Why a VoLTE Feature Phone Makes Sense for Reliance Jio
It has been almost four and a half months since Jio launched its services to the public. According to RIL’s latest Q3 financial report, Jio’s subscriber base has reached 72.4 million as of December 31st, 2016. I’m pretty sure that before their free offer ends on March 31st, 2017, Jio would have more than 100 million SIMs sold. One would presume that with Jio having sold 100 million SIMs, their target of achieving 100 million subscribers is done but as I have explained in my previous article, the number of SIMs sold is hardly indicative of the number of *actual* subscribers Jio has managed to gain.
There have been reports of Jio producing a VoLTE feature phone. Some people have expressed their thoughts on why they think a VoLTE feature phone from Jio makes no sense at all. To some extent, they’re right, after all, a 4G network and a feature phone are diagonally opposite. On one hand, a 4G network is the very best in telecom technology whereas a feature phone seems outdated like the 2G networks they run on. However, upon further thought, it becomes clear why a VoLTE feature phone from Jio makes sense and in this article, I’ll try and explain the same.
1. They have done it before & need to expand the market
One must remember the past venture of Reliance in telecom. When RIL entered the telecom field in India somewhere around 2003 or so with a CDMA network, they launched a flood of cheap CDMA handsets that came bundled with free talktime. So a cheap VoLTE feature phone from Reliance wouldn’t be the first time they take such a step as they have already done so in the past.
The next thing to keep in mind is Jio’s target of 100 million subscribers. As I said, Jio’s current numbers are just about the SIMs sold and are hardly indicative of the number of actual subscribers the telco has managed to get. The problem over here is the total size of the market, by virtue of being a 4G only operator, Jio can cater only to people who own a 4G smartphone. In my previous article, I had estimated that the total number of 4G smartphones in circulation in India is somewhere around 100-120 million and there’s absolutely no way Jio can command 80% of this market considering that other telecom operators are also expeditiously rolling out their own 4G networks.
For the sake of this article, let us presume that by the middle of 2017, the total number of 4G handsets in circulation rises to 150 million. Even then, for Jio to have 100 million subscribers, would mean to grab 66% of the market which is extremely unlikely as no operator in India has been able to command more than 40% share in either 2G or 3G. There are four serious contestants for 4G in India, namely, Vodafone, Idea, Airtel and Jio. Optimistically, each would have 25% each of the 4G market but even if one or two of the operators have more than 25%, the maximum they would be able to reach is 35-40%.
Even if you feel my calculations are flawed, just think about 3G for a moment. It has been almost 6 years since 3G has launched in India and yet no single telecom operator in India has been able to gain more than 50 million 3G subscribers. I’ll agree that 3G smartphones were expensive at the start, but their pricing has depreciated quite significantly in recent times. In six years, no single Indian telecom operator has managed to bag more than 50 million subscribers. For Jio to capture 100 million subscribers in less than one year would imply that Jio gets an adoption rate of 12 times over its 3G peers. While the smartphone penetration is higher and prices are much cheaper now, it’s still nowhere enough to facilitate a 12 times uptick in adoption.
One solution for Jio would be to wait for the market forces to play out so that 4G handsets increase organically as component prices keep falling and more and more feature phone users jump onto the 4G smartphone bandwagon. But that would require Jio to wait for more years in order to achieve its 100 million target and would give its competitors more time to improve and expand their 4G networks thereby nullifying Jio’s first mover advantage.
The second solution for Jio would be to get down on the field and expand the 4G base themselves and that’s what I believe they are going to do with the 4G VoLTE feature phone. Instead of waiting for the market forces to play out, Jio is going to expand the base themselves. The problem here and the solution are very reminiscent to Reliance’s CDMA network launch. When Reliance launched a pan-India CDMA network, one of the limiting factors was that almost no manufacturer was making CDMA phones because of the royalties they had to pay Qualcomm, so Reliance started making CDMA phones themselves and sold it at dirt cheap prices. Some people would argue why a feature phone? Why not a smartphone? I’ll explain that in the next section.
2. Price is not always the limiting factor
People feel that price alone is the limiting factor when it comes to smartphone uptake. There is truth in the fact that as prices of smartphones keep falling, adoption keeps increasing but price alone isn’t the limiting factor. There will always be a particular set of Indians that will use feature phones alone and nothing else, and sooner or later, this set is going to start emerging and custom solutions to cater to this set will need to be formulated.
For a lot of people, the learning curve of using smartphones is simply too steep and they have been resisting smartphones all the while. It helps to keep in mind that it has been close to 6 years since Android smartphones started making their impact in India and a lot of people chose not to jump on board the smartphone train, not because of the price, but because of the learning curve associated with using a smartphone. For people reading this article, coming to terms with the fact that using a smartphone can be difficult would be tough, after all, most of us devote the vast majority of our time to smartphones and simply feel that it’s an integral part of our body that we know about in and out. However, outside of our cities and towns, there are a vast number of people for whom using a smartphone is still a rocket science and these people will continue to stick with feature phones no matter how cheap the smartphones become. To have a brief glimpse of how tough it is for some people to use smartphones, read this article from TechCrunch. Having a VoLTE feature phone will help Jio serve this market. If Jio can combine the simplicity of feature phones and make them run on their 4G network then obviously there’s a reasonable chance these customers would jump.
