New Delhi: Reliance Jio Infocomm Ltd’s launch of a 4G feature phone that is effectively free will force Bharti Airtel Ltd, Idea Cellular Ltd and Vodafone India Ltd to revisit their own strategies regarding phones, say analysts.
Indian telecom firms 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.
An Airtel spokesman declined to comment. A spokeswoman for Idea Cellular did not respond to a query for 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 Monday. ARPU refers to average revenue per user.
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It isn’t just incumbent telecom firms that face heat from Jio’s latest move. Makers of low-cost phones such as Micromax Informatics Ltd, Intex and Lava International Ltd also do.
Their challenge is “to come up with newer/different entry- level 4G handsets at lower prices (which) may well determine their fortunes in the ultra-budget smartphone category", JP Morgan Asia Pacific Equity Research said in a note on Monday.
Meanwhile, it remains to be seen if telecom firms which have hitherto refrained “from subsidizing" phones are forced to do so by Jio, added JPMorgan.
“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.
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India’s second- and third-largest telecom firms 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 monthly ARPU 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 a 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.
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Content bundling by telecom firms will gain traction and incumbents 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 note on Monday that the top three operators will bundle phones into services, but add that higher ARPU will offset the handset subsidy.
On Monday, shares of Reliance Industries Ltd, the parent of Jio, rose 1.89% to Rs1,616.10 on BSE. Airtel shares rose 2.2% to Rs420.20 while shares of Idea Cellular shed 0.05% to Rs91.85 on a day BSE’s benchmark Sensex gained 0.68% to a record high of 32,245.87 points.