Reliance Jio, on Friday, opened a new battlefront in the telecom industry by unleashing a weapon in the form of a new feature phone, which not only is 4G Volte-ready, but also carries some smart features like Jio apps and voice command activation. The device is also effectively free.
This will undoubtedly unleash a fresh round of price war among telecom companies, already bleeding due to the aggressive entry of Jio last year. The launch of the Jio phone will also rattle some of the low-end phone makers, who will now have to develop and launch similar, if not better, phones in the market, experts say.
Last year, Jio unleashed its 4G telecom service, with free voice calls and extremely cheap data prices, forcing others like Bharti Airtel, Vodafone, Idea Cellular and even state-owned BSNL to announce new plans that would match Jio's offers. Now, this competitive intensity will shift to the feature phone market with a subscriber base of around 50 crore, which up until now was a predominantly a 2G market, with handsets offering bare bone features.
Pre-orders for the Jio phone begin from August 24 and physical deliveries start in September on a first come first service basis. People who want to buy the phone need to pay Rs 1,500 as a security deposit, which will be refunded if the phone is returned after three years. Reliance Jio has also announced aggressive tariffs, which include free voice calls and unlimited data (although with a daily cap on data usage).
This will be a worry for incumbents, who must now adapt fast, even though their earnings have already taken a hit due to the 4G price war to protect their user base, say analysts.
"With the product there in the market, people will use it and others will have to match it. They don't have the luxury or time on their side and so will have to do it fast," Gaurav Dixit, associate director at CARE Ratings told THE WEEK.
With the Jio phone launch, others too will now scramble to offer 4G phones and aggressive tariffs to feature phone users, or risk losing their subscriber base, and this will further strain their balance sheets.
"As realisations have come under pressure, incumbents have seen a profitability decline. Going forward, we expect the incumbents to remain under pressure as realisations for data, pressure to increase the pace of network rollout and highly leveraged balance sheets would continue to hurt profitability," said Nitasha Shankar, head of research at YES Securities.
The Cellular Operators Association of India (COAI) expects the launch of Jio feature phone will lead to significant increase in data consumption, Rajan Mathews, director general, COAI said the Jio's offer was a "clever marketing position" and would be a “big win for Jio”.
"Whatever existing operators were expected to gain from higher data prices or tariffs in the higher segment, that pressure will now come down to the lower feature phone segment as well where they were getting good traction. Now, even that segment will come under pressure and so price wars will continue," said Dixit of CARE ratings.
According to India Ratings and Research, adjusted gross revenue of the telecom industry declined 9.2 per cent year-on-year to Rs 37,300 crore in the quarter ended December 2016 and further declined 6.7 per cent on a sequential basis to Rs 34,800 crore in the quarter ended March 2017.
"Industry revenue would be at risk as blended average revenue per user is expected to reduce unless compensated by high data usage. This, coupled with a pressure on EBITDA (earnings before interest, taxes, depreciation and amortization) margin will impact the sector’s debt servicing and financial flexibility," said Tanu Sharma, associate director, India Ratings.
Its not just the telecom operators, but even companies who still make feature phones will have to develop new models.
"There will be more 4G phones launched and if companies have to survive, they will have to launch products similar in terms of pricing and features of the Jio phone," added Dixit.
The Jio phone can also be connected to a TV with a cable allowing people to watch video content from apps like Jio Cinema directly on their TV, even on old CRT TVs. Subscribers of Jio Dhan Dhana Dhan Plan (Rs 309 per month) will be able to use the service.This will lead to pricing disruption and put pressure on cable TV operators too, said Shankar of YES Securities.
