Catching On: Smartphone Uptake in India to Increase Significantly Trends and Developments, July 27, 2011

Catching On: Smartphone uptake in India to increase significantly Trends and Developments, July 27, 2011

Apple Inc.’s iPhone 4 was introduced in India in late May 2011 amidst much fanfare. The device, Apple’s fourth offering for smartphone users, was powered by the company’s A4 operating system and comprised a retina display, a FaceTime application for video chatting and a 5 megapixel camera, besides other applications.

The iPhone generated a lot of interest in the smartphone segment. Rising to the challenge, the other big players in this space – Nokia, the HTC Corporation, Samsung and even India’s homegrown Micromax, MAXX Mobiles, etc. – unveiled offerings that promised to be cheaper, better and smarter, thereby leading to greater competition. Moreover, with falling handset prices and the arrival of 3G, industry analysts are predicting a threefold increase in the number of participants in the handset space.

Size and growth

Smartphones have so far constituted a niche segment of India’s handset market. This, however, is set to change. According to Frost & Sullivan, India is the second largest mobile handset market in the world (after China), and is poised to become an even larger market. It is expected to grow at a compound annual growth rate of 11.8 per cent between 2010 and 2016, with unit shipments of 208.4 million likely in 2016.

Owing to the Indian mobile consumers’ increasing preference for high-end handsets and the younger consumers’ demand for mobile Web 2.0 technologies, the mobile handset market’s revenues are expected to increase from Rs 255.91 billion in 2010 to Rs 350.05 billion in 2016.

In terms of handset shipments, however, while the global smartphone vendors shipped a total of 99.6 million units in the first quarter of 2011, nearly double the 55.4 million units in the first quarter of 2010, the Indian smartphone market shipped only 2.9 million units in 2010. This is expected to grow to 29.4 million in 2016

Major players

1 / 5 Catching On: Smartphone uptake in India to increase significantly Trends and Developments, July 27, 2011

According to industry estimates, Nokia leads the Indian smartphone space with around 39 per cent market share, followed by Samsung, Micromax, Research In Motion (RIM), LG, G’Five, Karbonn Mobiles, Spice Mobiles, MAXX Mobiles and Sony Ericsson.

Both globally and in India, Nokia has reached a point where the handset major is finding it difficult to hold on to its market share. In India, this is owing to stiff competition from home-grown players like Micromax, Lava Mobiles, etc.

Nokia has been enhancing its smartphone portfolio to deal with the increasing competition. It recently launched the E7 device that comes equipped with an AMOLED touch screen, a four-line full QWERTY keyboard, a built-in VPN, and support for high definition video recording and playback. The device is priced at Rs 29,999.

The handset major also recently launched the Nokia X7 hand-held, the first of its kind to come equipped with the Symbian Anna platform. Priced at Rs 22,829, the device consists of an 8 megapixel camera, and video recording and playback. Consumers can also avail of a wide portfolio of applications facilitated by the Anna platform. The platform facilitates faster browsing and page downloading, and the Ovi Maps application is enhanced with search features, public transportation routes and access to various social networks.

Price points

Pricing is of key importance in a price-sensitive market like India. It is for this reason that Apple’s iPhone, which became very popular globally, failed to create any impact in India. Despite the reduced prices (the iPhone 4 is priced at Rs 34,500 with a 16 GB capacity, and Rs 40,900 with 32 GB capacity, down from almost Rs 50,000 for the previous versions), industry experts believe that the device is clearly targeted at premium users, which comprise a very small segment of the country. This is because the market has shifted towards average handset selling price of less than Rs 10,000.

The smartphone in India has come a long way since it first entered the market, especially in terms of pricing. Earlier, these phones used to cost upwards of Rs 40,000, which made them

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inaccessible to the majority of the country’s population. However, the arrival of indigenous handset manufacturers has changed the situation. The strategy of these players is simple – to provide handsets loaded with smartphone-like features at affordable prices and target the bottom of the pyramid.

