India clings to cheap feature phones as brands struggle to tap new smartphone buyers

India, the world’s second-largest smartphone market after China with around 750 million users, is struggling to get new smartphone buyers, as the average person in the country finds it hard to afford a brand-new smartphone.

Instead of switching to a new smartphone, millions of Indian consumers prefer to continue with their existing feature phones or only upgrade to a new feature phone. The latter has resulted in growth in feature phone shipments in the country despite these phones being pretty old-fashioned and having just a handful of features compared to smartphones, which help solve most on-the-go computing requirements for a typical buyer.

According to data shared by market analyst firm Counterpoint, feature phone shipments in India saw 10% year-on-year growth last year, up from -31% in 2022. This growth comes as existing feature phone buyers resist from picking a new smartphone.

Of the total feature phone market, 4G feature phone shipments in India grew to 25% in 2023 from 9% in 2022. However, 2G feature phones still dominate the Indian market, with a 75% share, per Counterpoint.

Indian telecom giant Reliance Jio leads the 4G feature phone market, with a share of 27%, followed by Transsion Holdings-owned Itel and Indian phone maker Lava at 24% and 18%, respectively, according to Counterpoint. The telecom operator offers a range of models in the segment along with dedicated tariff plans and access to services digital services including the country’s real-time payment system Unified Payments Interface and apps such as JioCinema, JioTV and WhatsApp to attract the masses.

However, Tarun Pathak, research director for devices and ecosystems at Counterpoint, told TechCrunch that the 4G feature phones from Jio have hindered smartphone adoption in the country to a certain extent “as the consumers are now able to get basic apps on feature phones themselves.”

Jio eying a 5G feature phone to capitalize on the trend

Jio, the biggest telecom player in India in terms of its subscriber base and revenues, is quietly planning a 5G feature phone as brands face challenges in attracting first-time smartphone buyers in the South Asian market, TechCrunch has exclusively learned.

The telecom operator owned by the Indian conglomerate Reliance Industries has been selling feature phones for years and gradually moved to smartphones with Google in 2021. But its first smartphone was too pricey for its mediocre specifications and did not help move the needle. Now, Jio sees feature phones as the strongest weapon it has to get phones into as many hands in India as possible.

Jio’s 5G feature phone will run Linux-based software KaiOS, which already powers the telco’s existing feature phone range. Contract manufacturers Dixon Technologies and Neolync are currently prototyping the handset, sources said.

The phone would be announced at Reliance’s forthcoming annual general meeting, which is expected in August, though it is not likely to be ready for the mass market anytime soon, according to the sources. The phone’s pricing is also among the questions that Jio is yet to determine.

Sources familiar with the matter told TechCrunch that the Mumbai-based telco is in initial talks with Qualcomm for the early version of its 5G feature phone. However, other chipmakers may be involved in the final device, as the discussions are still on on its development.

Qualcomm denied its participation in discussions with Jio when TechCrunch reached out this week. A Reliance Industries spokesperson declined to comment.

Alongside the new 5G feature phone, Jio plans to launch its 5G Android tablet and a 5G smartphone this year, two people familiar with the telco’s plans told TechCrunch.

Dixon Technologies and Neolync did not respond to requests for comment.

Until now, Jio has a 4G line of devices, which includes the JioPhone Next as its first Android smartphone. The telco, however, is looking to upgrade its portfolio to 5G devices, as it aims to expand its telecom revenues and working on monetizing 5G connectivity. Jio, along with competitors Airtel and Vi, recently hiked tariffs in the country to boost their subscription revenues. The operator is also expected to spin off from Reliance and list as a public company on Indian stock exchanges at a valuation of $112 billion as early as next year.

Jio’s feature phone journey so far

In August 2017, Jio unveiled its first 4G feature phone, JioPhone, based on KaiOS. Shortly after its launch, the JioPhone became the country’s top-selling feature phone. The candybar phone also later received support for popular apps including Facebook, WhatsApp and YouTube to expand usage.

In 2018, Jio introduced the next-generation feature phone with a QWERTY keyboard. However, the JioPhone 2 could not repeat the success of the JioPhone due to its limited availability and appeal.

Last year, the telco introduced the Jio Bharat as a $12 feature phone series to revive its presence in the feature phone market. It also updated the original JioPhone with a face-lift called the JioPhone Prima. The launch of the new models helped grow the market of 4G feature phones in India.

Why are millions of Indians not buying new smartphones?

India’s smartphone market saw over 11% year-on-year growth in the first quarter, the third consecutive quarter of growth in shipments, with 34 million smartphone shipped during the quarter, according to IDC. However, unlike the budget price segments (between sub-$100 and $200), the super-premium segment (over $800) saw the highest 44% growth, seeing an increase in its share to 7%. It was dominated by the latest and last-generation iPhone models followed by the Galaxy S24 and Galaxy S23 families.

Nonetheless, the share of the entry-level segment (sub-$100) in the Indian smartphone market declined by 14% year-on-year to 15%, down from 20% a year ago, per IDC. It used to be 26% of the overall smartphone market in 2020 and 20% in 2021.

Market experts believe that the primary reason for the sharp decline in entry-level smartphone shipments is the reluctance of feature phone users to switch to affordable smartphones.

Navkendar Singh, associate vice president for devices research at IDC, told TechCrunch that around 350 million people in India still use a feature phone, and 50% of them have a model that’s less than $18. “Because they’re not able to buy a smartphone, they’re replacing their feature phones,” he said.

Singh also noted that India’s smartphone penetration is less than 50%, and it remained unchanged for the last couple of years, though the market saw some growth in smartphone shipments after the COVID pandemic.

“The transition from feature phones to smartphones is not easy for some consumers,” said Counterpoint’s Pathak, adding that older people and people in low-income groups and blue-collar jobs are not upgrading to smartphones in the country.

“The pricing difference between smartphones and feature phones is still wide enough to limit users to switch to smartphones easily,” he said.

According to IDC, a smartphone’s average selling price (ASP) in India is $255. It grew over 54% from $165 in 2020. The smartphone ASP in India is merely around 31% compared to the $826 in the U.S.

Still, millions of people find it hard to buy a smartphone in India due to their low disposable income.

“While India has one of the cheapest smartphones in the world, as a percentage of users’ income, it is less affordable than even in the U.S. and U.K.,” according to a report titled State of India’s Digital Economy by the Indian Council for Research on International Economic Relations and Prosus.

Smartphone brands offer finance options to attract buyers. However, Singh told TechCrunch that the move has so far helped only existing smartphone consumers upgrade their models.