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  1. Reliance Jio phone launched; feature phone priced at zero part of Mukesh Ambani bid to tap bottom of pyramid to emerge on top of telco heap

Reliance Jio phone launched; feature phone priced at zero part of Mukesh Ambani bid to tap bottom of pyramid to emerge on top of telco heap

We do not see Jio being able to penetrate the mass market with the announced offer, as we see the monthly price of Rs 153 and Rs 1,500 initial deposit as still being steep for the low income consumers. That said, we see the smaller telco names losing their “value proposition” of lower priced voice offering, which would lead to a faster market consolidation. - Bank of America Merril Lynch

By: | New Delhi/mumbai | Updated: July 22, 2017 6:46 AM
Reliance Jio, Jio phone launched, feature phone, priced at zero, Mukesh Ambani, pyramid, telco heap With launch of 4G ‘zero cost’ phone Jio to tap into bottom of the pyramid to be on top of the heap; to make 5 million phones available a week.

Nearly 10 months after shaking up the telecom market by launching free voice services and data at rock bottom rates, Reliance Industries chairman and managing director Mukesh Ambani once again rattled the market in a big way on Friday by announcing at the company’s 40th annual general meeting that subsidiary Reliance Jio Infocomm will be launching 4G, VoLTE feature phones. These phones, pre-bookings for which would begin from August 24 and deliveries from September, has the potential to disrupt the market in a bigger manner than his free voice calls and cheap data did because of the 780 million mobile phone users in the country, 500 million are feature phone users who do not have access to data and video the way smartphone users have. In effect, what Ambani has done is focused on capturing the lower end of the market (mass market) after grabbing a pie of the upper echelon. While in the upper end, where it has 125 million users, the bulk of whom are double SIM users, in the mass market it would be able to have primary SIM users. Analysts said that with this move Jio would sound a death knell for 2G phones after doing the same to 3G phones. It would also hit adversely incumbent operators like Bharti Airtel, Vodafone India and Idea Cellular as the bulk of their users are non-data users who may now migrate to Jio as a primary user. For instance, around 75% of Bharti’s subscribers are non-data users today, which means that they are users of non-4G, non-VoLTE feature phones.

And Ambani has once again come out with attractive tariffs to woo the users to the Jio phone. To begin with, the phone comes for Rs 1,500, which has been called a refundable security — users can get it back by returning the phone after 36 months. The base tariff is Rs 153 a month, which offers free voice calls and 0.5 GB data a day. The other pack offers 1 GB a day for 56 days for Rs 309. Acknowledging that people in this segment may find it hard to pay Rs 153 upfront, the company has launched two weekly sachets of Rs 54 for a week and Rs 24 for two days. For the Rs 1,500 security deposit, Jio is sure to tie up with banks and once that’s done it can easily demolish the entry barrier.

Ambani has not only ambushed the telecom operators but also DTH and cable operators by launching a Jio TV connector by which users of this phone can watch the Jio content on their television sets. In the Rs 309 pack, he said that one can watch three to four hours of video daily. The scope for Jio with this can be gauged from the following numbers: According to an analysis by Institutional Equities, around 200 million subscribers spend over Rs 280 per month on their phone bills. These would be part of Jio’s current subscriber base of 125 million. Since this market belongs to smartphone users, Jio had reached a near-saturation point.

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There are another 210 million users in the country who pay only Rs 140 per month for phone bills. This is the new market that Jio would tap with the launch of the JioPhone. The legacy players would not be able to poach users who take Jio’s phones because they will not work on other networks. Since there’s an element of subsidy, subscribers would be locked in with Jio. Further, since other operators do not have VoLTE network so far and even fully 4G networks, these phones would not work on their networks. A UBS research report noted, “We believe the JioPhone should support mass market adoption of 4G data, but prices are not Arpu (average revenue per user) dilutive. We expect Jio to thus continue to gain share from smaller operators as the sector consolidates. We believe market leader Airtel with its ahead-of-curve investments and strong spectrum profile is well positioned to gain from the expansion in data market.”

However, Bank of America Merrill Lynch was more subdued in its reaction. “We do not see Jio being able to penetrate the mass market with the announced offer, as we see the monthly price of Rs 153 and Rs 1,500 initial deposit as still being steep for the low-income consumers. That said, we see the smaller telco names losing their ‘value proposition’ of lower-priced voice offerings, which would lead to a faster market consolidation,” it said in its initial observations.

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