Reliance AGM: Jio opens new battlefront, offers 'free' 4G feature phone

To be sold for a security deposit of Rs 1,500, fully refundable after three years

After rattling the telecom market last year with its fourth generation services, Reliance Jio on Friday shook up the sector again with a 4G feature phone, to make inroads in the country’s 500-million customer base.

The Mukesh Ambani-owned firm, which of late has been witnessing slowing customer addition, will give the phone effectively for free to customers, with a three-year contract. The phone will be sold for a security deposit of Rs 1,500, returnable at the end of three years for a full refund. It is not clear what consumers may do if they want to continue using the phone. The bundled Jio connection will come with three different usage plans — Rs 24 for two days, Rs 54 for a week, and Rs 153 for a month.

The phone should allow Jio to speed up customer addition, as it will now cater to the mass market. And, add pressure on other telecom operators, now forced to match the rates, which come bundled with the device.

Telecom stocks fell up to 3 per cent on concerns over increased competition in the sector. Shares of Idea Cellular went down 3.1 per cent to end at Rs 91.90, while Bharti Airtel fell 2 per cent to Rs 411.15 on the BSE.

The RIL stock ended almost 4 per cent higher and closed at Rs 1,586.20 on the BSE, taking the calendar year-to-date gain to 47 per cent.

“Going forward, we expect the incumbents to remain under pressure as realisations for data, pressure to increase the pace of network roll-out and highly leveraged balance sheets would continue to hurt profitability,” said Nitasha Shankar, head of research, YES Securities.

At the company’s 40th annual general meeting in Mumbai, Chairmanand Managing Director Ambani, said: “We simply cannot idly stand by when such a large proportion of our fellow citizens are unable to participate in the digital revolution sweeping the nation. I am delighted to announce that JioPhone will be available to all Indians at an effective price of Rs  0.”

A significant portion of Ambani’s address was on Jio and its latest offerings. However, a clear timeline on significant revenue and profit generation from it did not come. A forecast on the profitability timeline for Jio was an important Street expectation. Jio, he promised, would become this country's largest provider of data service, products and application platforms.

According to a report by UBS, the Jio phone would support mass market adoption of 4G data. “We expect Jio to thus continue to gain market share from smaller operators as the sector consolidates,” UBS said. Voice calls will continue to be free on the Jio phone, while data usage will be limited to 0.5 GB per day, as compared to 1 GB usage on Jio’s current plans.

Further, the company announced the Jio Phone TV-cable, a device for users to connect these feature phones to TV screens (even CRT ones) for viewing mobile content.

“The new offerings will help significantly in overcoming the existing challenges of driving data usage beyond urban, high usage customers. We believe the feature phone will be a compelling attraction to those for whom device prices were a hurdle for shifting from a 2G to a 4G service. At Rs 153 with unlimited data, the offer is attractive and will surely put pressure on the existing operators,” said Cellular Operators Association of India (COAI) Director General Rajan S Mathews.

He added the impact on each operator will depend on how quickly they respond to the offer and the COAI believed when competition was free and fair, the markets determine what was best for each. Pre-bookings for the Jio phone will start from August 24, with the first phones expected by September. These will be made in India. “Once users get used to downloading and viewing content on feature phones, they will eventually migrate to smart phones. This segment is still dominated by incumbent operators and now Jio is staking a big share of the pie,” said Anshul Gupta, Gartner Research Analyst.

Mukesh Ambani

On fixed-line broadband services, Ambani said, “Jio remains well on track to bring world-class optic-fibre connectivity to enterprises, small businesses, homes and public spaces. Most of Jio’s infrastructure for providing these services is already in place. This is the next big monetisation opportunity for Jio.” There was no official announcement on the much-awaited Jio Fibre services.

Bank of America Merrill Lynch, though, said it did 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 low income consumers”. It will however, fasten the consolidation, as smaller telcos will lose their “value proposition” of lower priced voice offerings.