Reliance Jio’s New Smartphone — How Will It Impact the Industry?
Reliance Industries is reinventing itself again. At its 44th Annual General Meeting (AGM), the company announced a number of measures across its telecom, retail and digital businesses signalling that it’s ready to consolidate its ongoing domination in the Indian markets.
Amongst the host of announcements made, the most-featured was JioPhone Next (in addition to all the bells and whistles around the clean energy initiative of course), an entry-level 4G smartphone to be launched in partnership with Google on September 10th.
This marks a step further in Jio’s preoccupation to capture the ever-growing smartphone market in India. Mukesh Ambani has maintained how he plans to pull millions of Indians out of the “2G-trapped era” and enlist them in the 5G revolution that is about to unfold.
But the idea behind this smartphone venture goes deeper than simply being an appearance to democratise the internet. Plus, it’s not a breakthrough venture. Bharti Airtel, Jio’s biggest competitor, has been working on its own brand of 4G smartphones for a while now. In fact, Jio’s smartphone partnership with Google goes back to the launch of a number of 4G “smart” feature phones (JioPhone, JioPhone 2 etc.) since 2017.
So what’s behind this latest rush towards capturing the smartphone market with a revitalised launch?
The Tryst with Telecom
India’s telecom sector has had an eventful history, and not necessarily in a good way. It has struggled with issues ranging from the 2G scam, controversies over spectrum allocation, disparity in taxation regimes and the like.
But with the entry of Reliance Jio in 2016 and its offers of free voice calls and cut-rate data services, Indian subscribers tasted the winds of 21st century telecom liberalisation. There was a paradigm shift from operator-centric to customer-centric preference which not only subsidised services through low-cost high-value call and data plans but also motivated other operators to offer competitive prices.
However, the overall picture of competition in the telecom sector is fairly intricate, to say the least. The three major operators continue to hold the bulk of the market share. Bharti Airtel Chairman Sunil Mittal recently pointed out how the visible quorum of operators has tragically reduced from 12 to 2.5 now, in light of Vi’s trailing presence way behind the other two.
As we journey towards the top, we see a thick rivalry between the top two operators — Jio and Airtel — and their ongoing efforts to pick subscribers off of each other and proliferate user numbers. Although traditionally, this has been done by beating each other’s pricing strategies to the bottom, there has been an observed shift in that trend lately.
Jio, for instance, milked the most out of the low tariff strategy at the beginning of its launch with dirt cheap subscriber plans. It was an enticing formula but unsustainable in the long run which resulted in a gradual increase in its tariffs since 2018.
Airtel had other problems. Some experts say that its Average Revenue Per User or ARPU numbers have a direct bearing on its stock prices. This means that the previous low tariff = low ARPU trick had run its course.
Over the last year, both the companies have been tempering periodic changes to their monthly, quarterly and annual plans in careful ways to cement ARPU numbers and retain subscribers at the same time. Airtel, in particular, has been fairly vocal about how ARPUs from last year and early this year (basically before the uptick in price plans) were financially not feasible.
The Growing Gains From Smartphones
Although revenue is a considerable indicator of a company’s growth, there are other factors at play too. Take debt and capex, for instance. Currently, all major operators are borrowing and spending substantially to build their 5G capabilities before the rollouts begin. They are also shoring up their coffers to afford bids on what could very well be a highly competitive 5G spectrum auction.
These expenses make it even more difficult for the operators to keep up with the lower tariff regimes. And this is where the option and opportunity to capitalise on the burgeoning smartphone market in India comes into picture.
Mukesh Ambani calls the JioPhone Next “the most affordable smartphone in the world”. Although its price is still unknown, it is believed to cost anywhere under $50. It will be bundled with Jio SIM and lucrative recharge offers. Plus it will be sold exclusively on JioMart and Reliance Digital stores first.
Jio has basically shifted the low-tariff strategy from wireless services to smartphone sales.
And consider the scalability and synchronisation across Jio’s subsidiary businesses that is expected to be created from this launch. Telecom, smartphone, retail and digital services of RIL, all clubbed into the phone purchases. RIL has firmed up partnerships with multiple US companies like Facebook, Qualcomm and Google and secured more than $20bn worth of investments in the process.
Airtel is likely to launch its own smartphones soon. In fact, it has been getting rid of its outdated infrastructure in other ways like refarming most of its 3G and 2G networks (in the 900 MHz band) for 4G.
Clearing Out the 2G Clutter
The one thing that unites both Jio and Airtel is their commitment to ditch 2G hangovers and embrace 4G and 5G opportunities. Jio has adopted a 4G-only network format and has been aggressively expanding operations in different ways, including through spectrum acquisition.
In April, Jio bought a chunk of airwaves in the 800 MHz spectrum from Airtel for more than ₹1,037.6cr ($140m). In March, Jio emerged as the largest purchaser of DoT-auctioned spectrum, almost thrice as much as Airtel, the next biggest purchaser.
These acquisitions are indicative of the company’s ambitious plans to capitalise on the 4G and 5G markets in the future. With user bases on the rise, the company is rapidly acquiring spectrum and other resources to service those users. It is investing more on spectrum (3.3–3.6 GHz meant for 5G) which would consequently improve its networks and draw more subscribers.
Jio’s and Airtel’s modernisation plans may help in bringing Indians closer to the 5G age but they may also impact other operators like Vi who still have a significant number of 2G subscribers. As of March 2020, 60% of Vi’s user base (174 million) relied on 2G for connectivity.
On a total estimated basis, about 300 million users in India still use 2G-enabled services. And such a lofty number is perhaps what is prompting telcos to use cheap handsets to effectively drive subscriber progression for those who are tethered by the upfront capital outlay that typical smartphone usage warrants.
Vi is trying to dispose of its 2G association. The company has partnered with Cisco to automate its network to support 4G and 5G use cases. It’s also planning to do away with 3G services as soon as FY22. This shift was long-pending considering the company’s ailing revenues and its drawn-out court battle on the AGR issue, both of which pose imminent risks of bankruptcy.
With competition turning more bipolar in the Indian telecom sector, one should perhaps hope for stabilisation and balance, if not diversity and vibrancy. With Jio’s march continuing towards domination, all eyes are now set on Bharti Airtel for a counter.
(Originally published June 25th 2021 in transfin.in)
