With Reliance Jio launching an Internet-enabled feature phone (Jio Bharat) to tap the 250 million users of 2G services, the debate on whether such a subsidy-led model to produce handsets really works for telecom operators will start once again. Let’s look at the numbers.
When Jio first launched its 4G, VoLTE feature phone (JioPhone) in 2017, there were around 500 million 2G users. Not all of them moved to Jio, but the fact is that the number is now down to 250 million. This means an ecosystem has been created to help operators migrate a substantial number of 2G users to 4G and enhance their average revenue per user (Arpu). It is true that the JioPhone and the entry-level smartphones priced at Rs 6,500, which it later launched in partnership with Google, were not hugely successful. That explains Jio’s latest move to entice 2G users by playing the price card.
Another factor behind the launch of the phone at this point could be that operators are looking at revenue-enhancing measures. With the last headline tariff increase having happened in 2021 and chances of another one looking bleak before the 2024 general elections, telcos are left with no option but to make some tweaks to the existing structures. The sequential Arpu growth for both Jio and Bharti during the January-March quarter was flat.
This is despite Bharti Airtel recently raising entry-level tariffs for 2G users by around 57%. Jio is a fully 4G network, which has always marketed itself on price points, but has only 1% of its subscriber base as post-paid users. Thus, it has very little elbow room to raise tariffs at the lower end and needs a substantial increase in the subscriber base. Jio’s rival, Bharti, however, has consistently resisted any temptation of getting into a subsidy-led handset business as it believes it is not possible to sustain a subsidy-driven subscriber addition model in the long run. The company, therefore, looks at working on strategies that can help it migrate subscribers to a higher tariff pack. This way, Arpu would also rise, and the company would not have to rely solely on headline tariff hikes. The economics is simple: when customers switch to 4G, Arpu doubles. Similarly, when a pre-paid customer moves to post-paid, Arpu further doubles, and when a post-paid customer buys all other services like DTH, wireline broadband, etc, the Arpu quadruples. So, there is a lot of Arpu enhancement that can come through upgrades.
Jio may also be banking on users who choose to buy its Jio Bharat phones to gradually migrate to full-fledged smartphones and choose its network based on their experience with its apps and services. Furthermore, by offering a platform that can be used by manufacturers to produce internet-enabled feature phones, it has provided a lifeline to domestic device makers who are otherwise facing tough competition from Chinese players. While launching handsets as a revenue-enhancing measure by playing the volume game is fine, the 2G market in India is unlikely to disappear as there will be a segment of users who do not need data and use phones only for making and receiving calls. Still, as telecom services have ceased to be dumb pipes used for moving traffic and now offer a host of digital services like UPI payments, operators should come up with more innovative measures so that users migrate to value-added services. Jio’s move, therefore, is in the right direction.