 2021 (802.72 million) and end-June 2022 (808.13 million).
Analysts expect the subdued growth trend to continue in 2022 and much of 2023 as prices of entry-level smartphones are unlikely to cool off, thanks to high component prices, currency volatility and the war in Ukraine. In addition, the recent curbs imposed by the US on exports of advanced semiconductors and chip manufacturing gear to China could further stress global supply chains.
“Base smartphone prices are likely to remain expensive and the decline in smartphone shipments could continue at least till June-July, 2023, which would slow down 2G to 4G conversions,” said Nitin Soni, senior director at global ratings agency, Fitch. “We estimate this could result in telcos reporting lower revenue and ARPU growth in CY2023 vs CY2022.”Fitch estimates India’s top telcos to report 10.5% and 8.2% on-year growth in revenue and ARPU, respectively, in 2023 compared with 16.4% and 12.9%, respectively in 2022.
Bharti Airtel, Reliance Jio and Vodafone Idea (Vi) did not respond to ET’s queries.
At Airtel’s fiscal second-quarter earnings call last November, managing director Gopal Vittal had said sustained pressure on semiconductor prices over six to eight months since March 2022 had pushed up entry-level smartphone prices from Rs 6,500 to Rs 10,000, which had led to a 30% reduction in feature phone to smartphone upgrades.
To be sure, sector experts believe there could be some revival in consumer appetite for smartphones once Reliance Jio and Bharti Airtel roll out 5G services across the country by the year-end.
“The full-fledged arrival of 5G across India by end-2023 could lead to smartphones becoming more affordable, which in turn could prompt many 2G users, who did not go 4G last year, to directly upgrade to 5G services,” said Fitch’s Soni.
CLSA pegs India’s current 5G smartphone base at 70 million and estimates the country’s mobile data penetration to rise a further 11 percentage points to 80% by March 2025. It also estimates India’s smartphone base will grow to 700 million by March 2025, propelled by countrywide 5G rollouts by Jio and Airtel.
“Bharti and Jio’s early 5G monetisation would be led by top-end mobile postpaid subscribers alongside increases in their mobile network capacities,” CLSA said in note. It added that 5G’s greater edge in India mobile would be due to larger blocks of airwaves and better spectrum efficiency.
Soni of Fitch, though, expects the 5G business case to be limited in the short term as most of the current applications are comfortably served by 4G, and penetration of 5G handsets in India is still less than 5%. He expects India’s top telcos to raise headline tariffs in CY2023, given the focus on profitability amid industry consolidation.
