Need for smartphones

A smartphone is to mobile broadband (3G/4G subscription) what a sports car say, Ferrari, is to a racing track. Both are meant for each other. Together, they optimize the speed and enrich the experience.
Pakistan is planning a next-generation mobile spectrum auction this fiscal year. Reportedly, the auction date has been pushed 16 days ahead to April 23. BR Research is waiting for the revised auction Information Memorandum (IM), so that the new auction modalities can be analysed in proper context. Today, the column will try to find out what is up with smartphones, the key enablers of mobile broadband adoption.
PTA had mentioned in the last IM that there were nearly 134 million active SIMs in Pakistan as of January 2014, and that these subscriptions would increase to 150-160 million by 2017. Also note that the Mobile Network Operators (MNOs) had earned revenues of nearly $2.5 billion in 2012-13. Out of that, only 10 percent were from value-added and data services.
Now that’s a huge market for data services, waiting to be tapped. It is true that the cellular market is dominated by basic feature phones. Even though smartphone sales are growing, feature phone sales may still be growing-–thanks to increasing cellular footprint, teenage population growth and multiple handset phenomenon. Globally, smartphone sales now outnumber feature phone sales.
Since feature phones have kept selling like hotcakes in last decade in response to growing supply of affordable mobile ‘voice’ telephony services and reasonable handset prices, the corollary here is that once the high-speed mobile broadband services are offered at a variety of price points to different customer groups, the demand for internet-enabled phones will only grow.
Some critics contest that inference by highlighting high smartphone prices as a barrier, which will make it difficult for a broad-based mobile broadband uptake to happen in a telecom dense country like Pakistan. Well, it’s a valid point, and one does not have hardcore research numbers to rationalize the ‘affordability’ argument. But local market trends point towards original argument likely panning out.
First, both medium and low-end imported smartphones have flooded the market in recent years. Smartphones of all shapes, specifications and prices are being sold in mobile bazaars. Official data shows that Pakistan spent $614 million on mobile handset imports in FY13, and the 7M FY14 imports have grown by 8.12 percent year on year, a rate likely to intensify in coming months and years.
Secondly, there are proprietors who import mobile phones and then re-brand them for local sales. Q Mobile seems to be having a great market response, as suggested by its continued barrage of TV and radio ads. United Mobile, a top cellphone distributor, has also brought its Voice Mobile smartphones in this segment. These brands are offering affordable smartphones with varying specifications at comparatively lower prices than what the high-end, A-list smartphones are selling for.
The third thing to note is that not only are the cheaper smartphones increasingly being sold by retailers, a secondhand market has also developed for the pricey ‘global smartphones’ from manufacturers like Apple, Samsung and HTC. When middle-class urbanites are able to trade their S3’s and iPhones for the latest handset versions by paying less than half of those new handsets’ shelf price, what does it tell?
Well, it signifies ‘ease of replacement’, which is being determined by the second-hand market for high-end smartphones. That demand seemingly goes beyond the top metropolises to extend to the second- and third-tier cities across Pakistan.
As for the smartphones in use in Pakistan, industry estimates go no farther than 10 million units. But the rising trend in mobile bazaars seems to suggest a bigger number. Now PTA has given its number, which seems more realistic. The IM put smartphone numbers at 21 million in 2013, meaning that 15 percent of cellular subscriptions were being run on smartphones last year.
The IM also noted that “…budget brands are increasing their penetration in the market. The increase in the smartphone share is expected to trigger adoption of NGN services. Total number of smartphones in the market is expected to more than double in the next 4 years, reaching ~45 million…”
So, the cheaper, internet-enabled handsets and the secondhand, high-end smartphones may bring the price curve further down for an average user. With affordable handsets and reasonably-priced data services, mobile broadband usage is set to grow in the future. The government, however, should make efforts to initiate handset assembly in Pakistan to keep a tab on mobile phone imports in the long-run.