The Jio Phone: Tapping the telecom market

By Devangi Narang

With an investment of more than Rs. 1.9 lakh crores, Reliance Jio’s entry has changed the landscape of the Indian telecom industry drastically. Since its launch in September last year, Jio has grown at a fast pace, already grabbing more than 10% of the market share in the telecom sector. At its annual General Meeting held on 21 July 2017, Reliance Industries Limited (RIL) announced the launch of its 4G LTE feature phone called ‘Jio Phone’. The Jio Phone comes with free voice service for life and can be obtained for an “effective” price of Rs. 1,500, which is refundable after three years. The chief attraction of the latest offering is that it will enable customers to access 4G services, even if they don’t have a smartphone.

The Jio strategy

According to the ICE360° survey conducted by the research centre People Research on India’s Consumer Economy (PRICE) last year, 90% of the Indian households have a mobile phone, but only 10% have access to the Internet. It also shows that India’s smartphone penetration is lower than most other developing countries, such as China, Brazil, Nigeria and Indonesia. Mukesh Ambani has realized the market potential of that part of the country that continues to remain unconnected. RIL’s latest offering in the form of the Jio Phone makes his strategy clear: capture the country’s vast underserved mobile phone market.  The low-budget 4G feature phone is likely to help the company add around 100 million more subscribers in the first year of its launch, and take its revenue market share to 10% by 2018. The crores of people connecting to Reliance Jio internet are not solely telecom consumers. They also consume entertainment, news and, of course, products. If Ambani captures such a huge market with a free phone, he would have potentially captured vast oil fields of a new kind, which he could drill for decades and create something bigger than Reliance Industries.

A hit for the existing players?

Fitch Ratings, a nationally recognized statistical rating organization (NRSRO) designated by the U.S. Securities and Exchange Commission, said that the Indian telecom industry revenue declined 15.6 per cent on a year-on-year basis to USD 6.1 billion for the March 2017 quarter, and added that the cheap handset would add 3-4 per cent (or around USD 950 million) to annual industry revenue if adopted by at least a 100 million subscribers, which appears likely to happen.

The Indian Cellular Association called it a move that will expand the scope of 4G technology in the country. On the other hand, analysts and industry executive anticipate that after the launch of the Jio Phone, Indian feature phone players such as Micromax, Intex, Lava, Karbonn, and the market leader Samsung, are expected to take the maximum hit. Considering the size and the scale of Reliance, Jio Phone will capture the lion’s share of the market and therefore, will disrupt many other ancillary businesses also. The incumbents have been waging a battle for retaining subscribers relentlessly since Reliance Jio came into the market, and consolidation is clearly the only way forward. So, Vodafone and Idea are in the midst of a merger, and Bharti has already acquired Telenor and Tikona Digital’s 4G business. As the biggies move to gain scale through mergers and acquisitions, it is the smaller telcos which will first get impacted by Reliance Jio’s aggression on the feature phone, leading to faster-than-anticipated market consolidation. It may not impact the bigger telecom service providers immediately.

A win-win situation for consumers

The customers are the ultimate winners in this battle for two prime reasons. First, the feature phone is going to come in at a price of effectively zero, which is somewhat the threshold price. Secondly, this will now put pressure not only on the operator community but also on the handset manufacturing community, to be able to compete on the handset side. This would, again, benefit the customers.

The road ahead

While the industry is anticipating pressure on the current feature phone vendors, several experts see a better long-term impact for the overall market. The Jio Phone would push more users towards smartphones, and the expectation is that after having been hooked to the internet, users would go for a better experience. That, according to them, should boost the segment’s growth. Apart from this, RIL’s investment in the media space, including the latest one in Balaji films, seems to be an attempt to cater to the large market for mobile-based entertainment.

It remains to be seen whether Reliance Jio succeeds in its audacious gambit or not, but if it does, it would change the digital landscape of the country fundamentally. Investors of RIL are certainly betting on that, as they push the stock prices towards a lifetime high.

Featured Image Source: Wikimedia Commons