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.