While a tariff plan of Rs153 per month will hurt telecom majors, the effectively free JioPhone will affect phone makers such as Karbonn and Micromax
New Delhi: Not content with the violent upheaval it caused in the telecom services market following its launch of voice-free, low-cost services in September 2016, Reliance Industries Ltd (RIL) chairman Mukesh Ambani on Friday announced the launch of a new phone which could cause consternation in the 500-million feature phone market as well.
The 4G-capable JioPhone, with unlimited data and optional TV streaming, which was launched at RIL’s 40th annual general meeting of shareholders in Birla Matoshri Hall, will be free for subscribers who will merely pay a Rs1,500 security deposit refundable after three years. Ambani’s daughter Isha and son Akash introduced the phone to the 2,000-strong audience, a sign the next generation is already playing a role at India’s biggest company by market value.
Ambani also spelt out the next big monetization opportunity Reliance Jio Infocomm Ltd would target—creating fixed-line high-speed broadband services. “Jio remains well on track to bring world-class optic-fibre connectivity to enterprises, small businesses, homes and public spaces," he said.
This plan, when implemented, may disrupt the enterprise market, much as Jio has done with the consumer market.
Amresh Nandan, research director at Gartner Inc., said he doesn’t think it will be easy for Jio to disrupt the enterprise market “largely because it is a very different business catering to MNCs, big national corporates and small- and medium-business units... As far as these national firms and MNCs are concerned, they have long-term contracts with their vendors."
The launch of the JioPhone will hurt phone makers such as Karbonn Mobile India Pvt. Ltd, Lava International Ltd and Micromax Informatics Ltd, but they won’t be the only ones to be singed by the Jio storm. Ambani, addressing RIL’s 40th annual general meeting of shareholders, said JioPhone customers will not have to pay for voice charges and will have access to unlimited data for Rs153 a month in what he called “protection from extortionist data charges".
The combination of free phone, low-priced data access and entertainment features should give Jio the edge over competitors. Hemant Joshi, technology, media and telecom practice leader at Deloitte India, said: “The company that can manage economics (of voice and data) and the customer experience (of using a phone) will always come out on top," Joshi said.
Not everyone is convinced.
S.N. Rai, co-founder, Lava International, said: “I am curious to see how consumers will respond to this product. A lot will depend upon the customer experience, as they will be running a lot of apps. So, a lot will depend upon how it will function.."
Bank of America Merrill Lynch, in a report dated 21 July, said, “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 the low-income consumers. That said, we see the smaller telco names losing their ‘value proposition’ of lower priced voice offering, which would lead to a faster market consolidation."
It isn’t just the communications industry that Jio’s new offer will disrupt.
JioPhone users will get a cable to connect their phone to any TV along with access to a bouquet of programming at Rs309 a month. Not surprisingly, shares of broadcasting and cable TV providers sank after Ambani’s announcement along with those of telecom companies. RIL shares rose 3.76%.
Industry experts are divided about whether Jio will cause a major disruption in this space. “Subscription revenues for DTH (direct-to-home) and cable won’t see any negative impact at least for the next five years. But this launch will help the number of 4G users across the country. Eventually, it may change things for DTH with data getting this accessible and affordable," said Girish Menon, director, media and entertainment, KPMG in India.
Uday Sodhi, executive vice-president and head, digital business, at Sony Pictures Networks India, however, believes that the JioPhone is the next big thing in the over-the-top (OTT) video segment: “Currently, entertainment is the largest area of consumption on the internet. Jio’s 4G-enabled phone is the next big story in OTT consumption." OTT refers to content, including video, transmitted over the internet and not through regular cable TV or DTH companies.
Since its arrival last September, Jio has built a user base of 125 million, squeezing revenues and profits of incumbent rivals. In just six months since the launch, data consumption in India has gone up six-fold to 1.2 billion gigabytes per month, making India the largest mobile data consumer in the world, Ambani claimed.
But now with Rs1.79 trillion already invested in Jio, and Rs70,000 crore more expected to be pumped in by fiscal 2020, RIL will be hoping it can convert users across platforms including e-commerce and entertainment.
Soumya Gupta in Mumbai, and Harveen Ahluwalia and Amrit Raj in New Delhi contributed to this story.
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