Reliance Jio’s 1000-rupee phone likely to work only on its 4G network; feature

The market is abuzz with rumors of the impending launch of a 1000-rupee ‘feature phone’ by Reliance Jio, but comments by Airtel CEO Gopal Vittal suggests that the Mukesh Ambani firm will not be able to launch such a phone without providing a big subsidies. However, doing so would in turn require locking the device to the operator’s network.

A VoLTE-enabled feature phone would help RJio tap three untapped markets — people who can’t afford to or don’t want to spend Rs 3,000 on a smartphone, people who want a hardy phone that will not crack if dropped, and finally, people — especially seniors — who are uncomfortable with touchscreens.

Airtel CEO Vittal said he expects Jio to launch such a device in the immediate future.

“Our understanding is that something is in the works, that could potentially get launched between April and June,” he told analysts.

“We believe that the landed cost of this device, post duties, so on and so forth, would be around 2000-2200 rupees, which would therefore make it a very very affordable phone as an upgradation from a basic feature phone.”

But, he pointed out, the true entry-level feature phones are sold at a price of Rs 1000-1200 in India today, and if Reliance Jio’s feature phone is to compete for entry-level market, they too would have to price their offering in the same range.

“There’s a big difference between a 1000-1200 rupee phone and a 2000-rupee phone in a market like India,” he said.

This in turn means that Jio will have to offer a subsidy of around Rs 1000 per phone.

“We believe (subsidy) will not make for economic sense because of the nature the dual SIMming and the nature of the flirting that customers have with the best deals at that end of the market,” Vittal added.

However, Jio could take a leaf out of the playbook of Anil Ambani’s Reliance Communications, which has traditionally offered phones for even as little as Rs 800. However, these phones are locked to the company’s CDMA network.

In other words, Mukesh Ambani has three choices.

First, he can launch the feature phone with 2G+4G support at Rs 1,999 without any lock and allow the subscriber to move to any other operator if he or she feels like it.

Second, he can launch a 4G-only feature phone at Rs 999, after providing a subsidy of Rs 1,000. Since the phone is 4G-only, and no other operator is providing 4G voice right now, the subscriber is in effect locked to the Jio network.

And finally, he can provide a feature phone that is locked to Jio’s network.

The first solution is the simplest, as there is virtually zero risk of customers taking the company for a ride. However, since the device will be priced at Rs 2,000, it will make it less attractive for those who are using only voice.

The second solution will work in the short-term — for a year or so. But, by the end of 2017 or early 2018, Airtel, Idea and Vodafone will have launched 4G voice (VoLTE) in most places and people could start using the phone on these networks.

The third solution could also work, especially if the phone has only 4G capability and no 2G or 3G support. But locking a phone using software is not a foolproof mechanism.

A simple search on any ecommerce portal for CDMA phones can reveal a large number of unlocked phones carrying MTS and RCom logos. It is, in other words, not very difficult to unlock a software-locked phone.

Based on our discussions with industry participants, we believe that Jio’s feature phone will be 4G only, and will be priced cheaper than the Rs 1,999 mark — either at the Rs 1,299 mark or even as low as Rs 999.

The company is likely to take a risk by using the subsidy model as there is very little chance of its rivals building up a ubiquitous VoLTE network in the next one year. As such, even if someone unlocks the phone to use it on other networks, the experience will be far from smooth. Moreover, RJio currently offers the cheapest voice tariffs in India — at Rs 149 for unlimited calls for 28 days.

In comparison, rivals charge Rs 345 for unlimited calling packs.

This alone is likely to continue to act as a good enough deterrent for anyone trying to move out of Jio’s network.

Vittal too said the success or failure of such a venture will depend on the total cost of the proposition, rather than the device price.

If, for example, Airtel is able to offer unlimited calls for Rs 199 on existing 2G and 3G phones, a customer may not want to shell out Rs 1000 to buy a new phone, just to save Rs 50 per month. After all, it will take that person nearly two years to get the return on his investment, by which time the phone may not be usable. However, if the customer is already looking to buy a new feature phone, he or she may choose to by the RJio device.

“This is only likely to appeal to somebody who would like voice on the cheap,” Vittal said.

“Therefore, this is an issue of what the pricing is on voice and what the package is on voice delivered on that device,” he said.

“We will be watching this development closely. You’ve seen some of the moves that we’ve made in the recent months as predatory pricing from competition continues, our focus is on how we continue to hold on to our customer base.”

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