Rising smartphone prices: Semiconductor shortage may hit telcos’ revenues

Arpu may slow due to deferred upgrades to smartphones

The chip shortage is not only affecting the supply and prices of smartphones, it is likely to hit telecom operators as well. Rising prices of smartphones due to the chip shortage could defer upgrades by feature phone users and consequently slow the movement of 2G subscribers to 4G.

Telecom industry executives apprehend if this were to happen, all telecom operators may see slower addition of 4G users, affecting average revenue per user (Arpu). As per industry estimates, a 2G user’s Arpu moves up by around four times on upgrading to 4G.

Industry executives and trade channels said smartphone prices have risen by around 3,500 over the past few months. The price of a decent, entry-level 4G smartphone has risen to almost10,000 against around Rs 6,500 earlier.

So far operators have seen no hindrance in adding 4G customers to their networks, despite some slowdown because of SIM consolidation due to tariff hikes. For instance, Bharti Airtel added 5.2 million 4G subscribers to its network during the January-March quarter. It added around the same number of users in the December quarter, but during the September quarter it added around 8 million users. Similarly, Vodafone Idea has been adding 4G subscribers for the past three quarters though its net base has declined, because the additions have not been high enough to make up for the loss of users because of SIM consolidation. Reliance Jio also saw its net additions decline during the January-March quarter on the back of tariff hikes and SIM consolidation.

During an analyst call after the company’s January-March quarter earnings, Bharti Airtel India & South Asia MD & CEO Gopal Vittal had highlighted the impact of rising smartphone prices on 4G upgrade. “There have been semiconductor shortages and rising chipset prices. Some of the OEMs have put greater focus on higher priced smartphones. That has led to some softness in upgrade from 2G to 4G across the industry. I believe this is a temporary phenomenon, and the reason is that people tend to get used to a new normal. I think the initial shock is likely to wear off in the next few months,” Vittal said.

Similarly, Vodafone Idea also recently highlighted that rising prices of smartphones could have an impact on upgrade of 2G users to 4G. The companies are, however, putting up a brave front and feel it’s a short-term phenomenon and the situation will normalise in the coming months.

“Consumers understand the value that a smartphone plays in their lives, therefore, I think this will be temporary phenomenon,” Vittal had said.