A free smart­phone with a catch.

The Denver Post - - BUSINESS - By Vidhi Doshi

Mukesh Am­bani, In­dia’s rich­est man, is giv­ing away smart­phones – but you have to bun­dle with a plan on his mo­bile net­work.

NEW DELHI» In a move to cor­ner In­dia’s vast, un­tapped smart­phone mar­ket and el­bow out for­eign com­peti­tors, Mukesh Am­bani, the coun­try’s rich­est man and the multi­bil­lion­aire owner of Re­liance In­dus­tries, re­cently an­nounced that he will start hand­ing out ef­fec­tively free cell­phones.

The catch is that the phones come bun­dled with a plan on Re­liance’s mo­bile net­work, Jio, which was rolled out across In­dia in 2016 as an ul­tra­cheap al­ter­na­tive to the ex­ist­ing voice and data plans of­fered by ri­val providers. (To get a Jio­phone, users will have to pay a de­posit of $23 up­front, re­fund­able af­ter three years.)

Hand­ing out “free” phones may seem an ex­pen­sive way to lure sub­scribers, but the stakes are high. Cheap de­vices and low tar­iffs, cou­pled with bet­ter in­fra­struc­ture — mo­bile tow­ers and elec­tric­ity even in re­mote vil­lages — have boosted cell­phone us­age in In­dia over the past two decades. As wire­less sub­scrip­tions top 1 bil­lion, up from just 1.89 mil­lion in 2000, a scram­ble is un­der­way among tele­com com­pa­nies and smart­phone man­u­fac­tur­ers to cap­ture ev­ery scrap of mar­ket share in the coun­try.

“Twenty years ago, most busi­ness was still done on pen and pa­per,” said Tarun Pathak, a tech­nol­ogy an­a­lyst at Coun­ter­point Re­search. “Records were still not kept on­line. Even 10 years ago, the main com­mu­ni­ca­tions were done through fax and post. We’ve now moved from that to What­sapp and in­stant mes­sag­ing. A lot of In­di­ans en­tered the dig­i­tal age through their smart­phones.”

At the cut­ting edge of the shift is In­dia’s enor­mous mil­len­nial pop­u­la­tion, which in­creas­ingly re­lies on smart­phones for ed­u­ca­tion, work and so­cial in­ter­ac­tions. Shifa Dho­ra­ji­wala, a univer­sity stu­dent, says she uses her phone con­stantly.

“I’m hooked to In­sta­gram and Snapchat,” she said. “They are like an in­for­ma­tive bul­letin. Even if you don’t read news­pa­pers, you get up­dates on ev­ery­thing on Face­book and In­sta­gram.

“I’m on my phone all the time, but no one finds it weird,” she added. “Pretty much ev­ery­one else is also.”

When Jio launched last year, it of­fered 4G data at rock-bot­tom prices, the cheap­est in the world, ac­cord­ing to Am­bani, along with sev­eral free­bies. The cheap data plans shook In­dia’s telecom­mu­ni­ca­tions in­dus­try. Within days, mil­lions of peo­ple had signed up with the net­work. Crowds flocked to stores to se­cure the bar­gain deal and lined up for hours to get Jio SIM cards. Less than a year af­ter its launch, Jio is es­ti­mated to have more than 100 mil­lion users.

Now, ri­val tele­com giants are re­align­ing for a show­down. On July 24, a pro­posed merger be­tween two prom­i­nent net­works, Voda­fone and Idea Cel­lu­lar, was ap­proved, clear­ing a path for a coali­tion with the po­ten­tial to take on Am­bani’s jug­ger­naut.

Caught in the mid­dle of this bat­tle be­tween net­work be­he­moths are smart­phone man­u­fac­tur­ers. An im­pos­si­bly cheap, even free smart­phone from Re­liance could rat­tle es­tab­lished play­ers like Sam­sung, which holds 26 per­cent of the smart­phone mar­ket share in In­dia.

