Ambani’s New Gambit
Ten months after he launched Reliance Jio, a disruptive fourth generation (4G) mobile telephony service based on long-term evolution or LTE technology, a form of high-speed wireless communication, Reliance Industries chairman Mukesh Ambani has sprung a new surprise. On July 21, at RIL’s annual general meeting of shareholders in Mumbai, he launched JioPhone, an LTE-enabled mobile handset that also provides bundled services such as JioTV and JioMusic. The most attractive aspect is the price of the phone. It’s practically free, since the Rs 1,500 one pays while buying the phone is a ‘security deposit’, to be refunded after three years if the phone is returned to the company. For Jio, which shook up the telecom sector with its initial offer of data at a fifth the existing cost and voice free forever, the handset offer bridges a big user gap. It addresses millions of feature phone users who are denied the benefits of even an entry-level smart phone, which can cost Rs 3,000-4,500. Feature phones incorporate features such as internet access and storage and can play music, but can’t run third party apps like smart phones can. India had 895 million mobile users in March 2017, half of them feature phone users. The feature phone market is dominated by firms such as Nokia, Samsung, Lava and Micromax. “Data is the oxygen of digital life and no Indian should suffer because of data scarcity and unaffordability,” said Ambani at the launch. JioPhone users will also get unlimited voice and data for Rs 153 a month.
But this new offer, commercially available from August 24, can be tricky, not just for Jio but also for other telecom companies, whose profitabilities were already hit by the tariff cuts necessitated by Jio’s entry. Though overall data traffic grew five-fold in the year to March 2017, 4G data prices fell 60 per cent, resulting in flat revenue growth for telcos, Crisil said in a report in April. Experts say another 12 months of tariff war can bleed the sector further, which is steeped in debts of Rs 5 lakh crore. The other issue has to do with sustaining the growth momentum achieved at low tariffs. At some point of time, companies will have to revise tariffs to remain profitable. The third issue has to do with JioPhone’s target segment. “For the target segment, even Rs 150 a month can be on the higher side, at a time when the average revenue per user (ARPU, a measure of the sector’s health) is between Rs 120 and Rs 130 a month,” says Prashant Singhal, global telecom leader at EY India. Moreover, even at Rs 1,500, JioPhone is still not a smart phone, and customers have the option of going for cheap used ones. Can Jio pull it off in handsets as it did in mobile services? Ambani is confident. “We have converted a majority of our free customers to paid customers. Today, Jio has more than 100 million paying Jio Prime (the company’s key subscriber plan) customers,” he says. He is now betting on selling five million JioPhone handsets a month.
Though overall data traffic grew five-fold in the year to March 2017, 4G data prices fell 60 per cent