Rising smartphone prices: Semiconductor shortages could hurt telecos revenue.

The chip shortage is not only affecting the supply and price of smartphones, it can also hurt telecom operators. Rising smartphone prices due to chip shortages could delay feature phone users’ upgrades and consequently slow down 2G subscribers to 4G.

Telecom industry officials fear that if this happens, all telecom operators will see slow additions to 4G users, which will affect the average revenue per user (RPU). According to industry estimates, a 2G user’s Arpu is almost quadrupled when upgrading to 4G.

According to industry executives and trade channels, the price of smartphones has almost gone up 3,500 over the past few months. The price of a decent, entry-level 4G smartphone has risen to almost10,000 as against Rs 6,500 earlier.

Despite the slowdown due to SIM integration due to tariff hikes, operators have so far seen no barriers to adding 4G subscribers to their networks. For example, Bharti Airtel added 5.2 million 4G subscribers to its network in January-March quarter. It added about the same number of users in the December quarter, but added about 8 million users in the September quarter. Similarly, Vodafone Idea has been adding 4G subscribers for the last three quarters though its net base has been declining as the additions have not been enough to offset the loss of users due to SIM integration. Reliance Jio’s net additions declined in the January-March quarter on the back of tariff hikes and SIM mergers.

During an analyst call after the company’s January-March quarterly earnings, Bharti Airtel India and South Asia MD and CEO Gopal Vittal highlighted the impact of smartphone price increases on 4G upgrades. “Semiconductor shortages and chipset prices have risen. Some OEMs have focused more on high-end smartphones. This has led to some flexibility in upgrading 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 push will stop in the next few months, “said Vittal.

Similarly, Vodafone Idea also recently highlighted that the rising price of smartphones could have an impact on 2G users upgrading to 4G. The companies, however, are setting a bold front and think this is a short-term event and the situation will return to normal in the coming months.

“Consumers understand the role of smartphones in their lives, so I think it will be a temporary phenomenon,” Vital said.

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