India will have 1 billion smartphone users by 2026 with rural areas driving the sale of internet-enabled phones, a Deloitte study said on Tuesday.

India had 1.2 billion mobile subscribers in 2021, of which about 750 million are smartphone users. It is poised to be the second-largest smartphone manufacturer in the next five years.

“The smartphone market is expected to reach 1 billion smartphone users by 2026,” according to Deloitte’s 2022 Global TMT (Technology, Media and Entertainment, Telecom) predictions.

This growth is likely to be propelled by the rural sector at a compound annual growth rate (CAGR) of 6 per cent, compared with the urban sector growing at a CAGR of 2.5 per cent from 2021 to 2026.

“Higher internet adoption is expected to fuel demand for smartphones; this increased demand will be propelled by the need to adopt fintech, e-health, and e-learning,” it said.

Internet-enabled devices in the rural market will also get a push with the government’s plan to fiberize all villages by 2025 under the BharatNet programme.

Deloitte said 95 per cent replacements in the urban market in 2026 will be toward new smartphones, while only 5 per cent will be toward pre-owned phones compared with 75 per cent and 25 per cent, respectively, in 2021.

The rural population is expected to demonstrate a similar trend where the average lifespan of a phone is four years. About 80 per cent replacements are likely to be for new devices, while 20 per cent for pre-owned ones in 2026.

Correspondingly, the replacement of feature phones with smartphones is expected to gradually decrease due to a rise in the number of smartphone users.

Feature phone replacements will reach 60 million in 2026 from 72 million in 2021 for the urban sector. These replacements will drop to 60 million in 2026 from 71 million in 2021 for the rural sector.

According to Deloitte’s analysis, demand for smartphones in India is expected to increase at a CAGR of 6 per cent, to reach about 400 million smartphones in 2026 from 300 million in 2021.

This high demand is likely to be primarily created after the launch of 5G, which will alone contribute 80 per cent of the devices (about 310 million units) by 2026.

5G is believed to become the fastest-adopted mobile technology due its diverse applications, such as high-speed gaming and remote healthcare.

After the launch of 5G, additional shipments of smartphones are expected to be 135 million (cumulative) by 2026.

“The total cumulative shipments of smartphones in the country are expected to reach 1.7 billion over 2022-2026, creating a market of about USD 250 billion, of which, nearly 840 million 5G devices are expected to be sold in a span of five years,” it said.

From 2022, 5G uptake will see year-on-year growth, leading to an increase in 5G smartphone sales in India. It will phase out the 3G mobile network given the evolution of the digital ecosystem and the industry’s efforts to launch affordable 5G handsets.

The recently announced incentive package of USD 10 billion to boost semiconductor manufacturing in India will drive handset manufacturing and make the country the second-largest smartphone market in the next five years, it said.

India edition of Deloitte’s 2022 Global TMT predictions indicates that digital and mobile are the key enablers of the future of technology.

Deloitte said the global shortage of semiconductor chips has affected the manufacturing industries across the world. As demand soars, supply is likely to be constrained in the near term, but gradually ease in 2023.

“As the ecosystem matures in the medium to long term, we expect India to emerge as a strong regional hub in semiconductor and electronics manufacturing,” said P N Sudarshan, Partner and TMT Industry Leader, Deloitte India.

“The government’s recent announcement on the Production Linked Incentive (PLI) scheme for the semiconductor and electronics manufacturing industries has the potential to create an end-to-end ecosystem for manufacturing electronic products. We expect the broader shift to digital to continue in 2022 and drive the industry growth in the future.”

Peeyush Vaish, Partner and Telecom Sector Leader, Deloitte India, said over 75 per cent of the subscribers will use smartphones by 2026 from a sub-70 per cent as on date.

“5G-enabled devices will contribute 80 per cent to the devices being sold in the year 2026 and Indian consumers will purchase 840 million 5G smartphones over the next 5 years valued at USD 130 billion. In addition, 5G will fuel an incremental sale of 135 million smartphone units over the next 5 years,” Vaish said.

On the media sector, Deloitte said greater adoption by audiences, the popularity of international content (such as Korean, Israeli, or Spanish) in India, and the ability to attract a wider audience through subtitles and dubbed content, have broken previously held views on the characteristics of the Indian market.

These trends have forced many streaming companies to revise their original strategies. Pricing for streaming services will remain competitive as service providers attempt to stabilise and consolidate their customer base.

However, in a rapidly evolving market, streaming players would rather focus on customer acquisition instead of customer churn. As prices stabilise and content libraries become nuanced and structured, the focus will shift to the minimisation of churn.