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Brisk Business: Handset vendors upbeat about the smartphone potential

February 21, 2017
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The Indian handset market is on the cusp of a revolution. Although feature phones still account for around 70 per cent of the total market, smartphone penetration is rapidly rising on the back of declining prices and growing proliferation of 3G and 4G services. Moreover, the government’s push towards a less-cash economy has provided a major fillip to the handset market, with smartphones emerging as the preferred medium for performing digital transactions. India is expected to soon overtake the US as the second largest smartphone market. This also represents a significant manufacturing opportunity that dovetails well with the government’s Make in India initiative. Leading handset vendors talk about the industry’s performance during the past year, the impact of the goods and services tax (GST) on the industry, and the future outlook...

What were the key growth drivers for the Indian handset industry during 2016? How has the uptake of 4G-enabled smartphones been during the year?

Sudhir Kumar

Several factors played a role in driving the exponential growth witnessed by the Indian mobile phone industry in 2016. The push to digitisation from the government was one of the major reasons for the sector’s remarkable performance in the past year. Several services and facilities in the public domain were linked to Aadhaar and became available through a digital platform, driving more and more Indians to leverage mobile phones as their primary medium for accessing government services and availing of subsidies.

The launch of 4G/long term evolution (LTE) services in the country led to an increased uptake of 4G-enabled smartphones. This increased demand led India to become the third largest 4G/LTE smartphone market in the world, ahead of more developed economies such as South Korea and Japan.

Nidhi Markanday

As per the International Data Corporation, the Indian smartphone market recorded a 17.1 per cent growth in the quarter ended June 2016 over the previous quarter, and overtook the US to become the world’s second largest smartphone market. Meanwhile, according to a report by Counterpoint Research, the total smartphone user base in India has crossed 220 million.

There were four key drivers of smartphone growth in 2016, and these are likely to continue driving the market in 2017 as well. These are:

• Proliferation of 4G-enabled smartphones: Many domestic mobile handset companies as well as Chinese vendors have entered the Indian market by offering 4G-enabled smartphones. The response has been overwhelming due to their affordable pricing. We expect 4G to become the preferred choice of smartphone users.

• Emergence of e-wallets: The payments industry is growing rapidly in India, driven by rising personal consumption expenditure, urbanisation and electrification. The year 2016 saw a boom in the Indian digital market with mobile handset and telecom companies foraying into the cashless payment segment, launching their own e-wallets. Post the government’s demonetisation move, the use and popularity of these cashless payment platforms have increased significantly and this trend will continue. In 2017, the focus will be on offering unique end-to-end solutions with mobile wallet infrastructure integrated into new devices.

Intex partnered with Tata’s mRupee in 2016 to launch “Intex MyWallet”, which offers customers additional value apart from video, gaming, healthcare, utility, entertainment, e-commerce/ mobile advertisement.

• Make in India: Government initiatives such as Make in India and Digital India gained momentum in 2015, attracting more players in the mobile value chain. The year 2016 saw every major mobile brand and manufacturer becoming a part of the Make in India initiative. As per media reports, over 20 mobile phone brands are now assembling their parts in India and we expect the trend to continue and gain momentum in 2017.

Sunil Raina

Growth in the handset industry peaked during 2015. The year 2016 also witnessed some growth, but it was not as significant as in the preceding few years. In fact, it particularly slowed down during the last quarter because of demonetisation. However, there have been a few noticeable developments in the handset market. First, there has been a gradual movement from feature phones to smartphones, although feature phones continue to account for a very large proportion of the total market. The other development is the entry of 4G-enabled smartphones, driven by the large-scale roll-out of 4G services by telecom operators.

Leon Zhang

The booming telecom sector is at the core of technological advancements in several sectors. The Indian mobile industry currently contributes 6.5 per cent to the country’s total GDP and generates millions of new jobs every year. There are currently 280 million active smartphone users in the country and the number is expected to increase at a compound annual growth rate of 23 per cent through 2018. Meanwhile, a supportive policy environment is enabling companies to launch new products with shorter lead times.

