The Indian telecom industry had clocked a robust triple digit data volume growth in FY14 and FY15 with proliferation of smartphone shipments and 3G adoption leading to spurt in number of subscribers and data usage per customer. However, data volume growth is already tapering as the pace of smartphone penetration is losing steam. Along with weak macros, postponement of handset purchases by users awaiting RJio 4G launch or lower discounts on e-commerce portals stemming impulse buying could be possible reasons for slower shipments.
IDC has reported continued deceleration in smartphone shipments with meager 3.8% YoY growth in Q1FY17 versus 5.4% in Q4FY16. One could attribute the slowdown to lower discounts on e-commerce portals and stress in rural economy. With currently the SmartPhone base at 120 Mn users, can India achieve a target of 500 Mn Mobile Broadband Subscribers where the key device to access will be the SmartPhone ?
Our Contrarian Call
Slower pick up in smartphone shipments has put to risk the popular hypothesis that increase in smartphone penetration will lead to 400-500mn mobile broadband subscribers by 2020. We still think that the Target and is easily doable though in the near term we face the headwind of slowdown led by slower urban & rural wage growth, which is expected to revive with cut in interest rate spurring economic activity and a strong monsoon reinvigorating rural economy.
Telcos are investing massively in physical infrastructure and spectrum to cater to the anticipated data surge. Ergo, faltering data volume growth will trigger lower capacity utilisation, heightening competitive intensity. Smartphone shipments data translates into smartphone addition on the network with a lag due to inventory in the supply chain. But we remain positive that India will easily reach the 500 Mn Mobile Broadband Subscribers by 2020.