Will Jio's 4G feature phone be as disruptive as its pricing strategy?

Reliance Jio plans to woo a large part of the 650 million feature phone customers who mostly use voice
As Reliance Jio sets the next stage of a market share war in telecom with plans to launch a 4G feature phone, all eyes are set on what Mukesh Ambani will unravel at the group’s annual general meeting in Mumbai on Friday. 

The question on everyone’s mind is: Will the launch be as disruptive as its pricing strategy when it began operations last year? And will it have any serious impact on the existing players? The answer is buried in the current market scenario. 

With a mobile density of over 92 per cent, the country is a mature telecom market. So, any new player has to grab customers from incumbent operators. That is what Reliance Jio has successfully done to grab over 117 million customers — that is, 9.94 per cent of total subscriber base (till March end) and nearly half of the country’s smartphone users. 

But its net addition per month has been slowing to half from 8-10 million earlier. The initial blast of subscribers were drawn by the promise of free service. From September last year till March 31, its services incurred no cost for users. 

While this move by Reliance Jio hurt overall revenues of incumbents (they were forced to lower tariffs ), it did not make a big dent in their subscriber or revenue market share. That is because most of Reliance Jio’s customers use dual SIM phones, and they have not forsaken their old connection. So Airtel has maintained its subscriber share at 23.59 per cent at the end of March 2017, and the three incumbents together have lost less than a per cent of their customer base. 

But Reliance Jio has substantially cut into the subscriber share of smaller players like Reliance Communications, Aircel, Tata Teleservices and Sistema. In April, for instance, these players together lost over five million customers, many of them to Reliance Jio. Their active subscriber market share is down from  24 per cent in September 2016 to 19 per cent in May this year.

The big three players, on the other hand, have not only maintained, but increased their revenue market share —from 74.6 per cent in the December quarter to 76.5 per cent in the March quarter. As Reliance Jio did not book any revenue till March end, their revenue share wasn’t affected. However, the equation could dramatically change with the launch of the 4G feature phone through which Reliance Jio plans to woo a large part of the 650 million feature phone customers who mostly use voice.  

If Reliance Jio’s gamble works according to plan, the big three incumbent players could lose a lot of customers to Jio.  The impact could be worse for smaller players as the move could accelerate the pace at which they are losing customers, making consolidation inevitable. In the end, there might be just four players remaining, dividing the market among themselves. 

Unlike smartphone users, who spend more money, feature phone customers have an ARPU (average revenue per user) between Rs 70 and Rs 100, and use it mostly for voice. They typically cannot afford two numbers and two separate SIMs.  Reliance Jio’s offer is attractive enough for them to shift from their 2G feature phones — it offers unlimited free voice and a subsidised 4G handset bundled with data at rock-bottom price. Also, Reliance Jio by cleverly locking the SIM to the device has safeguarded itself against customers using its phone with a competing SIM. 

 If Reliance Jio looks at wooing 100 million customers in the next 12 months to 4G features devices, it would mean its competitors could lose at least 10 per cent of their subscribers. A large number of those migrating are expected to be the low-paying customers of the three incumbents. 

The incumbents could see pressure on their revenue share as well, as Reliance Jio starts to charge for services and rationalise its earlier pricing (it revised the Rs 309 pack offer to Rs 399 a month a few days ago). For small operators already reeling under pressure, the revenue share loss could be steeper as their subscriber base mostly consists of customers with low ARPUs. 

Yet, Reliance Jio’s strategy isn’t without repercussions for itself. While Ambani may spill the beans on pricing on Friday, analysts peg the price of phones between Rs 500 and Rs 1,500. The cheapest 4G feature phones cost anything between Rs 1,800 and Rs 2,000. That means if Reliance Jio plans to keep the price below this range, it will have to pay the bill. 

A senior executive of a leading chip making company says, “Jio is trying to change the normal evolution of the phone market from feature to smartphones by offering a device that is far more expensive to manufacture than a feature phone, but not highly differentiated from a smartphone. They can stall the  upgradation to smartphones but only through subsidy at a huge cost.”