In recent years, new digital technologies have disrupted business models across industry verticals. With the internet of things (IoT) propelling the fourth industrial revolution, Industry 4.0, the physical and digital worlds are converging to transform manufacturing operations and achieve higher levels of operational efficiency. Industry 4.0 is characterised by smart manufacturing and design. It represents a basket of new digitally enabled technologies such as advanced production equipment like 3D printing and robotics, smart finished products (like driverless cars with embedded sensors and software), and data processing and analytical tools.

How are you leveraging the opportunities arising from the government’s Make in India initiative?

Sudhir Kumar

India features prominently as a key geography in our long-term global strategy, both as a high-potential market and as a manufacturing hub. Not only do we aim to benefit from the Make in India initiative, but also wish to actively contribute to it by creating significant employment opportunities. We intend to work towards making India play a significant part in the China-India-Africa story.

Nidhi Markanday

The current emphasis on Make in India is a step in the right direction to make India an economic superpower. Intex has been manufacturing in India since 2004 and it currently manufactures about 2 million phones per month here.

However, the printed circuit board assembly, which is the most important part of a handset, is imported from China along with some other parts. Intex plans to soon manufacture 70 per cent of such parts in India. The company already has a sizeable manufacturing base in the country and is planning to consolidate its manufacturing activities going forward.

Sunil Raina

For the past one and a half years, Xolo has been manufacturing its entire range of smartphones in the country. We are perhaps one of the very few brands to undertake 100 per cent manufacturing in India.

Syed Tajuddin

We unveiled our first made in India product, the Coolpad Note 3 Lite smartphone, at the beginning of 2016. The smartphone was the first product to be manufactured locally at the Videocon factory in Aurangabad. The product is a result of the company’s endeavour to contribute to the government’s Make in India initiative.

Leon Zhang

The Make in India initiative has triggered interest among foreign investors to leverage the country’s engineering talent and make it a hub for manufacturing high quality, low-cost smartphones for domestic and foreign markets.

What will be the impact of the goods and services tax (GST) on the handset industry?

Sudhir Kumar

Currently, mobile handset manufacturers get a benefit of 8-10 per cent in the form of differential duty as compared to an importer of mobile handsets. Continuation of the incentives given to mobile manufacturers in the GST regime is important for maintaining the growth and momentum of the Make in India initiative and to incentivise international brands to set up localised manufacturing operations in the country. Greater savings in taxation is another benefit that GST will bring in for mobile phone manufacturers. Instead of paying multiple direct and indirect taxes to the central and state governments, the implementation of a single unified tax will allow manufacturers to bring down their cumulative tax burden from 25-30 per cent to 17-18 per cent. These savings can then be passed on to the end-consumer in the form of lower handset prices. With the cost of logistics and several state warehouses also set to decrease significantly under GST, the ease-of-doing business will increase for manufacturers.

Nidhi Markanday

The GST is likely to turn India into a common, single market, thereby increasing the ease of doing business. Some companies will gain more as the GST rate will be lower than the current tax rates, while others will lose as the GST will be higher than the current effective taxes. At Intex, we are saddled with a plethora of state-level taxes and levies of 25-30 per cent. The GST will ensure that India emerges as one common market with a tax rate of around 18 per cent, with no double taxation or cascading effect of multiple levies. The GST will spur higher consumption and increase the tax base through better compliance with the help of information technology. In the long run, these factors will raise India’s GDP growth by 1-2 percentage points, generating millions of new jobs.

Being a manufacturing entity, Intex Technologies stands to benefit from a uniform tax regime as it will boost operational efficiencies, increase cost savings and make products more competitive.

Sunil Raina

GST will have a positive impact on the industry. Besides integrating the country into a single market, it will offer several other advantages such as uniform taxation, smooth movement of goods from one state to another with fewer barriers, and easy warehousing.

What is your outlook for the Indian handset industry? Which new technologies and services are likely to gain traction in 2017?

