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JioPhone Next pricing not aggressive enough, say analysts

The JioPhone Next is not the cheapest device in its segment

jiophone-next1 The JioPhone Next

At Reliance Industries' annual general meeting on June 24, one of chairman Mukesh Ambani's big announcements was of an ultra-affordable smartphone developed in partnership with Google. The 4G smartphone, designed specifically for India and targeted at entry-level users as well as the still vast base of 2G feature phone users, was expected to disrupt the smartphone market in a big way. But will it?

The JioPhone Next is feature-packed--from the optimised Pragati OS to live translations, a Qualcomm Snapdragon 215 SoC processor, a capable camera (for the segment) with night mode and portrait mode and voice-first capabilities. Reliance says consumers can buy the phone for Rs 1,999 and pay the rest in equated monthly instalments (EMI). While it may seem extremely affordable upfront, the full price of Rs 6,499 is certainly not the cheapest. There are several smartphones in the market already priced in the Rs 5,000-7,000 range, from brands large and small.

Depending on the selected plan, the monthly payments for the smartphone will range between Rs 300-600, or you could just opt to pay the entire amount upfront.

“Price of the JioPhone Next is not disruptive as mobiles with similar features are available in the market,” ICICI Securities analyst Sanjesh Jain said.

Naval Seth of Emkay Global Financial Services also agrees that the pricing is “not aggressive enough as per Jio standards.”

“The bottom-of-the-pyramid/ non-data subscribers might not have the propensity to pay the upfront cost of Rs 1,999 and high monthly EMIs,” Seth said.

The Emkay analyst feels Jio may be looking to target the replacement market and mid-segment subscribers (customers in the Rs 5,000-8,000 range) in a big way as upfront cost and monthly EMI for the non-data users looks high.

“Apart from first time users, replacement demand could be a big potential opportunity to gain volumes as the upfront cost to the consumer reduces meaningfully with EMI offers,” he said.

Industry analysts feel supply-side issues (the semiconductor shortage for instance) could have weighed on the pricing of JioPhone and don’t rule out the possibility of the company slashing the price of the smartphone or launching promotional schemes later if initial sales are not up to expectations.

Jio is not the only company targeting entry-level or first-time smartphone users. Bharti Airtel recently announced a cashback of Rs 6,000 to customers who purchase a new smartphone priced up to Rs 12,000 from leading brands.

Over 150 smartphones are eligible for this benefit, said Airtel. Certainly, on this front, Airtel offers more flexibility in choosing a handset.

What analysts agree is that the JioPhone Next as well as the cashback offers from Airtel will accelerate the shift from feature phones to smartphones, but not all may shift.

“Despite telcos efforts to reduce overall smartphone ownership cost, the upfront cost (on Bharti’s cashback offers) of purchasing a smartphone and monthly commitment (on JioPhone Next) is still significant for the lower end non-data subscriber base,” said Aditya Bansal, analyst at Nomura Securities.

Tariff hikes imminent?

JioPhone’s financing options come with mobile recharge bundles. The entry-level plan, which includes 5GB of data and 100 minutes per month starts at Rs 300 per month over 24 months and the costs rise as the bundled data offering increases on various plans, going up to Rs 600 per month over 18 months for 2.5 GB data per day and unlimited voice.

Bansal says the bundled mobile recharge plans for JioPhone Next users are at a 20-30 per cent premium to current comparable daily data plans for other smartphone users.

“We don’t think Reliance Jio will charge a premium from JioPhone Next users (versus other smartphone users) and in our view, JioPhone Next plans signal that a tariff hike is imminent,” he said.

Jain of ICICI Securities also agrees that JioPhone’s pricing of the underlying services, which is comparable or at a premium to existing tariffs, supports the argument for an early tariff hike.

Based on JioPhone Next’s bundled pricing, Bansal sees a 13-17 per cent upside to average revenue per user estimates and 18-24 per cent upside for the earnings before interest, taxes, depreciation and amortization of the three telecom companies (Jio, Airtel, Vodafone Idea) for the 2022-23 financial year.

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