Reliance Jio's Rs 49 plan to hit telcos' 2G/3G earnings

After making inroads into the smartphone market, Reliance Jio has set its eyes on the feature phone/voice users segment by announcing a new low price tariff plan for its JioPhone.

The move by Mukesh Ambani-run Reliance Jio to offer Rs 49 plan for 28 days with 1 GB data for JioPhone is an attempt to capture the 2G/3G mobile market where it has been unable to make a big dent till now. The plan is meant for first-time data users or for users who have limited data usage.

Analysts say the idea is to penetrate the low-end of mobile market where it has made limited progress so far despite announcing a 4G feature phone. Though it has been able to garner a substantial market in smartphone segment, the feature phone market is yet to be captured in a big way.

RJio, according to estimates by JP Morgan, has 17-18% revenue market share in the industry, amounting to over 35% share of industry's revenue pool from smartphone subscribers.

However, the smartphone segment may not be able to give RJio revenue market share beyond a point. "RJio cannot afford to not have a larger play in the non-smartphone (2G/3G) segment. There has to emerge a rather price-catching strategy for the non-smartphone or feature-phone segment," JP Morgan said in its analysis.

The feature-phone segment still constitutes 70% of the total mobile market and constitutes 50% of industry revenues. This move by RJio will lead to another around of Arpu (average revenue per user) downgrades at the feature-phone end.

With its entry in September 2016, RJio with its free voice calls and low data tariffs, disrupted the telecom market. The incumbents are struggling with declining revenues and margins, besides reeling under a huge debt.

Since RJio services are offered only on 4G technology, it launched its own 4G feature phone – JioPhone – at Rs 1,500 refundable deposit to target the 2G/feature phone/only voice users.

"RJio needed to position a very clear separation in pricing between 4G data Arpu and JioPhone Arpu to cater to two completely different segments without any overlap," it said.

The implications for peers (Bharti, Vodafone and Idea) are worrisome.

Furthermore, we believe that this effectively leads to multiple quarters of Arpu down-rounds, with Arpu stabilisation pushed out. We continue to believe that the Arpu improvement thesis is at risk, as discussed in our prior notes.

Credit Suisse in another analyst note said Jio's 4G feature phone will be seen as good value-for-money by the target segment, especially with new tariffs. Also, device inventory has been building up at stores across the country over the past few weeks.

"Jio's efforts and market share gains so far have been concentrated only in the smartphone market. The Arpu erosion that incumbents witnessed was by this 'restricted' impact on the high-end smartphone segment. The next wave of impact from Jio is now likely to be on the 500 million strong feature phone segment," it said.

After few tariff revisions by RJio late last year, many were hopeful that tariffs reduction will not happen this year, but the new year saw RJio announcing two new tariff plans giving more value to its users in terms of data.

Citi Research Equities said given the focus on market share gains, competitiveness in the sector wouldn't abate in 2018, where pricing would remain under pressure. "Estimates of industry revenue growth in FY19 are flat YoY, assuming modest pricing increase. With these recent moves by the operators, telcos face renewed downside risks to revenue growth and profitability. Telcos with strong networks and good execution remain better placed while Idea/Vodafone are more vulnerable given risk of market share loss around their merger."