Telecom battle shifts to cheap phones

This far, when telecom companies upgraded to the latest generation communication networks, their focus was to tap into their best paying customers. Only these customers were willing to pay the extra bucks to use the newer services and could afford the latest smartphones that took advantage of the upgraded network. The first 3G and 4G services were launched in selected cities and scaled up slowly to more zones. That’s because the newer networks came with an upfront cost.

But, with the launch of Reliance Jio, which offered free voice services, the action has now moved to finding innovative ways to push the frugal telecom services customer to consume more data. This bunch of users, totalling 500 million or about half of India’s mobile telephony users didn’t use data as they couldn’t afford buying the expensive smartphone which costed upwards of Rs 5000.

With the launch of the Rs 1500 feature phone that can double up as a TV set top box, Reliance Jio has set the cat among the pigeons. For one, the customers who buy this phone and subscribe to the Rs 153 monthly subscription will be able to make unlimited free voice calls within the country. They can even recharge their subscription of Rs 24 or Rs 54, if they can’t pay for the entire month at one go. They will also be able to consume video and audio content through Jio apps that comes bundled with the phone. They will also be able to view the content on the phone in a television with a cable that can be purchased with the handset.

The 4G LTE network that the phone connects to allows for better experience while using facebook and whatsapp, which can be installed in the device. The device can even connect to Wi-Fi, which has become essential as several agencies like the railways offer free Wi-Fi to satiate the growing hunger for data among Indian customers.

Launching the phone, Mukesh Ambani, chairman and managing director of Reliance Industries said: “Data is the oxygen of digital life, and no Indian should suffer because of unaffordability," he added. "Sadly the vast majority of mobile users are starved of data. This unfairness must end, and Jio is committing to ending it today." Ambani announced the plans for the Jio smartphone in its 40th annual general meeting in July and has already begun shipping the phones to customers who pre-booked them shortly afterwards.

Jio moves are shaking up competition. In October, India’s biggest mobile telephony player, the Delhi-based Airtel announced a more versatile and cheaper smartphone for Rs 1399 that will allows users the flexibility of downloading apps for Google Store. Its plans start from Rs 169 which will give the user 512MB of data usage per month and free voice calls. Both the companies offer cash back for the value of the phone, if the customer recharges or uses the phone continuously for specified periods, bringing down the cost of ownership for the customer.

Says Raj Pudipeddi, director of Consumer Business and chief marketing officer of Bharti Airtel: “As the market leader and pioneer of 4G services in India, Airtel’s aspiration is to digitally empower every Indian with high speed data access. We are delighted to partner with Karbonn to remove barriers to smartphone adoption and enable millions of Indians to leapfrog to a full touchscreen smartphone experience. “

Vodafone, India’s second largest player, has tied up with Micromax to launch Bharat 2, a 4G enabled phone running android software, which will be available to customers at an effective price of Rs 999 after cash backs. Handset manufacturers Nokia, which is now owned by Swedish firm HMD global, has announced intentions for making a data enabled feature phone to compete with other players in the market. The phones offered by Airtel, Vodafone and Nokia will better the Jio phone as they are designed to be cheap but fully functional smartphones.

The logic behind the frenetic activity is not hard to see. The latest 4G networks sport the new VoLTE (voice over long term evolution) technology. These networks, unlike the earlier 2G and 3G networks, carry voice as data packets and result in consumption of data. The throughputs of these networks, which are backed up optic-fibre network rather than the older radio network, are much higher.

So, given a certain network capacity and its associated recurring costs, companies only have to drive greater and greater utilisation of their networks to make more money. If any usage of the network capacity brings money, it is welcome. The data driven feature phones in the hands of 500 million Indian is expected to do exactly that. In a report on the Jio feature last month, equity research firm Edelweiss said that India’s mobile handset market is dominated by feature phones, which constitute ~64% of total handsets and ~55% incremental handsets—RJIO’s prime target. It added that the potential fallout of JioPhone’s success is likely to impact voice revenues of incumbent operators.

The reasons are again not hard to see. This far, these customers were only used to voice services, which is now being offered by nearly all these networks. For the first time, these customers are going to experience data services on high speed network, which will bring a lot of entertainment and other services in their hand, which were hitherto premium services for them.

When Jio offered its high speed data services for the first time for free in September last year, it quickly ramped up to over 100 million customers. With the lure of free voice, companies feel that there is again an opportunity to grab more customers in semi-urban and rural areas or at worst, stop existing customers from leaving their networks.

The battle has just begun.