By Sean McLain
NEW DELHI-- Ramesh Gurung bought his first smartphone six months
ago and suddenly his horizons broadened.
"I can watch a film, hear the news, see a cricket match, listen
to a song," says Mr. Gurung, a 36-year-old chauffeur from eastern
India.
Mr. Gurung is, according to sales data, one of the tens of
millions of Indians getting online for the first time in the past
six months using ultracheap smartphones. That is translating into
surging profits for the country's biggest cellphone-service
providers.
Bharti Airtel Ltd., Vodafone Group PLC and Reliance
Communications Ltd. all reported profit increases of more than 50%
in the three months ended Dec. 31 as their revenue from mobile data
fees rose sharply.
"Cheap smartphones are at the heart of the growth," said Srini
Gopalan, head of Airtel's consumer business. "A year-and-a-half
ago, there were 60 million smartphone users, now there are 120
million. This has led to the explosion in data growth."
A big part of the growth is due to the success of scrappy
upstarts such as India's Micromax Informatics Ltd. and China's
Xiaomi Corp., which sell some phones in India for prices under $40.
That is fraction of the cost of fancier models made by established
players Samsung Electronics Co. and Apple Inc.
Most of India's new smartphone users have never owned computers.
They couldn't afford a device that could give them Internet access
until smartphone prices drifted below $200. Today, close to a
quarter of all smartphones on sale in India cost less than $100,
according to research firm Canalys.
Cellular companies have been anticipating an explosion in data
usage for years, but it wasn't until cheap smartphones appeared
that the boom could begin.
"You get a decent smartphone now for about $75, and that has
completely changed the dynamic in this business," said Airtel's Mr.
Gopalan.
With smartphones in their pockets, more Indians are discovering
the value of being online and they are increasingly willing to
shell out more rupees every month for it.
Mr. Gurung, the driver, for example has seen his monthly phone
expenses double. But the ability to stay in touch with friends
through chat apps and social media is worth the extra expense, he
said.
So far, consumers like Mr. Gurung can afford the Internet only
in relatively small doses. Vodafone offers 3G prepaid data packages
for as little as 11 rupees, about 18 cents, for 50 megabytes. More
than 90% of Vodafone's India customers are on prepaid connections,
compared with 40% in the U.K.
Companies believe the data boom is only just taking off. As
millions more Indians buy their first smartphones and get used to
using the Internet to get information, interact with friends, be
entertained and make purchases, data usage will continue to climb.
Only about 10% of Indians have smartphones, so there are still
years of high growth ahead, analysts say.
Companies including Google Inc., Mozilla Corp. and Samsung have
chosen India as their launchpad for new, low-cost smartphones,
hoping to tap into the rising demand.
However, one big potential speed bump, companies say, is India's
wireless-Internet infrastructure. India's network of cellular
towers is already showing signs that it is overstretched and may
not be ready for a jump in data demand.
Cellular companies have criticized the government for being too
slow to roll out the new bandwidth they need to add lanes to the
information superhighway.
After years of delays, India is scheduled to auction new
bandwidth next month but it won't come cheap. The starting price
for each block of bandwidth in the March 4 auction is 37.05 billion
rupees. The final price could hit two or three times that number,
say company executives and analysts.
That will add further debt to the balance sheets of the
companies. Bharti Airtel's net debt rose sharply last quarter to
$10.55 billion. Reliance's debt rose to $5.9 billion.
The recent bump in profitability means that mobile-phone
companies probably can shoulder the additional financing costs, but
it may restrict their ability to upgrade the quality of existing
networks--meaning slower Internet speeds and more dropped
calls.
But that may not matter to new users such as Mr. Gurung, who
have low expectations and just need basic access.
"Everything is new about this phone--YouTube, browsing the
Internet, chatting with friends, everything," he said.
Write to Sean McLain at sean.mclain@wsj.com
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