Reliance Jio May Spend INR 18,750 Cr In Subsidies To Price ‘JioPhone Next’ At INR 4K

To provide ‘JioPhone Next’ at the affordable range of below INR 5K, Mukesh Ambani-led Reliance will reportedly spend INR 18,750 Cr in subsidy.

According to an ET report, citing IIFL Securities’s estimation, Reliance Jio might need to subsidise consumers to the extent of INR 15,000 Cr if it targets selling around 75 Mn units, at INR 2,000 subsidy apiece.

With the prices of semiconductors and other components rising amid a global shortage, the oil-to-telecom conglomerate may need to spend nearly INR 3,750 Cr or 25% more on subsidies than that estimated earlier.

“We reckon if Reliance prices the JioPhone Next at around INR 4,000 and looks to sell 75 Mn units, the subsidy element per handset could rise to around INR 2,500, or INR 18,750 Cr overall,” the report cited. “This is due to a near 20% rise in component prices, particularly memory and LTE (4G) chipset costs, coupled with procurement delays and the continuing global shortage of semiconductors.”

The shortage of chipsets and semiconductors has not only affected the cost for the company but also delayed the launch until Diwali (November 4). The much-anticipated affordable ‘JioPhone Next’ smartphone, developed jointly by Mukesh Ambani-led Reliance and tech giant Google, was previously scheduled to be launched on the eve of the Ganesh Chaturthi festival (September 10, 2021).

Mukesh Ambani-led Jio, which is known to disrupt the current market trend, first with its Jio cellular connection, then online grocery platform JioMart, is now looking to disrupt the smartphone industry.

Announced earlier this year during the 44th Reliance Industries’ annual general meeting (AGM) back in June, Mukesh Ambani said that ‘JioPhone Next’ would be the cheapest smartphone in the country and the world. Reports have suggested that ‘JioPhone Next’ could be under $50 (about INR 3,600) in India.

For Reliance, offering subsidies has always been a strategic business move. The idea has always been to give people a taste of what Jio could offer for a low entry cost, and then convert them into more mature users that have a high volume of data usage. Thus, price is a key factor, making Jio subsidy-ready for the initial set of users.

While there’s no confirmation on the same from Jio, but Jeffries report on the impact of the JioPhone Next, with Reliance offering 12%-72% higher tariffs for smartphone users compared to JioPhone feature phone users, mass upgrades to JioPhone Next could potentially boost Jio’s FY23 revenue estimates by up to 10% assuming no changes to tariffs.