RJio announced the phone at virtually zero cost to tap into the country’s 500 million feature phone market
JioPhone, the 4G enabled feature phone unveiled by new entrant Reliance Jio, may not be able to tap fully into the feature segment as analysts have expressed concernes over high initial payment of Rs 1,500 for low-end users and a lock-in period of three years.
However, the new offering will be a formidable challenge for incumbents, they said.
HSBC Global Research in a note said the combined upfront cash outlay of about Rs 1,650 may not cater to the entire 500 million market and may address only 25-30%, as the average selling price in the feature phone segment is Rs 700.
"With this launch, Jio seems to be filtering out poor quality subscribers and attempting to attract only quality subscribers. Handset financing schemes may see a sharp upsurge," HSBC note said.
On Friday, Reliance Jio announced the phone at virtually zero cost to tap into the country's 500 million feature phone market. There are over 1 billion mobile users in the country, where half of them use 2G feature phones for just voice calls and sending messages. But, these are low average revenue per user (Arpu) customers.
Subscribers with 2G handsets and 3G feature phones account for 40-45% of revenues for incumbents and effective Arpu ranges between Rs 50-100.
The announcement by RJio will make feature phones future ready; one can hope to get latest available 4G technology through this, Faisal Kawoosa from CyberMedia research said.
For operators, 70% of revenues still come from voice services. The existing ones could not think of any disruptive measures and put all their resources in a focused manner. "Operators had to keep their 2G, 3G and 4G networks up and running. Now few can think of shutting down their 2G networks as with the new 4G phone, even voice will shift to a different technology. Anyway, 2G licenses are up for renewal in 2020, existing operators can think of doing away with their old networks," Faisal added.
RJio, which is not even a year old in commercial operations, has captured data segment very well and is now targeting voice to capture more subscribers.
In the short term, existing operators might resort to further cut in tariffs but for a long term, they need to handle disruption by stepping up 4G capex and accelerating VoLTE deployments. "Historically, incumbents have not participated in handset subsidies, but replication of a scheme similar to what is being offered by Jio is quite possible. In our view, the challenging part for incumbents may be deciding on the monthly Arpu for unlimited voice for the lower end and ensuring that it does not lead to cannibalisation of voice at the mid and higher end," HSBC analysts said in a note.
In September last year, Reliance Jio had disrupted the market by offering free voice calls and cheap data charges. It has already garnered 125 million users and now has set its eyes on another 100 million after the launch of the JioPhone.
JioPhone will be available for pre booking from August 24 this year. A user will have to pay a fully refundable security deposit of Rs 1,500, which will be returned in three years, for accessing free voice calls and unlimited data at Rs 153 a month on the JioPhone. To capture small ticket users, two sachets - a weekly plan for Rs 54 and a two-day plan for Rs 24 will also be available providing similar unlimited value.
In another note, Kotak Institutional Equities also had similar views that it will be a challenge for existing players. "R-Jio's LTE feature phone offering is a formidable challenge for the incumbents even as the announced pricing structure is perhaps not as disruptive as feared. Jio's smartphone offering launched last year was revenue-dilutive for the industry and a pricing challenge for the incumbents; feature phone launch has potential to be revenue-accretive for the industry and is more a product challenge for the incumbents."
The analysts at Motilal Oswal are of the view that RJio's feature phone launch may attract entry-level data consumers, given the wide pricing gap of about 4x between prevailing feature phone and smartphone Arpu.
"JioPhone may act as a stepping stone for smartphone migration -- for 4G usage. However, small operators, which hold the majority of the second SIM, deal-hunting users, are at the highest risk of losing subscribers to RJio post the device launch.
Larger operators too may see market share risk until they launch VoLTE network, potentially in the next 10-12 months."
No matter what the views are, RJio's new 4G feature phone is all set to create a second disruption in the telecom market in a year.
NOT AN EASY CALL
- RJio announced the phone at virtually zero cost to tap into the country’s 500 million feature phone market
- Subscribers with 2G handsets and 3G feature phones account for 40-45% of revenues for the incumbents players
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