Sudhir Kumar

Given the massive growth witnessed in 2016, it is expected that 2017 will be another high-growth year for the Indian mobile phone industry. With the ever-expanding cellular infrastructure enabling high-speed internet and greater digital penetration across hitherto untapped geographies, we will see more and more users adopting mobility-based connectivity solutions to become a part of the digital wave.

In terms of technology, 2016 saw the iris scanner emerge as one of the leading innovations in the mobile phone segment. With the world shifting rapidly towards mobility, we can fully expect virtual reality/augmented reality and IoT technologies to become more relevant to mobile phones in 2017. Another trend to watch for is the growth of 4G devices. With mobile operators offering high-speed 4G connectivity at prices comparable to 3G, the demand for 4G and VoLTE-enabled devices will witness an exponential increase in 2017.

Nidhi Markanday

The following trends are likely to dominate the Indian handset industry in 2017:

• Proliferation of digital services: The year 2016 saw a shift in users’ device preferences. Technologically more aware users started looking forward to an integrated digital services ecosystem where their device became a one-stop junction for all digital services. In 2017, we hope to see greater penetration of such services in Tier II and III cities as well as in rural markets, mainly among consumers who are moving from feature phones to smartphones. Mobile handset companies and manufacturers will introduce various advanced digital features for payments to create a complete digital service ecosystem.

• Regional offerings: With the rise in smartphone adoption, mobile companies have been offering regional language support on their smartphones to help users communicate in their native languages. During 2017, more mid-segment smartphones integrated with multiple regional languages will be launched targeted at Tier III cities and rural markets. With the help of the Indus operating system (OS), Intex is strengthening its regional push to tap the fast-growing regional language consumer base. It will soon launch Indus-OS-powered smartphones.

Meanwhile, we are planning to soon include the LFTY feature in all our 4G-enabled smartphones. LFTY is a left screen concept that aims at providing a seamless cohesive mix of multi-category content and value-added services to the end-consumer on the left screen. The Intex Cloud Q11 smartphone already comes with this feature.

Sunil Raina

The switch from 3G phones to 4G phones will happen at a much faster rate in 2017 as compared to what we witnessed in 2016. We are also likely to see 4G-enabled feature phones. Xolo had anticipated the growth of 4G early on and hence had stopped manufacturing 3G phones almost a year back. Today, we have only 4G smartphones in our portfolio.

In terms of features, there are likely to be significant improvements in the camera. Moreover, fingerprint scanners are likely to gain traction with the increasing use of smartphones for performing digital transactions. Fingerprint scanners can help customers securely perform their transactions. Xolo had rolled out its first fingerprint sensor-enabled phone almost two and a half years back.

Today, smartphones have become the centre of every activity, be it financial transactions, entertainment or social networking. Going forward, the digital push from the government and the proliferation of 4G services will make smartphones even more powerful.

Syed Tajuddin

As per a Morgan Stanley research report, India is expected to overtake the US as the second largest smartphone market with robust growth in 2017.

We believe that Coolpad is all set to leverage this opportunity and be on the growth trajectory in 2017. We aim to see a Coolpad device in every second hand.

By 2017, we are planning to cover more than 10 states, targeting sales volumes of 1 million by establishing 5,000 core shops and 10,000 retail shops. Further, we foresee our growth in more than 15 states with 3 million in sales volumes by the end of 2018, and subsequently establishing our presence across the country with sales volumes of 5 million annually by 2019.

Leon Zhang

I believe that innovation will be the buzzword in 2017 for further advancements in mobile communication technologies. Like in 2016, this year will see the rapid growth of IoT and connected devices such as cell phones, cars, smart TVs, refrigerators and wearable devices. These will become more affordable in 2017 as consumers increasingly adopt them in their daily lives.

With soaring competition, telecom companies will offer more innovative products that will change the way we live, work, shop, entertain or interact with one another. Fit bands, virtual reality devices and smart watches will make a mark in a big way. Smartphones with larger storage capacity and faster processing systems will dominate consumers’ purchasing decisions. With digital payments gaining ground and India moving towards a cashless economy, smartphones with pre-embedded fin-tech apps will be in demand.

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