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Dynamics of
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Perspectives
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27 Jun 2018
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India is one of the

most prominent
markets for mobile
phones, surpassing
the United States and
second only to China.
While the introduction
of feature phones in
the country during the
last decade of the
20th century found
good penetration,
introduction of
smartphones
galvanized the market
further. With the
growth in Internet
services, smartphones
found high uptake
among the
urban/Internet savvy
population.

Exhibit 1:
Megatrends
impacting the
smartphones market

India’s demographic
profile has undergone
a characteristic
evolution, which is
highly beneficial to the
mobile phone
adoption. Gen Y, the
working-age
population, working
women, and the great
Indian middle class
have evolved to be the
most influential
segments of the
population triggering
new social,
technological, and
economic trends.
Urbanization will also
affect the market such
that 64% of the total
Indian population will
be urbanized by 2025,
and cities will account
for 70% of India’s
GDP in 2030.

The intense
competition among
the mobile phone
manufacturers is
driving down the price
of mobile phones,
which is helping in
increased penetration
across the country.
Smartphones are
expected to outrun
feature phones in the
country by 2019.

Increasing
Competition among
Handset
Manufacturers

Rising middle class

incomes have led to
an increase in
purchase of premium
smartphones. The
intense competition
among the mobile
companies with
several initiatives such
as bundled offers,
discounts and
aggressive pricing is
substantially driving
growth.

Exhibit 2: Mobile
Phone Market in
India, by Units, in
Million, 2015-2025

With the exception of

a temporary dip in
demand during the
last quarter of 2016
due to
demonetization, the
demand for mobile
phones in India
remains undeterred.
The concept of budget
smartphones has
been a growing trend
in the country driving
the volumes and also
cannibalizing the
feature phones
market. Another key
trend observed in the
market is online sales
of mobile phones.
Consumers are
extremely intelligent
as they survey models
in a brick-and-mortar
retail outlet and
compare the prices
with the online portals.
Price is still the top-
most factor driving
purchase in our
country, and
consumers prefer to
buy from the platform
that offers the lowest
price.

The mobile phone

market in terms of
value will grow at a
CAGR of 23.4% due
to the increased
adoption of
smartphones.
Burgeoning number of
mobile Internet users
in the country,
estimated to have
touched 300 million
users by end of 2017,
is one key reason
driving growth. With
increasing network
infrastructure
development and
rising use of wireless
technologies such as
3G and 4G, the overall
Internet user base in
India is expected to be
around 600 million
users in 2020,
accounting for 27%
penetration.

Exhibit 3: Mobile
Phone Market in
India, by Value, in
Billion, 2015-2025

Smartphones versus
Feature Phones

Functional benefits
and durability of
feature phones, such
as a long battery life,
have been the driving
factors for the
tremendous demand
for the product. The
larger part of the
Indian consumer base
especially in rural
areas remains
unexposed to the
additional features of
smartphones. Price is
another factor wherein
feature phones have
an edge over
smartphones.
However, the advent
of budget
smartphones and the
extension of 4G
coverage even in rural
areas have changed
the dynamics of the
mobile phone industry
in the country.

Exhibit 4: Feature
Phones vs.
Smartphones, by
Volume, in Million
Units, 2015-2025

Shrinking Gap
between Feature
Phones and Budget
Smartphones

The introduction of
Reliance Jio disrupted
the mobile industry,
resulting in increased
demand for 4G mobile
handsets. Data usage
surged and recorded
1.3 billion GB a month
in March 2017 from
200 million GB a
month in June 2016.
This phenomenal
increase in data has
led to a strong
partnership between
telecom service
providers and handset
makers benefitting the
end consumer by
allowing them to
afford premium
phones at easy
financing option, and
thereby creating a
win-win situation for
all. Vodafone has
teamed with
Micromax to provide
4G handsets at INR
1,000 and Bharti Airtel
has joined hands with
Karbonn mobiles to
launch 4G handsets at
the price of INR 1,500.
Reliance Jio is playing
the lone ranger by
announcing the launch
of its own line of
smartphones at the
price of INR 1,500,
which will be refunded
after three years upon
returning the device.

The average revenue

per user (ARPU)
provides the most
valuable insights in
this context. In case of
a feature phone the
ARPU is INR 90-100
whereas for
smartphones it is INR
170-200, making
smartphones the
preferred choice for
service providers. The
handset makers have
eliminated all the
additional perks of a
smartphone to create
a budget smartphone,
initiating the adoption
of the latter to the
large base of feature
phone users.
Consumers stand to
benefit the most as
they are able to enjoy
the benefits of a
smartphone at
affordable prices.

Domestic
Manufacturing
Scenario

Domestic
manufacturing
accounted for only
35% of the overall
mobile phone market
in the country with
most of the
components being
imported in 2016.
Backed by the ‘Make
in India’ initiative and
the ‘Digital India’
push, the domestic
manufacturing
percentage increased
to 38% in 2017 and
will continue to grow
at a fast pace. New
investments
announced by
companies such as
Lava, Micromax,
Celkon, Gionee,
Xiaomi are driving the
local manufacturing
market. Phased
manufacturing
programme (PMP) by
Ministry of Electronics
and IT (MeitY) has
proved to be
successful in
promoting the use of
locally made
components in mobile
phones.

Exhibit 5: Current
and Upcoming
Investments in
Mobile
Manufacturing, in
INR Billion

Except Samsung, all

other mobile phone
manufacturing units in
India are low value-
add assembly units.
The lack of indeginous
ESDM manufacturers
is one of the key
reasons behind this
lag. The country does
not have adequate
infrastructure, support
and R&D budget to
achieve complete
manufacturing of
mobile phones locally.
The entry of several
mobile phone makers
in the country due to
government initiatives
and subsidies and
duty exemption in
special zones have led
to the increase in
domestic
manufacturing.

The domestic
manufacturing of
smartphones is
expected to grow at a
faster CAGR of 48.4%
between 2017 and
2025. India is also
expected to surpass
China as the preferred
destination for
manufacturing of
mobile handsets. The
entry of Jio and
indigenous
manufacturing plans
of many other players
will strengthen the
smartphone industry,
and enter the next
level of manufacturing
with components
sourcing. Electronic
Manufacturing
Services (EMS)
companies will play a
significant role in the
overall ecosystem.
The likelihood of
domestic
manufacturing of
smartphones
exceeding demand by
2025 will enable India
to emerge as an
export hub for
smartphones.

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