Are feature phones making a comeback?

Recent sales patterns of mobile phones have shown an unexpected trend. The rate of migration from feature phones to smartphones has slowed down and feature phones continue to account for more than half of the total Indian mobile phone market. According to International Data Corporation (IDC), 33.7 million units of feature phones were shipped in Q2 2016, with 2.6 per cent growth over last year.

IDC says the growth can be attributed to the fact that the entry-level smartphone ecosystem has mostly upgraded to higher specifications, making lower memory and low-end processor technology obsolete. Since the difference between an entry-level feature phone versus smartphone is ₹1,000, vendors find it difficult to match up to feature phone prices.

This has led to re-opening the market for good volumes of feature phones to capture first-time buyers. Decreasing footprints of large CDMA service providers are also a key reason as many users have boarded a new GSM feature phone as their primary device of communication.

“Cautious spending behaviour of consumers clubbed with feature phones’ continued relevance to the target customer’s usage needs, vendors re-calibrating the channel to increase their share and relatively better margins with feature phones are some of the factors that are driving the volumes for feature phones,” said Navkendar Singh, Senior Research Manager, Mobile Devices Research, International Data Corporation (IDC) India and South Asia.

With the festive season approaching, fresh shipments are expected to hit the channel at the end of the third quarter, after inventories are exhausted. In this regard, IDC expects shipments of both smartphone and feature phones to sequentially grow in Q3.

According to Keshav Bansal, Director, Intex Technologies, “Intex currently has a 13.17 per cent market share in the feature phones category majorly contributed by our Eco Series. As mobile penetration continues to grow in the country, both feature and smartphones continue to find takers.

As per the latest IDC report, feature phones continue to account for more than half of the total Indian mobile phone market. Hence, it’s imperative for companies like us to bring the best of technology and prices in that category.”

The latest Telecom Regulatory Authority of India (TRAI) report states that urban teledensity stands at 147 while rural teledensity is at 51. This indicates that the urban market may have reached saturation point.

In addition, most of the new mobile subscriptions are from the rural market. In May, MoM subscriber growth in the rural market was 0.24 per cent while the subscriber base in the urban market declined by 0.37 per cent.

Due to lower per capita income, these new rural subscribers are more likely to make feature phones their first device. This first-time buyer segment in the rural market may continue to drive feature phone demand, until rural tele-density reaches significant levels.

According to Shubhajit Sen, CMO, Micromax, “Currently, a feature phone costs ₹1,000 while a smartphone from a reliable brand costs at least ₹2,500. Thus, a consumer has to shell out at least 2.5 times his existing feature phone device’s cost to move to a smartphone, which may be a problem for consumers with low disposable income.”

He says that one of the major drivers of smartphone growth in the previous quarters had been migration of feature phone users to smartphone users. But since the last 1-2 quarters, we may have reached an inflection point where this movement of feature to smartphones among consumers further down in economic strata is not happening due to the affordability factor.

The ease of using data services (internet browsing, social media) on a smartphone is a strong factor that drives this feature phone to smartphone movement. But current data tariffs are quite high (more than ₹200 per GB in a prepaid connection) and may be hindering smartphone adoption among low income consumers, he adds.

Micromax has seen significant sequential as well as YoY growth in the feature phones segment during Q2CY16.

“For the further penetration of smartphones in the low income class and to drive next wave of feature phone to smartphone movement, device costs as well as data tariffs have to come down drastically. Until this happens, feature phone demand may sustain in coming quarters as well,” said Sen.

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