At 25 million over the last eight months, the sales of RJio’s JioPhone are lower than what the telco had projected, but sales should pick up dramatically after the latest Rs 501 offer made at Reliance’s AGM last fortnight.
At 25 million over the last eight months, the sales of RJio’s JioPhone are lower than what the telco had projected, but sales should pick up dramatically after the latest Rs 501 offer made at Reliance’s AGM last fortnight. While the existing JioPhone costs Rs 1,500—this money is returned to customers over 36 months—the new scheme is much cheaper in terms of upfront payments; a customer needs to make just a payment of Rs 501 and surrender any old basic/feature phone along with this.
Combine this with RJio’s lowest pack of Rs 49 with 1.5GB of data per month and free calls, and the offer seems very attractive. It makes it cheaper than most existing offers from rivals like Bharti Airtel, Vodafone and Idea and, in addition to voice calls, users can also watch videos which they cannot watch on their existing 2G phones. While it remains to be seen how the Rs 501 scheme takes off, it is likely to be a great success and help RJio reach its 100 million JioPhone target.
Certainly, existing telcos will drop tariffs to meet the competition, but it seems apparent that all telcos need to work on the subsidised phone model in the way RJio is. Bharti Airtel did come up with a Rs 2,899 Karbonn smartphone in response to the JioPhone last October—users got Rs 1,500 of this back over 36 months—but with RJio upping the ante, Airtel will have to come up with more attractive plans; so will others like Vodafone and Idea. The original JioPhone did not have WhatsApp or Facebook or YouTube, but the company says these will now be available, as they are on Airtel’s Karbonn smartphone; with this, the distinction between smartphones and feature phones gets a bit blurred at the lower end of the market.
The reason why all telcos need to emulate RJio’s strategy is two-fold. For one, if customers are being offered a 4G experience at a price not much higher than what they are paying today for 2G, significantly large numbers would be tempted to move—whether they move to RJio or upgrade their phones while remaining on the Airtel/Vodafone/Idea networks remains to be seen. If Airtel/Vodafone/Idea are not able to match the offer on 4G handsets, RJio can walk away with all those wanting to make the switch. Given 2G customers account for 40% of Bharti Airtel’s revenues (and 70% of customers) and 52% for Vodafone-Idea (75% of customers), that is not a chance anyone wants to take
The other, and more pressing, reason for this pertains to the quality of 4G services offered by telcos like Bharti Airtel, Vodafone and Idea. Right now, these are being offered in bands like 1800MHz and 2100MHz. While these bands are okay, the quality of service will improve dramatically if lower frequencies like 900MHz are also available—RJio offers its services on the 800MHz band. While Bharti Airtel, Vodafone and Idea all have 900 MHz frequency spectrum that is ideal for offering 4G services in conjunction with the other frequency bands they currently use, their 2G subscribers use this spectrum.
While RJio’s entry gave a big fillip to 4G telephony—Rjio operates only 4G services and already has 215 million subscribers—India still has around 550-600 million 2G users. If Bharti Airtel, Vodafone and Idea are able to upgrade large enough subscribers to subsidised 4G phones, they can free up the 900MHz spectrum for 4G services. While Bharti Airtel and Tata, which have tied up, have eight circles in which they have 5MHz of spectrum in the 900MHz band and one circle in which they have 10MHz, Vodafone-Idea have nine circles with 5MHz of 900MHz spectrum and six circles with 10MHz each.
While the telcos will balk at the idea of subsidising the phones, it is important to know they may have little choice. For one, if 2G subscribers find the Rs 501 JioPhone compelling, Airtel/Vodafone/Idea just have to match or better it, given 40-50% of their revenues come from such subscribers. Two, if they are not able to free up the 900MHz frequency band, they will have to bid for the 700MHz band to improve the quality of their 4G offering.
Assuming Bharti Airtel and Vodafone-Idea buy even one 5MHz chunk of spectrum each in the 700MHz frequency band, at the current reserve price of Rs 11,485 crore per MHz, that is a cost of Rs 114,850 crore between the two of them. If, however, they provide a subsidy of, say, Rs 1,000 per phone and, say, 400 million users upgrade to 4G, that’s a cost of Rs 40,000 crore. In other words, the cost equation is favourable, so the sooner the industry’s focus shifts to providing subsidised 4G phones, the better—without this subsidy, the pace of upgradation promises to be slow.