In the case of customers using 3G smartphones, they have already had a taste of apps and compared to 2G, relatively high-speed data. The probability of these 3G users making the jump to 4G smartphones with better specs is much higher than the feature phone users and to cater to this demographic, Jio already has its LYF series of devices.
3. Countering AVoID
Apart from serving the feature phone market is the aspect of crushing AVoID (Airtel, Vodafone, Idea). If you notice, one aspect of Jio has been to deprive AVoID of its revenue sources, that was the prime reason behind Jio making its voice services free as that would instantly render 75-80% of AVoID’s current revenues useless.
But ever since AVoID revealed their response to Jio, one thing has been clear. They’re very carefully taking a hit only for their 4G customers and no one else. Take, for example, the recent revision in data plans. The revisions have been made in such a manner that AVoID gets to maintain its margins on the feature phone and 3G customers. For example, the recent Rs 345 plan by Airtel gives 1GB 3G data for 3G handsets and 4GB 3G/4G data only if someone has a 4G handset. It helps to know that before Jio launched, Airtel’s 1GB 3G data pack was 245 to 255 depending on the circle.
So if you look at it, the 345 plan isn’t really that much of a gain for 3G users in terms of extra data apart from the free voice calls that are bundled. Now when it comes to voice calls as well, some people will on an average make calls at a cheaper rate than what they had paid before but some people will also be paying extra involuntarily, especially the teenagers. I just make voice calls worth around 50-70 bucks every month even without any rate cutter, so in the 345 pack; Airtel would actually make a handsome margin of 30-50 out of teenagers like me.
AVoID CEOs in several interviews have made their approach to Jio clear. They’ll have buckets and modular offerings. Buckets are what AVoID would be offering its 3G/4G customers to prevent them from jumping to Jio but the modular approach of charging separately for data packs, voice, rate cutter etc will continue in case of 2G only handsets. Even in the case of buckets, AVoID is obviously giving the better bucket to 4G customers than the ones they’re giving to 3G only customers. So AVoID will be able to maintain its legacy margins in case of 2G/3G customers while having to lose margins over 4G customers alone. Having a VoLTE feature and its LYF series of phones will allow Jio to address the market that AVoID has restricted to modular plans i.e. the feature phone users and make sure that AVoID bleeds from all sides.
4. Recent regulations and Jio being a digital company
Most people presume that Jio is taking a loss on its VoLTE feature phone and that may indeed be true but there are many ways for the company to recoup its losses. First of all, people must take into consideration the recent Free data recommendations by TRAI. The regulator has recommended providing 100 MB free data per month to people living in rural areas and operators would be reimbursed for this from the USOF fund.
As of now, Jio has the broadest 4G coverage in the whole of India by virtue of its low band 850 MHz band. If Jio were to release a Rs 999 VoLTE feature phone, then a large number of it will be used in rural areas where Jio’s network would reach.
This 100 MB free data can be spent in any way the end user deems fit and the Jio VoLTE feature phones would come pre-loaded with a lot of Jio apps such as Jio TV, Jio Cinema etc. It wouldn’t be a stretch to assume that some of the people that use their free 100MB data for using the Jio apps would be compelled to spend even more from their own pocket and buy a data pack.
Lastly, if there’s one thing that all of us keep forgetting, it is that Jio likes to see itself as an all solution encompassing digital company and not just a telecom operator. A large part of Jio’s investments has gone into making content and services. Apps like Jio TV literally contain all the channels of a DTH operator in it. Just think about the amount of money Jio must have spent into licensing all of this content for the Jio TV app. Then there’s Jio Music and a plethora of other Jio apps such as Jio Money, Jio Mags, Jio newspaper etc.
In essence, Jio has already spent a substantial amount of money into building “digital solutions” hoping that these digital solutions will pay off in the long run. Now if so much of money has been spent on apps and services, it only makes sense for Jio to invest money into end terminal devices that would make these apps and services as widely available as possible and the end terminal device that would truly expand the reach of Jio’s apps and services would be the Rs.999/1500 Jio VoLTE feature phone.
The best part would be that these Jio VoLTE feature phones would most probably be running some custom OS with no app store, so customers would by default be locked onto Jio’s apps and services. This only makes the case for Jio’s VoLTE feature phone only stronger.
There are a lot of reasons to suggest that a Jio VoLTE feature phone is now almost a done deal and I’ve explained the same in this article. Now, when this VoLTE feature phone will be launched by Jio and how well the market receives it remains to be seen. But one thing is for sure, if Jio does indeed release a VoLTE feature phone and it turns out to be a hit, then it will have huge ramifications for the overall smartphone market. The current feature phone users who are avoiding smartphones for its complexity will get a way to consume content while at the same time resist smartphones through the Jio VoLTE feature phone and if that happens, then the growth of the smartphone market could indeed fall.