Jio’s 4G handset will force rivals combine to revisit their
Indian telcos have traditionally steered clear of bundling phones and (tariff) plans, but these companies may now consider doing this, even making their own phones, the analysts add.business Updated: Jul 25, 2017 11:59 IST
Reliance Jio Infocomm Ltd’s launch of a 4G feature phone that is effectively free will force Bharti Airtel Ltd and the Idea Cellular-Vodafone India combine to revisit their own strategies regarding phones, say analysts.
Indian telcos have traditionally steered clear of bundling phones and (tariff) plans, but these companies may now consider doing this, even making their own phones, the analysts add.
A Bharti Airtel spokesman declined to comment. A spokeswoman for Idea Cellular did not respond to a query seeking comment till press time.
“Until other handset vendors launch their own version of 4G feature phones, subscribers with an ARPU of more than Rs100 that will be coming up on the replacement cycle of their feature phones will likely find the JioPhone a compelling option,” Goldman Sachs Equity Research said in a note to its clients on 24 July.
It isn’t just incumbent telcos that face heat from Reliance’s latest move. Makers of low-cost phones such as Micromax, Intex and Lava also do.
Their challenge is “to come up with newer/different entry- level 4G handsets at lower prices may well determine their fortunes in the ultra-budget smartphone category,” JP Morgan Asia Pacific Equity Research said in a 24 July note.
Meanwhile, it remains to be seen if telcos that have hitherto refrained “from subsidizing” phones are forced to do so by Reliance Jio, JP Morgan added.
“The top 3 incumbents are at high risk from 4G feature phone disruption given they account for 60% of all 2G data users. Every 1% fall in our mobile revenue forecasts would hit our Bharti Airtel valuation by 2.5% while the Idea Cellular valuation would be hit by 8%, all else being equal,” CLSA said in a 22 July note.
India’s second and third largest telcos Vodafone India and Idea Cellular are in the midst of a merger that will create the country’s largest phone company.
In India, feature phones still outsell smartphones with total shipments of 136 million (as against 113 million for smartphones) in 2016-17. There are 500 million feature phone users in India, and 70% of these have average monthly revenue per user of Rs50 or less. The remaining 150 million feature phone users have higher monthly billings. The replacement market for feature phones at the margin are seen as the twin target markets of Jio’s 4G feature phone.
According to CLSA, around 150 million feature phone users come under a risk of churn to Jio, driving market share shifts to the tune of 15% of sector revenue.
There will be more changes, the brokerage added in a note dated 21 July.
Content bundling by telcos will gain traction and incumbent telcos are likely to improve their content offerings; more 4G feature phone devices will hit the market, affecting (slowing) feature phone to smartphone migration in the near term; and adoption of bundled plans will expand from smartphone users to feature phone users, hurting smaller telcos hard.
Analysts at ICICI Securities Ltd said in a 24 July note that the top three operators will bundle phones into services, but add that higher average revenue per user will offset the handset subsidy.
On Monday, shares of Reliance Industries Ltd, the parent of Reliance Jio, rose 2.15% to Rs 1,619. Shares of Bharti Airtel Ltd advanced 1.87% to Rs 419. And shares of Idea Cellular shed 0.38% to Rs 91.60 on a day BSE’s benchmark Sensex gained 0.68% to a record high of 32,245.87 points.