With the recent “bundling” of RJio feature phone with a service offering of Rs 49 per month with free voice calls and unlimited data, the mobile services industry is set for yet another disruption. Bundling of handsets with voice/data services is not new. In general, bundling is of two types: “pure” where only bundle is made available and not the individual components of the bundle; “mixed” where bundle as well as à la carte are available for purchase by users. Pure bundling is used by firms to “tie” a product in which it has market power conditional on the purchase of another “tied product” where competition is present. On the other hand, mixed bundling is often used by firms to provide a discounted price for bundle compared to individual components to induce consumers to buy the bundle.
The Reliance Jio offering is a case of pure bundling, where RJio’s 4G-capable feature phone and the Rs 49 per month plan are available only as bundle. Pure bundling and tying is a regulatory concern as it might affect competition in the tied product and often results in consumers being forced to purchase “inferior tied” product.
The noteworthy case of bundling was that of Apple iPhone when it was launched in 2007. Apple signed an exclusive contract to sell iPhones in the US through AT&T. The high retail price of the iPhone was subsidised by a two-year service contract and associated data plans of AT&T. Although the exclusive contract between Apple and AT&T ended in 2010 for later iPhone models, the US market in general is a “market of bundles”. On the other hand, many European country regulators, especially that of Finland from where Nokia ruled the world of mobile handsets, did not allow bundling (even mixed) until the deployment of 3G in 2005.
However, in all the markets, the handset that is bundled with services is a high-technology and expensive one. By bundling, the handset vendor reduces consumers’ upfront cost of purchase, while the operator benefits due to intensive use of its services through the many features available in the phone.
It is here where the RJio offering differs. The RJio bundled phone is not a technologically-advanced smartphone, but a feature phone with limited applications and uses. The only difference is that this feature phone has a 4G-LTE chipset that allows users of the phone to connect to 4G-LTE network. The moot question is, what will users do on a 4G network with a feature phone? Through this phone, RJio is providing Voice over LTE (VoLTE) capabilities for users to make high definition (HD) packetised calls. These VoLTE calls, assuming that originating and terminating networks and devices are on 4G, will provide superior call quality, consuming a fraction of bandwidth over Voice over IP (VoIP)/2G/3G calls, thus making efficient use of network resources. The handset is customised to make VoLTE calls easier. For other types of applications such as streaming video, apps enable mirroring on to a TV set for better viewing experience.
This move by RJio is very similar to that of Reliance Infocomm when it launched in December 2002. The IndiaMobile CDMA handset came along with associated mobile services for the first time in India. Although this bundled offering did not quite succeed due to many factors including a large proportion of prepaid users who preferred no contractual service obligations, the firm entered into the market with a “technology-differentiated” strategy compared to the typical “price-differentiated” strategy.
With the markedly different approach to bundling, there are chances of RJio’s latest strategy succeeding in improving 4G penetration in the country, as is evident by the incumbents following suite. However, are there any regulatory concerns? Should the regulator intervene to allow mixed bundling as well? How transparent are the bundle pricing and associated contractual conditions? Does the bundling of RJio digital services such as music, magazines, TV and movies with the 4G service subscription—thus providing a quad-play offering—lead to extensive verticalization?
Globally, regulators have allowed bundling to improve adoption of newer technologies. However, they stipulate maximum contract time for the bundled offer to minimise customer lock-in; allow mixed bundling contracts to provide flexibility for consumers; and require operators to present the real itemised and total costs of the bundle to ensure non-predatory pricing.
Be that as it may, this bundling offer might improve adoption and use of 4G networks, both by the firm and its competitors, thus improving quality of service and consumer experience, which is a major concern today.