As mar­kets in Amer­ica, Europe and China reach sat­u­ra­tion, smart­phone sales have plateaued, turn­ing the at­ten­tion of in­ter­na­tional tech giants to In­dia’s newly af­flu­ent.

“Ev­ery global gi­ant is now fo­cus­ing on In­dia,” Pathak said. “The U.S., Europe and China are now mostly re­place­ment mar­kets, where peo­ple up­grade their phones ev­ery few years. In In­dia, we still have first­time smart­phone users com­ing on board. That’s a huge op­por­tu­nity for all the play­ers to grow and co­ex­ist at the same time.”

Growth will prob­a­bly con­tinue for at least four or five more years, he said.

For Apple, which has strug­gled to find a foot­ing in the smart­phone mar­ket here, even a heav­ily dis­counted iphone 6 ($435 as com­pared to its In­dian launch price of $802) is an in­creas­ingly tough sell as ri­val man­u­fac­tur­ers slash prices. Af­ter a fum­ble try­ing to sell cheap re­fur­bished phones in In­dia, a pro­posal that the In­dian gov­ern­ment re­jected, Apple an­nounced this year that it will set up a fac­tory in the south­ern city of Ben­galuru, sav­ing con­sumers steep im­port du­ties.

Chi­nese brands, too, are com­pet­ing. In re­cent months, com­pa­nies such as Xiaomi and Oppo have closed in on the es­tab­lished man­u­fac­tur­ers’ clien­tele, of­fer­ing sim­i­lar fea­tures without the high price tags.

For In­dian brands such as In­tex Tech­nolo­gies, which sell bud­get phones mostly in smaller cities and vil­lages, the im­pact of Jio’s launch was cat­a­clysmic. Since March 2016, the com­pany’s mar­ket share has fallen from 11.5 per­cent to 6.5 per­cent. In less than a year it had to re­place its en­tire in­ven­tory and is set to launch 4G-en­abled smart­phones in Septem­ber.

“Jio has fast-tracked the 4G con­ver­sion, and the mar­ket has swiftly changed in less than a year,” said Ra­jeev Jain, chief fi­nan­cial of­fi­cer at In­tex.

Ac­cord­ing to an­a­lysts, about half of In­dia’s mo­bile users use smart­phones. The other half use fea­ture phones, which al­low users to call, text or use In­ter­net browsers but have lim­ited ca­pac­ity for the in­stal­la­tion of apps.

“Now the game is to get those fea­ture phone users who may want to con­vert to smart­phones,” Pathak said. “Jio al­ready has over a 100 mil­lion users. Their next 100 mil­lion will come from the fea­ture phone users.”

Jain says that rather than tak­ing away cus­tomers from ri­vals, Jio could ex­pand smart­phone com­pa­nies’ po­ten­tial user base. Vi­brancy in the econ­omy, he said, means there’s plenty of room for ev­ery­one.

“In­di­ans now can­not imag­ine a minute without their mo­bile phones. What these Chi­nese brands and Jio are do­ing is ex­pand­ing the mar­ket for us. They’ll start with cheap Jio phones and even­tu­ally switch to phones with more fea­tures,” he said.

Vikas Kat­yar, who sells flat­breads on a road­side in Noida, near Delhi, was among those who switched to Jio last year. A month af­ter the net­work launched, he tossed out his old Nokia for a sparkling new 4G-en­abled Vivo.

“In the evenings, I run a busi­ness from my cell­phone,” he said. “I sell books on­line through Ama­zon. For that, my cell­phone is very im­por­tant.”

Now, as he flips flat­breads, he con­tem­plates switch­ing to the Jio phone when it launches later this year. “If it’s free, then why not?” he says.

Dhi­raj Singh, Bloomberg News

A pedes­trian walks past ban­ners for Re­liance Jio, the mo­bile net­work of Re­liance In­dus­tries Ltd., and Bharti Air­tel Ltd. In­dia still has first-time smart­phone users and the growth is ex­pected to hold for four or five years.

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