Therefore, users can now opt for a smartphone rip-off that houses all the features of a Nokia, Samsung or even Apple smartphone for as low a price as Rs 7,000 (for instance, Spice Mobiles’ Mi 310 handset).

To counter this, Nokia plans to slash the prices of its smartphones by 15 per cent, especially for its N8, C7 and E6 models. For other models, the price cuts are expected to be lower. LG has also followed a similar strategy. The company reduced the prices of its Optimus Black device to Rs 19,990 from the earlier Rs 27,000.

Operating systems

According to industry estimates, the Android operating system has done well both globally and in India. According to estimates, 35.7 million Android-powered phones were shipped worldwide during the first quarter of 2011.

In India, the share of Android smartphones rose to 9 per cent in the third quarter of 2010 from 2.9 per cent during the corresponding quarter of the previous year. Moreover, the number of available Android smartphones increased to 19 from only two during the same period. The easy availability of cheap and mid-range Android smartphones played a major role in this increase.

Going forward, this number will continue to increase, given that more players are launching Android smartphones in the Indian market. These include Micromax, Videocon, Karbonn, Olive Telecom, Spice and Lava. This, in fact, has contributed to Nokia’s falling share in the Indian market. The vendor’s handset portfolio primarily runs on the Symbian platform, which is losing its position in the Indian and global smartphone markets.

Therefore, Nokia is currently occupied with phasing out its Symbian operating system and

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moving to Microsoft’s Windows platform. According to industry experts, Nokia may not start selling Windows-based phones before October this year, when Microsoft is expected to release a substantial upgrade to the operating system, codenamed Mango, with enhanced functionality that should put it on feature parity with Apple’s iOS operating system and Android’s present capabilities.

Industry estimates also show that the number of vendors in the smartphone segment has increased from one in the third quarter of 2009 to seven during the same quarter in 2010. This trend is likely to continue as the Android applications ecosystem widens both in terms of its reach in the developer community, and the number of users, which would further propel device vendors to introduce new models.

However, Android-based smartphones are available only to GSM users. The CDMA market is also awaiting the arrival of a decent Android smartphone besides the Samsung I899.

Applications

According to a study jointly conducted by Nokia and Cornell University, smartphone users in India prefer business-oriented applications as compared to users in other countries.

The research reveals that application usage varies among the different regions of India. Four out of 10 smartphone users download music applications in north India, more than in any other region, while over one-fourth use utility-based applications. In the east, 65 per cent of the users download applications that improve their lives. Smartphone users in the North East download the maximum number of education applications as compared to other regions. A quarter of these people use almost all the applications they download.

South India has the highest number of users of gaming applications as compared to other regions. Financial, music and travel applications are more popular in western India. Around 38 per cent of the smartphone users prefer using a travel application rather than a guidebook.

Future outlook

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According to Frost & Sullivan, with end-users demanding more converged devices, and original equipment manufacturers’ accelerated adoption of open-source operating systems such as Android and Symbian, the mobile handset-smartphone combination is emerging as the future growth engine of the telecom industry.

Meanwhile, prices are expected to remain stable. This is because manufacturers will not be able to subsidise prices due to the operation of an open market, rather than an operator-leveraged distribution model. Moreover, 70 per cent of the Indian population consumes only voice-based services, and mobile data services have not yet witnessed a huge uptake. However, this is set to change with the reduction of mobile internet charges by operators and the introduction of 3G in India.

Also, in the next five years, the revenue share of smartphones in the mobile handset market is expected to rise steadily, as an increasing number of participants are targeting this space in lure of higher margins. This trend is likely to persist with numerous handset manufacturers looking to include more smartphone models in their portfolios.

In the smartphone market, applications will be a key differentiating factor. The mid-priced bracket is likely to experience a high uptake.

Net, net, though the Indian smartphone market is currently at a nascent stage, it is expected to do well with the coming in of 3G, which will create huge demand for bandwidth-hungry applications.

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