For Reliance Jio, free services did wonders. Will ‘effectively free’ do the same?
After shaking up the smartphone segment, Reliance Jio Infocomm Ltd wants to do the same in the feature phone segment by offering an ‘effectively free’ phone. It was successful in luring smartphone users by providing free services for as long as seven months.
The attempt to make inroads into a far more price-sensitive segment with ‘effectively free’ services would have its limitations. Jio may need to consider more freebies before the phone’s 15 August launch.
“We do not see Jio being able to penetrate the mass market with the announced offer, as we see the monthly price of Rs153 and Rs1,500 initial deposit as still being steep for low-income consumers,” analysts at Bank of America Merrill Lynch wrote in a note to clients.
The deposit of Rs1,500 for the feature phone is refundable after three years. While this makes it effectively free, there is an opportunity cost for users; after all, they could have earned return on the deposit elsewhere.
More importantly, the announced tariff plan is higher compared with both existing spends in the segment, as well as tariffs applicable for better-off smartphone users. Jio’s unlimited services will cost Rs153 per month for the new segment, about 15% higher than the effective monthly tariff of around Rs133 for smartphone users.
And according to analysts at JM Financial Institutional Securities Ltd, the average revenue per user (Arpu) of this segment is around Rs110/month, although these spends are primarily for voice services. While Jio expects a part of this segment to upgrade and avail data services, it may need to offer plans which cater to those who largely use voice services.
As such, the tariffs announced at Reliance Industries Ltd’s annual general meeting may not attract new users in droves. It’s quite likely that when the phone is launched on 15 August, users may well get more freebies to come on board. After all, Jio’s effective tariffs for smartphone users remain lower than rack rates even now.
For now, Jio’s tariff plans for the feature phone segment hint at a strategy that is not as destructive as some of its earlier plans. But that doesn’t mean incumbents have no reason to worry. Things are quite different with the new segment, with the company offering a bundled product with a device, unlike earlier plans. Incumbents may be forced to follow suit, which can erode their profit margins further. Besides, if Jio manages to lure away a chunk of the relatively high Arpu customer base within the feature phone segment, that will mean further pressure on incumbents’ revenues and margins.