As Reliance Jio sets the next stage of a market share war in telecom with plans to launch a 4G feature phone, all eyes are set on what Mukesh Ambani will unravel at the group’s annual general meeting in Mumbai on Friday. 

The question on everyone’s mind is: Will the launch be as disruptive as its pricing strategy when it began operations last year? And will it have any serious impact on the existing players? The answer is buried in the current market scenario. 

With a mobile density of over 92 per cent, the country is a mature telecom market. So, any new player has to grab customers from incumbent operators. That is what Reliance Jio has successfully done to grab over 117 million customers — that is, 9.94 per cent of total subscriber base (till March end) and nearly half of the country’s smartphone users. 

But its net addition per month has been slowing to half from 8-10 million earlier. The initial blast of subscribers were drawn by the promise of free service. From September last year till March 31, its services incurred no cost for users. 

While this move by Reliance Jio hurt overall revenues of incumbents (they were forced to lower tariffs ), it did not make a big dent in their subscriber or revenue market share. That is because most of Reliance Jio’s customers use dual SIM phones, and they have not forsaken their old connection. So Airtel has maintained its subscriber share at 23.59 per cent at the end of March 2017, and the three incumbents together have lost less than a per cent of their customer base. 

But Reliance Jio has substantially cut into the subscriber share of smaller players like Reliance Communications, Aircel, Tata Teleservices and Sistema. In April, for instance, these players together lost over five million customers, many of them to Reliance Jio. Their active subscriber market share is down from  24 per cent in September 2016 to 19 per cent in May this year.

The big three players, on the other hand, have not only maintained, but increased their revenue market share —from 74.6 per cent in the December quarter to 76.5 per cent in the March quarter. As Reliance Jio did not book any revenue till March end, their revenue share wasn’t affected. However, the equation could dramatically change with the launch of the 4G feature phone through which Reliance Jio plans to woo a large part of the 650 million feature phone customers who mostly use voice.  

If Reliance Jio’s gamble works according to plan, the big three incumbent players could lose a lot of customers to Jio.  The impact could be worse for smaller players as the move could accelerate the pace at which they are losing customers, making consolidation inevitable. In the end, there might be just four players remaining, dividing the market among themselves. 

Unlike smartphone users, who spend more money, feature phone customers have an ARPU (average revenue per user) between Rs 70 and Rs 100, and use it mostly for voice. They typically cannot afford two numbers and two separate SIMs.  Reliance Jio’s offer is attractive enough for them to shift from their 2G feature phones — it offers unlimited free voice and a subsidised 4G handset bundled with data at rock-bottom price. Also, Reliance Jio by cleverly locking the SIM to the device has safeguarded itself against customers using its phone with a competing SIM. 

If Reliance Jio looks at wooing 100 million customers in the next 12 months to 4G features devices, it would mean its competitors could lose at least 10 per cent of their subscribers. A large number of those migrating are expected to be the low-paying customers of the three incumbents. 

The incumbents could see pressure on their revenue share as well, as Reliance Jio starts to charge for services and rationalise its earlier pricing (it revised the Rs 309 pack offer to Rs 399 a month a few days ago). For small operators already reeling under pressure, the revenue share loss could be steeper as their subscriber base mostly consists of customers with low ARPUs. 

Yet, Reliance Jio’s strategy isn’t without repercussions for itself. While Ambani may spill the beans on pricing on Friday, analysts peg the price of phones between Rs 500 and Rs 1,500. The cheapest 4G feature phones cost anything between Rs 1,800 and Rs 2,000. That means if Reliance Jio plans to keep the price below this range, it will have to pay the bill. 

A senior executive of a leading chip making company says, “Jio is trying to change the normal evolution of the phone market from feature to smartphones by offering a device that is far more expensive to manufacture than a feature phone, but not highly differentiated from a smartphone. They can stall the  upgradation to smartphones but only through subsidy at a huge cost.”

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel