Why do feature phones make business sense for Jio?

Jio’s primary plan for the Jio Bharat 4G feature phone ecosystem is to convert non-data users into data users, thereby tapping the vast 2G subscriber base

On 7 July 2023, telecom operator Reliance Jio fired its latest salvo to procure more subscribers with a long-term network effect. The product in question is a humble feature phone, called Jio Bharat 4G. In terms of its overall features, the device is as basic as what you could expect today, a 1.77-inch display, storage mostly via microSD memory cards, and a physical alphanumeric keypad that has increasingly become a rarity.

Yet, Jio’s ploy behind this new feature phone is multi-faceted. For one, the ‘Jio Bharat’ tag refers to not just one phone; according to Jio, it is the entire platform. The latter is being pitched to manufacturers and third-party brands, who can sign associations with Reliance Jio to make devices for this platform. Eventually, Jio plans to create an ecosystem of devices under this platform, wherein original equipment manufacturers (OEMs) get paid by Jio for offering a supply chain to this brand.

Talks of developing Jio Bharat as a platform were confirmed by Kiran Thomas, President of Reliance Industries in a report published by a business newspaper.

GOING BACKWARDS TO MOVE FORWARD

So, why is Jio eyeing a feature phone platform at a time when smartphones are the norm, and 5G is knocking on the door? The answer lies in the total base of users in India that still use feature phones.

By definition, feature phones are basic, and are mostly used by those who are still not a part of India’s burgeoning data economy. These users are voice-only subscribers of telecom networks. According to market research firm Counterpoint, India still has over 250 million feature phone users. Industry analysts also indicate that Bharti Airtel, Jio’s biggest rival in the country, holds nearly 50% of this market.

UNDERSTANDING THE ECONOMICS

Industry and media reports indicate that the Rs 999 Jio Bharat 4G feature phones do not necessarily make any money for the telco. In fact, Jio is most likely not even looking to make money from hardware here. Rather, the move is aimed at bringing in 2G users from the competition under the Jio fold.

To do this, Jio is offering a bundled Rs 123 monthly recharge plan, which is nearly 25% more expensive than Airtel’s Rs 99 monthly voice plan that the feature phone users mostly subscribe to. However, for this higher-priced monthly subscription plan, Jio is offering content streaming through JioCinema, music streaming through JioSaavn, and access to the Unified Payments Interface (UPI) payment mechanism via JioPay.

Essentially, Jio’s primary plan for the Jio Bharat 4G feature phone ecosystem is to convert non-data users into data users, thereby removing the roadblock of not having a 2G spectrum. The other avenue for Jio to do this would have been to procure spectrum, but the latter has multiple regulatory hoops, is expensive, and in a market that is gradually but adopting 5G steadily, it does not make business sense for Jio to acquire 2G spectrum.

By creating an ecosystem, however, Jio is not only generating revenue but also generating long-term operating margins which in turn will lead to profits. Media reports, citing analysts estimate that overall, Jio will be earning about Rs 5,000 per user in a span of four years.

The Jio Bharat 4G ecosystem could attract 100 million new users over time, enabling the company to earn nearly Rs 50,000 crore over four years.

THE EVENTUAL IMPACT

Assuming that the platform becomes successful, industry analysts estimate that the Jio Bharat 4G ecosystem could attract 100 million new users over time. At the above-mentioned revenue per user, Jio stands to earn Rs 50,000 crore, or over USD 6 billion, from the ecosystem. Therefore, incentivising OEMs to participate by offering a margin for supplying the hardware seems to make business sense for Jio.

The latest edition of the Ericsson Mobility Report, published in June, highlights that India will have over 700 million 5G users by 2028, and Jio is most likely preparing for this; roping in users from the 2G fold will help the company create network effects for digitised services among the users. In time, these users will eventually look to upgrade to smartphones, which will also get 5G across the entire smorgasbord of price brackets of phones in India.

5G, in turn, will also deliver higher per-user revenue for Jio. This, in turn, means that in the long run, Jio could stand to generate far higher revenue than the projected USD 6 billion figure.

CAN AIRTEL KEEP PACE?

By incentivising OEMs to build the platform under the Jio Bharat tag, the company is aiming to kill another bird with the same stone. The move is likely to help Jio move competition away from the feature phone marketplace. Data from Counterpoint showed that Transsion Holdings’ Itel, domestic firm Lava, and the beleaguered version of Nokia, cumulatively hold nearly 80% of the feature phone market as of H1 2023.

By prompting such OEMs to join the Jio Bharat 4G platform, the company could enable better margins than the super-slim per-device margins that feature phone OEMs earn at the moment. This, in turn, will push a consumer towards eyeing the Jio ecosystem as the one that has more compelling choices in the feature phone industry.

But Jio Bharat 4G feature phones are network-locked, which essentially means that Jio will, over time, direct ample compelling options away from Airtel’s potential customers. If the latter comes looking for a new feature phone in the years to come, Jio wants to be the tag visible on retail shelves.

Airtel, on this note, may have its task cut out — it will, of course, look to rival the platform with offers that see its 130 million-plus 2G feature phone users upgrade to Airtel’s own 4G network, and not migrate to Jio.

How, though, would that pan out? Only time will tell.

Author- Vernika Awal

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