Jio 4G handset is virtually free for users; what's the game plan?

This handset could rattle older rivals, but experts are sceptical about mass conversions for Jio

This story first appeared on Business Standard on 21/07/2017

In a move that may rattle its older rivals, already destabilised by some of the disruptive plans and freebies offered by it in the past months, Mukesh Ambani-backed Reliance Jio on Friday unveiled its ultra-low-cost 4G feature phone.
 
However, the success of the new Reliance Jio mobile phone would be pegged on 2G phone customers doubling their present monthly bill on mobile services.

 
For that to happen, the country’s average revenue per user (Arpu) – currently at Rs 80 for feature phone users and pegged at around Rs 104 overall – will have to go up substantially.

 
To enable that, Jio is offering users an attractive preposition – unlimited calls (earlier the feature phone users had only limited call time), as well as unlimited data with a cap of 0.5 GB per day (earlier they had no or minimal data usage) on a Rs 153 pack. Also, Jio is offering applications that include videos as well as live TV and YouTube, which will only help customers move to higher data usage and, thereby, larger packs.
 
In fact, the company has also ensured that customers will not have to pay for the new handset at all if they commit to Jio for the long haul. Reliance Jio is offering the device at a deposit of Rs 1,500, which will be paid pack after three years. While this helps the company garner a huge amount of money upfront, the effective cost for the customer is only the notional interest that he would forgo on an amount of Rs 1,500, which is negligible of course.

 
Unlike in the case of the earlier Monsoon Hungama plan (phone bundled with services at Rs 501) offered in 2003 by the erstwhile Reliance Infocomm (now Reliance Communications), there will be no risk of the customer running away with the phone this time. The user will remain sticky for at least three years, as not only is the device locked to Jio, but he also needs to continue using Jio for availing of money back.
 
Experts, however, are sceptical about the offer leading to any mass conversion. A Bank of America Merril Lynch report says: “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.” It argues that maintaining a Rs 153 monthly Arpu will be positive for incumbents

 
With an addressable market of 500 million customers, sources say, Jio is looking to corner at least a fifth of this market. If it succeeds, it could see its market share going up to around 20 per cent. That would bring it close to the big boys of telecom and clearly speed up a process of consolidation.
 
What Jio has done is that it has created a new market between 2G feature phone  users and smartphone customers. While 2G phones are available at Rs 700, a  2.4-inch phone (the size offered by Jio) is retailed at Rs 1,100-1,200. So the upfront deposit that Jio is asking for is near that number. 

 
However, 4G smartphones are not cheap -- they come at price beyond Rs 3,000, nearly three times that of a 2G phone. So, it is simply not affordable for 2G users. The 4G feature phone is also priced globally at Rs 1,800 to Rs 2,000, which is again twice the price of a 2G handset. What Jio has done is that it has bridged the gap by subsidising a phone to acquire customers.