Success of Reliance JioPhone to depend on wooing price-conscious 2G users

The success of Reliance Jio’s new 4G-enabled feature mobile phone will depend on wooing the 500-million price-conscious 2G customers to spend up to double the amount they fork out on such services at present. 

While data on the average revenue per user (Arpu) of feature phone users vary due to unavailability of segmented numbers, telecom companies say it ranges from Rs 80-100 per month. Jio, of course, expects these customers to fork out Rs 153 a month for unlimited calls and unlimited data with a cap of 0.5 GB per day. Jio has offered no special discount for the segment — the Rs 153 offer is exactly half of what it launched for smartphone customers (Rs 309 for unlimited calls and unlimited data with cap of 1 GB per day). 

Clearly, some analysts are not impressed. For instance, a Bank of America Merril Lynch report has said that it does not see Jio being able to penetrate the mass market since the price includes a Rs 1,500 initial deposit, which is steep for low-income group consumers. Some device manufacturers have the same view. “We don’t think a mass shift will happen. The price is still high for cost conscious customers,” a director in a leading Indian mobile firm said. 

But those close to Jio say that the strategy is based on segmenting the feature phone market. They say while about 70-80 per cent of these customers have an Arpu of Rs 50-100, the rest of the feature phone customers (100-150 million customers) have monthly bills that are closer to what Jio is offering. And it is this segment that will shift to Jio. If the gamble succeeds, Jio would have grabbed between 20-25 per cent of the mobile services market bringing it pretty close to rivals like Bharti and Vodafone. 

To woo customers the company is offering unlimited calls (currently feature phone users had only limited call time) as well as unlimited data (earlier they got none or minimal data) on a Rs 153 pack. Also, Jio is offering applications — which include videos as well as live TV, with even YouTube and Facebook thrown in — which will only lead the customer to use more data. 

Another stumbling block could be the upfront Rs 1,500 deposit, which a customer would have to pay for the phone, which would be equivalent to buying a new 2G phone. To get over this, Jio has offered sweeteners — it will pay back the deposit after three years. So, the phone will be available to the customer effectively for free and the customer will only have to let go of a negligible amount of interest on the deposit. 

This is a smart move because apart from rustling up huge interest-free cash (on 100 million it will make Rs 15,000 crore), Jio will also be able to lock-in the customer for three years. For one, the device cannot be used with rivals’ SIMs. Also, the customer will have to continue paying the tariff for 36 months. If the customer walks out, he will get a lower amount on his deposit. 

Jio has a 4G-only network so it had no choice but to grab the large number of 2G customers away from competition. Since it did not want to wait for them to move naturally to smartphones — which are available for over Rs 3,000 and are clearly unaffordable — they launched the affordable 4G feature phone. Any price above Rs 2,000, would have made it difficult for them to capture the segment. 

The interest on the deposit of three years will partly defray the subsidy which Jio has to incur on the phones. After all, their cost price is over Rs 2,000 and they are giving it out for free. But for Jio, which has already invested thousands of crores to build the network, acquiring customers is the only option.

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