Why Is Reliance Not Selling Jio Phone: Decoding The $4 Billion Game Plan

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After weeks of uncertainty and escalating hype, the Reliance Jio Phone was launched last week amid a lot of fanfare. Touted as a game changer with the ability to completely transform the face of the Indian telecom and smartphone industry, there is undoubtedly a tremendous public interest in this new device.

However, it has now been a few days since the launch event, and we finally have more concrete details about the Jio Phone. So, is the Jio phone indeed a game changer? How will it impact Reliance and its competitors? How will it impact the average Indian mobile user? And more importantly, What’s the game plan of Mr. Ambani by launching a 4G device at such a jaw dropping price, but not selling it?

Let us dissect this significant new development, and assuage how it might impact the nation.

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What Is The Jio Phone?

The Jio Phone is a revolutionary new device recently launched by Reliance Jio. It can be described as a hybrid between a feature phone and a smartphone. The Jio Phone is a 4G only device which will take advantage of Jio’s 4G VoLTE technology to deliver voice, text and data services. It features a 2.4-inch QVGA display, radio, torch, microSD card compatibility and a physical keypad. It will also feature voice commands, support for 22 Indian languages, Jio services as well as NFC capabilities in the near future. The Jio Phone is powered by Qualcomm Snapdragon and Spreadtrum SoCs and will be sim locked to the Jio network. One stand out feature of the Jio Phone is its ability to connect to TVs, allowing users to stream movies/TV shows directly on their television using Jio Services.

So far, the Jio Phone might just appear like a slightly more advanced feature phone. However, Reliance has an ace up their sleeve, and it’s the device’s pricing model. The Jio phone will cost customers Rs 1,500 upfront as a deposit. This deposit is fully refundable after a period of 3 years upon return of the device. What this means is that the Jio Phone effectively costs Rs 0 for consumers. The monthly plans for the Jio Phone are also cheaper. The Rs 153 per month plan offers 500 MB of data per day, along with free voice and text capabilities. There is also a Rs 309 per month plan which enables the Jio Phone’s TV set top box ability.

Reliance Jio Phone: The Game Plan Behind the Offer

At first, it might not appear to be a very profitable move on Jio’s part to just hand over their product for free, but a deeper look reveals the brilliance of Reliance’s marketing strategy. Firstly, by essentially pricing the Jio phone at Rs 0, Reliance will be able to circumvent licensing fees and other taxes. Currently, handsets bundled with services are subject to 11% or 14% licensing fees. Reliance’s strategy allows them to completely avoid this duty.

India has 1.18 billion mobile subscribers and nearly 60% of those users are yet to buy a smartphone. Interestingly, 40% of smartphone users are still hooked to the 2G mobile network. Therefore, nearly 850 million mobile phone users fall under the radar of Reliance Jio. Though Mr Ambnai, has set his eyes on two-third of India’s mobile phone buyers, if we think conservatively, it’s safe to assume at least 10% – 20% of these mobile phone users will buy Reliance Jio Phone within 3-6 months from the time of availability. A simple math will help us to understand that Reliance Jio will collect approximately $4 billion (aprox. INR 2,500 Cr.), evading the tax amount of $440 million – $560 million, eventually ending up costing the Indian government a lot of money.

it’s, however, not all bad news for the government. The Jio phone will be manufactured in India by Intex. Thus, the Jio Phone furthers two of the government’s primary agendas of “Make In India” and “Digital India”.

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Secondly, Reliance may also end up recuperating some of the initial outlay of the device itself. 3 years is a long time period in the smartphone industry. During this time, many customers may end up breaking or losing their Jio phone. This would disqualify them from getting their deposit refunded. Many consumers may have even switched devices by then, and a number might not even care to get their refund after such a long time period. Therefore, Reliance Jio may end up pocketing millions by selling all of those Reliance Jio Phones to users without paying a single penny as a tax to the Indian government.

Thirdly, and perhaps most importantly, Reliance’s long term agenda is not hardware, but software and network services. The Jio phone itself is merely an enabler, and Reliance is not looking to get into the smartphone hardware space. Reliance is banking on getting more customers on their network, and profit from the monthly user fees. They are also looking to propagate their newly launched streaming services such as JioTV, JioCinema, JioMusic etc.

Jio Phone: Big Win For Reliance

Needless to say, the Jio Phone is primed to be a massive success. Despite the rising popularity of smartphones, feature phones still remain the dominant force in the region. In 2016 alone 145 million feature phones were shipped in India, representing 59% of all mobile phone shipments. Forecasts for 2017 suggest this trend will continue, with 52% of mobile shipments expected to be feature phones.

The Reliance Jio Phone offers a genuine opportunity for millions of people stuck on aging feature phones and slow 2G networks to upgrade to 4G, and gain access to high speed internet. Its attractive pricing and focus on basic features should appeal to people in rural areas and Tier 2, Tier 3 cities. This will result in a massive influx of new subscribers onto Jio’s network, who have set an ambitious target of 100 million new users. Adding this to their already existing subscriber base of 117 million would bring them within touching distance of market leaders Airtel.

Of course, Jio also stand to profit greatly by their new influx of customers. The base Jio Phone plan costs Rs 153, which is more than 50% higher than the ARPU from feature phone users of Rs 100. This will help Jio offset the handset cost, and also encourage higher data usage via Jio branded streaming services. Some reports estimate that Jio’s revenue market share will rise from 3-4% to more than 10% by 2018, thanks in part due to the Jio Phone.

However, Reliance also have to be careful to avoid certain fatal mistakes. Any hidden charges or additional costs could immediately sour consumer perception. If the hardware is poor quality, or if many of the services dont work as advertised, the Jio Phone might end up as a very costly mistake for Reliance.

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