Will Airtel, Vodafone Idea Lose Customers To Jio’s INR 999 Internet Feature Phone?

SUMMARY

Most brokerages believe that Jio’s phone launch can disrupt the feature phone segment but steered clear of saying that a price war is imminent

Airtel is unlikely to roll back its entry-level price hikes, while Vi may take a more calibrated approach on further hikes, said Kotak analysts

With the launch of Jio Bharat phone, Jio is targeting the 2G user base of Airtel and Vi, which is estimated to be 11.1 Cr and 10.3 Cr, respectively

A day after the glitzy launch of Reliance Jio’s INR 999 internet-enabled feature phone, industry analysts took a mixed stance on the ‘game changer’ announcement.

A majority of the brokerages are of the opinion that the launch can disrupt the 2G-led feature phone segment but steered clear of saying that a price war is imminent.

In a research note, Kotak Institutional Equities said it is unlikely that Airtel would roll back its entry-level tariff hikes (it increased the price of its INR 129 pack to INR 179 in January 2023) to compete with Jio.

The brokerage said non-data subscribers account for 30% of Airtel’s paying subscribers but likely contribute a mere 15-17% to revenue. As such, no roll back is expected from Airtel’s end.

“… Further, we note Bharti’s focus in recent years has been on premiumization of its subscriber mix (higher entry-level packs, cashback on bundled smartphone purchases) and we do not expect a rollback in Bharti’s entry-level price hikes,” the note said.

However, the brokerage is more cautious on Vodafone Idea (Vi). It expects Vi to take a ‘more calibrated approach’ on further hikes at the lower end of its pricing spectrum. As per Kotak, non-data subscribers contribute approximately 15-20% to the company’s revenue but account for nearly 40% of its total paying users.

Brokerage Emkay Global also echoed a similar sentiment saying Vi could bear a larger impact of the launch compared to Airtel. The brokerage firm pegged the number of 2G users of Airtel and Vi at 11.1 Cr and 10.3 Cr, respectively.

Emkay Global projected that if 40% of 2G users in the country shift to Jio Bharat phones, Vi’s revenue would be impacted by 11% while Airtel’s revenue would wither by 8%.

The brokerage firm also said that the successful reception of Jio Bharat phones could be a potential threat to the current 2G base of all major players, adding that it could push Airtel, Vi and BSNL to take the ‘hard call of shutting down 2G networks sooner’.

In April 2023, Jio accounted for a market share of 37.9% in the wireless segment, while Airtel took the second spot with a 32.45% market share

Meanwhile, Bernstein analysts said the launch of the phone will hasten the transition from 2G to 4G and will potentially increase the churn of 2G customers of Jio’s competitors.

“… the 2G segment is an entry level segment, and therefore does not have a huge impact on margins, but this could intensify the competition in the rural markets. Both Bharti and Jio are competing in the rural markets to gain Vodafone Idea’s customers in the market. The launch of this phone and the affordable mobile plan aids Jio in gaining more rural market share,” added Bernstein.

However, on Jio’s contention that it is eyeing 250 Mn existing feature phone users in the country, Kotak analysts pointed out that the additional upfront device cost of the Jio Bharat phone would restrict uptake to new feature phone buyers and is unlikely to help it gain much share among existing phone users.

Kotak believes that Jio would take between 500 to 874 days to recover device cost for existing feature phones.

Jio is offering a monthly subscription of INR 123 and an annual tariff plan of INR 1,234 with the Jio Bharat phone. On the other hand, competitor Airtel’s entry-level pack is priced at INR 179 per month. While Jio offers 14 GB data per month under the plan, its competitors offer a mere 2 GB data per month.

Kotak believes that higher data allowance, along with offerings such as JioCinema and JioPay, could ‘potentially raise concerns on rising competitive intensity even at the lower end’.

Thumbs Up For Jio Bharat Phones

Overall, Emkay Global and Bernstein analysts are of the opinion that the launch of the phone will accelerate the shift of 2G users to 4G.

Citing the network and device capabilities of the Jio Bharat phone and its affordable price, Emkay Global said that the device could spur the adoption of digital platforms in the country. Highlighting the bundled offerings such as streaming platform JioCinema and digital payments offering JioPay, the brokerage said the phone is well-placed to ‘bridge the country’s digital divide’.

Comparing the new phone with Jio’s previous launch of JioPhone, Emkay Global said the new feature phone is a more focussed product for the target market. Terming Jio Bharat phones better placed in the current times to disrupt the market compared to the original JioPhone in 2018, the brokerage said the outright purchase price of INR 999 and the absence of any lock-in period make the new phone an attractive bet.

It also lauded Jio’s partnership with OEMs such as Karbonn, saying better distribution and production planning can drive faster volumes and distribution across the market.

“We believe JioBharat will help drive churn in this segment and help Jio extract reasonable ARPU (vs. earlier JioPhone starting at INR 70-80), despite being cheaper than competition… JioBharat can transition over 100 Mn users if there are no supply chain or product-performance hiccups,” Emkay Global added.

With its beta roll out scheduled from July 7, it remains to be seen if Jio’s new offering disrupts the market in the same way as Jio’s launch in 2016 did. For now, all eyes are on the launch and the response of competitors Airtel and Vi.