Rival Bharti Airtel would also not be impacted as its tariffs are already at a premium to Jio's and it has the advantage of having premium users.
Reliance Jio’s September 10 launch of its new, affordable 4G smartphone, in partnership with tech major Google, has ruled out the prospects of any tariff hike by telecom operators for quite a long period of time.
A status quo in tariffs would still see improvement in Jio’s average revenue per user (Arpu) as some subscribers of its current cheap 4G phone, JioPhone, are expected to upgrade to the new one, JioPhone Next. Rival Bharti Airtel would also not be impacted as its tariffs are already at a premium to Jio’s and it has the advantage of having premium users.
It is Vodafone Idea, which is cash-strapped as well as the weakest in terms of subscriber addition, which would lose out the maximum in the fresh wave of competition with regards to tariff packages and acquiring new subscribers.
“For Jio to be able to capture a sizeable share of the 2G customer base, we believe it will need to be competitive on both device pricing (which should not be materially higher than feature phone average selling price) and tariffs (which will need to be in line with 2G tariffs). Without either of these, we think the traction on this smartphone could be limited, at least in the near term,” Goldman Sachs said in a report.
Highlighting the tough times ahead for Vodafone Idea, Credit Suisse said, “Airtel’s premium brand positioning should likely hold it in good stead. However, Jio’s 4G smartphone could likely have a greater impact on Vodafone Idea, given its balance sheet challenges and higher share of 2G customers.”
There are around 300 million subscribers in India who still use 2G feature phones and it is this segment Jio is targeting with the launch of its new, affordable smartphone. Though it has not revealed the price yet, it is expected the same would be within the Rs 5,000 bracket. Analysts estimate that of the 300 million 2G users, Bharti would have around 138 million users and Vodafone Idea, 145 million. The contribution of 2G users to Bharti’s revenues would be 25% and Vodafone Idea’s 30%.
“We estimate that the current feature phone segment in India has 400 million customers (including 100 million of JioPhone users) and the addressable target market for Jio’s ‘ultra-affordable’ smartphone would be 150 million, given the aspirational appeal of smartphones (for those who organically graduate from feature phones to smartphones), presence of a sizeable second-hand handset market in India (for those looking for better specifications at affordable cost), and affordability constraints (300 million users continue to use feature phones even when JioPhone was available at Rs 700 price point),” Credit Suisse said.
The last tariff hike undertaken by the three operators was in December 2019 and since then Bharti Airtel has said on record that tariffs need to go up but it cannot take the first step. Clearly hinting at Jio, the company has said if competition raises tariffs, Bharti would also do. “Tariffs should go up. The Arpu needs to go up to Rs 200 in near term and ultimately to Rs 300. But having said that, pricing is a competitive issue and we are already on a premium. We will raise tariffs if the competition does so,” Gopal Vittal, MD and CEO (India & South Asia), Bharti Airtel, has said in the past.
Bharti’s Arpu during the January-March quarter stood at Rs 145, while that of Jio was at Rs 138. Vodafone Idea is yet to announce its January-March earnings.