Reliance Jio's upcoming 4G feature phone will target 150 million feature phone users that are likely to have average revenue per user (ARPU) of Rs150-180 and contribute to 15-17% of industry revenues. These 150 million feature phone users and replacement market of feature phones at the margin would be the twin target markets for Jio’s 4G feature phone, according to a report by CLSA.
In India, features phones still outsell smartphones with total feature phone shipments at 136 million vs. smartphone shipments of 113 million in FY17. "Our industry checks indicate that there are ~500m feature phone users in India mobile, however, 70% of these have ARPU of Rs. 50 monthly or lower," CLSA said
Jio, which has just started charging for its services full-fledged, is currently seeing a moderation in subscriber additions as it hits the 4G device hurdle with penetration in 4G devices at 85%.
"Our channel checks indicate that a 4G feature phone launch by Jio is imminent and this phone though locked to the network will have VoLTE and suite of data applications. Despite being superior to currently available feature phones, there is a possibility that Jio could offer their feature phone at Rs500-1,000," CLSA said in its note.
With the price of feature phones ranging between Rs. 500-2500, this potential offer from Jio will be aggressive and could likely lead to mass adoption. CLSA added that its channel checks also point to promotional tariffs bundled with a 4G feature phone.
Jio’s feature phone is likely to cost about Rs. 1,000-1,500, implying a subsidy of Rs500-1,000 per device if it is offered at Rs500-1,000. "Assuming a subsidy of Rs500, incremental 100 million devices sold would result in total subsidy bill of Rs50 billion, which can in part be offset by lower interconnect costs as higher subscriber market share will also drive higher share of on-net calls," CLSA said.
Jio’s interconnect costs for 7MFY17 stood at Rs. 26 billion, implying a full year cost of Rs 46 billion, 35% higher than Rs34bn interconnect costs of Idea Cellular.
CLSA said that additional 100 million subscribers would boost Jio’s subscriber market share to 19-20%, higher than Idea Cellular, driving interconnect savings of Rs10-12 billion annually.
According to the agency, the contraction in industry revenues has been widely due to ARPU dilution at the top-end of the subscribers (15% of subscribers, 40% of revenues) which use 4G smartphones and MiFi devices. However, the launch and promotional offers of 4G feature phone by Jio could potentially lead to ARPU dilution among the mid-ARPU subscribers which form ~21% of total subscribers and ~22% of sector revenues.
Meanwhile, with the initial 3-month promotional period of Jio’s “Dhan Dhana Dan” offer ending on 15th July, the industry revenue outlook will also depend heavily on when Jio starts charging the full tariffs to its existing subscriber base.
"While our dealer checks indicate that promotions for Jio’s existing subscribers may end, implying relief for incumbents, further promotions can’t be ruled out. We expect sector revenues to fall by 7% YoY in FY18 led by promotions and retaliatory tariffs and expect a rebound in FY19 only on Jio turning fully pay," CLSA said.