Reliance Jio’s new low-cost feature phone unlikely to disrupt market, say analysts

The low-cost 4G-enabled feature phone announced by Reliance Jio is unlikely to have any major impact on the incumbent players, according to analysts.

“Within the prepaid subscriber base in India, the mid-to-high ARPU segment already owns a smartphone (35 per cent of prepaid users have a smartphone) and is unlikely to trade down to a cheaper feature phone — entry level 4G smartphones cost ₹3,000 and prices historically have been dropping. Thus, we believe the target market for Jio, which comprises customers that pay >₹100 per month and buy feature phones >₹1,000, is likely to be fairly small,” said analysts at Goldman Sachs Equity Research.

“We also note that prepaid mobile feature phone subscribers in India do not tend to pay the full month’s ARPU in one go; they divide their monthly outgo over multiple recharges.

However, we think Jio’s lower-priced sachet packs of ₹23 and ₹53 are unlikely to be be very popular, given validity is restricted to 2 days and 7 days, respectively; for a full month, the price of these packs come to ₹322 and ₹212, respectively, which is quite high for a typical feature phone user,” the report added.

RJio’s new phone supports 4G voice and data, along with a host of features such as voice command, audio and video applications, radio, expandable memory, and a 2.4-inch screen. Jio customers will have to pay ₹1,500 (as a security deposit) to get the phone, but can claim this amount back in three years on returning the handset to the company. Jio also announced three new plans at ₹23, ₹53 and ₹153, which are valid for two days, one week and 28 days, respectively. All of these plans come with unlimited voice and 0.5 Gb of data per day.

A report by JP Morgan said, “We do not regard RJio’s 4G feature phone (JioPhone) strategy as disruptive for the incumbents from the revenue standpoint as the street might have feared. It is a more targeted strategy.

“By setting its target ARPU of ₹153/month (unlimited voice, 0.5 GB/day), RJio seems to have decided to focus on the mid-to-higher end portion of the feature-phone segment (say, the top-third of this segment accounting for one-fourth of industry revenues). It does not hurt the incumbents on revenues as much (assuming of course, this 153 monthly plan stays).”

Fitch Ratings said that the move by RJio will expand the overall 4G market. “Jio's 4G handset is likely to quickly replace 2G handsets in rural areas, where smartphones had previously been out of reach for many potential customers...The cheap handset would add 3-4 per cent (or around $950 million) to annual industry revenue if adopted by at least 100 million subscribers, which appears likely. Industry-adjusted gross revenue is now likely to rise in 2018, after the quarterly industry revenue declined by 15.6 per cent,” Fitch said.

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