India's internet growth continues to decline due to fall in smartphone sale

India’s internet growth continues to plummet.

From double-digit growth rates through 2016 to 2020, it slumped to about 4 per cent in 2021 and 2022, according to Telecom Regulatory Authority of India data. In the first quarter of 2023 it grew just 1.7 per cent over the last quarter of 2022.

The continuing fall in the sales of entry- and mid-level smartphone remains the biggest reason. Going by the International Data Corporation (IDC), in 2022 smartphone sales fell by a massive 10 per cent over 2021. This year, the drop has been in low single digits. India is now roughly back to 2019 levels of smartphone sales, says an IDC release.

That explains why growth in both, internet and broadband users, is somewhat muted. The number of regular internet users, in fact, has been stuck at 510 million since December last year, according to Comscore data. That is about 78 per cent of the 650 million Indians who own a smartphone. Even if it was 100 per cent, it would mean that the internet is available to roughly half the Indian population only. You could argue that not every one of India’s 1.41 billion citizens can be an internet user. Even if you did not count the 352 million in the under-14 age group, that still leaves 408 million without a smartphone and therefore without the means to access the Internet. That is still a sizeable market outside the grasp of education, media, online retail and other products and services that the internet offers.

The not-so-smart fall

For millions of Indians, a smartphone is the first port of entry into the internet. These are phones capable of processing bandwidth that allows you to watch a movie, listen to music or have a meeting online. These are the data guzzlers that have made Google (YouTube), Meta (Facebook, WhatsApp, Instagram), Netflix or MX Player the forces they are. As the price of these phones went down, the internet has grown in India, making it one of the most exciting telecom and, therefore, media markets.

This slowed down from 2020 onwards. The pandemic and a chip shortage meant that low-end smartphones have simply not been affordable for long. Most of the chip capacity was diverted to high-end phones, which offer better margins, say analysts. That explains why Apple’s iPhone continues to do well while other brands like Realme and Xiaomi, which offer phones at the mid and lower end of the market, have seen sales fall.

“The average feature phone is less than Rs 1,200. The cheapest smartphone is Rs 5,500 and above. The gap of Rs 4,000 between the two is too wide. That is why organic growth (from feature to smartphones) has slowed down,” says Navkender Singh, associate vice-president, data and analytics (devices and ecosystem), India, South Asia, Australia and New Zealand, IDC.

“Eighty per cent of the phones sold in India are priced below Rs 30,000. It is not a premium market. If Apple is growing it doesn’t mean the mass market is growing,” says Singh. The Apple iPhone is just about 6 per cent of the smartphone market in numbers, but at Rs 50,000 and more it is twice as expensive as the average smartphone.

Note that across categories — cars, phones or watches — the luxury end is doing well even as lower and mid-end products are staring at falling sales. This points to a growing gap between the haves and the have-nots.

Nielsen’s India Internet Report 2023, which shows a sharp spike in sharing of devices, validates this. About 85 million users (39 per cent) in rural India watch videos or attend online classes with others. Overall smartphone sharing is 36 per cent. However, among users with a handset costing Rs 10,000 or less, it is 44 per cent, says the Nielsen report. That means smartphone-sharing is higher among lower-price band handset owners and less affluent homes.

This lack of growth is now beginning to show on time spent, which till earlier this year was continuing to grow (see Comscore data). As the time existing users spend on the internet plateaus, growth has to come from new users. Either that or we accept that this is the largest the Indian internet user base could be.