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Aceing The 4G-Game

Reliance Jio isn’t only setting new trends but actually changing the whole game with its 4G-LTE handsets

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What could be the biggest impact of Reliance Jio’s 4G-LTE feature phones? If the handset quality and connectivity are good, Jio may act as a catalyst in phasing out 2G from India. Last month, the company announced the launch of a new phone that offers three-year refundable security deposit of Rs 1,500 and unlimited voice and data at Rs 153 per month. This will have a major impact on the 2G service market that is about Rs 60,000 crore per annum.

Until now, Reliance Jio couldn’t enter this market as it didn’t have a device for this price-sensitive market. The market was ruled by incumbent operators who have largely 2G networks, even though they are shifting to 4G services.

When Reliance Jio launched 4G in September last year, 3G started phasing out from India. The supply of new 3G handsets has, in fact, largely stopped. So when existing 3G smartphone users want to buy new phones, they shift to 4G as 3G handsets are not available in the market. Generally, users are not much bothered about the technology (3G or 4G), they want good speed at low prices which they get from 4G.

It could be the same story for 2G. Reliance Jio’s LTE-feature phones are available for Rs 1,500 (a refundable amount), and they come with unlimited voice and data services. With that offer, Jio has broken the entry barrier. Its monthly tariff is also very attractive.

There are about 50 crore feature phone users in the country and about 20 crore users pay a bill of more than Rs 150 per month. This is the segment that will be the first to jump to Reliance Jio’s offer. “Unlike smartphone customers, feature phone users are not brand conscious. They have no loyalty to a service provider or a handset brand. They look for value for money,” says a former CEO of a large telecom service provider.

It will be very difficult for incumbent operators — Bharti Airtel, Vodafone and Idea — to match the offer. They do not have handsets for this segment and nor do they have the financial strength to give subsidy for 4G feature phones. Moreover, it will be very difficult for them to offer unlimited voice and data as Jio. Reason? The networks of incumbent operators are by and large 2G-based. They do not have enough infrastructure or spectrum to offer unlimited voice and data. While for Reliance Jio’s LTE network, the cost of providing voice is a fraction of a paisa per minute, plus its data capabilities are very good.

There are chances that the incumbent operators will also tie up with LTE phone manufacturers and start offering 4G at similar tariffs as Jio to their existing 2G customers. “The practical solution is to work with the handset industry to bring down the cost of handsets by bringing down the bill of material, so the gap of the announced price of Jio feature phone versus a smart-phone can be brought down to reasonable levels,” said Idea Cellular managing director Himanshu Kapania at an analyst meet. He said a price of Rs 2,500 is ideal for 4G feature phone.

If incumbent operators are able to bring down the price of handsets and match Jio’s tariff, 2G will completely phase out of the country.

The biggest casualty here may be the Indian phone manufacturers. The survival of Indian brands in phone manufacturing would become difficult as the feature phone segment is dominated by Indian brands. The more expensive smartphone segment is dominated by Korean and Chinese brands and Indian companies are only marginal players. It will be difficult for Indian brands to compete with large global Korean and Chinese players. It will be difficult for them to survive as independent brands. They may become original equipment manufacturers of Jio.

If Jio’s phone becomes successful, it will help the company in acquiring substantial revenue from the 2G segment that was out of its reach earlier. If we assume that Reliance manages to get 10 per cent of this user-base (5 crore of 50 crore feature phone users) in one year, it will get a revenue of Rs 9,200 crore per annum. In case of 20 per cent, it will get more than Rs 18,000 crore per annum. “This target can be easily achieved as Jio will be the only operator of this kind of services,” says the former CEO quoted earlier.

However, some analysts feel the price of the Jio phone is an entry barrier. “We do not see Jio being able to penetrate the mass market with the announced offer, as we see the monthly price of Rs 153 and Rs 1,500 initial deposit as still being steep for low-income consumers,” says a Bank of America Merrill Lynch report.

Once the phones are available in the market, non-banking financial companies and finance companies would want to fund LTE phones. “Even without funding, the pricing suits 40 per cent of the 50-crore feature phone users,” says the former CEO.

Incumbent operators have also raised the issue of net neutrality with LTE phones as one can’t download all apps on such phones. Jio’s new phone is, however, a feature phone that comes with pre-loaded apps. Hence, the issue of net neutrality does not arise.

The company is also offering Jio Phone TV cable at Rs 309 per month that will allow three to four hours of video viewing daily. It adds value for customers, especially in remote areas with no cable TV and DTH.

For the success of Digital India programme, access and affordability of high speed broadband to everyone is a basic requirement. However, the feature phone users that constitute 60 per cent of active phone users are generally devoid of broadband, especially in rural areas. Reliance Jio has announced that it will cover 99 per cent of population by the end of this year. This means that affordable phones and services will be available even in remote areas helping government’s Digital India programme.

The new 4G phone gives an edge to Reliance Jio in its fight with incumbent operators such as Airtel, Vodafone and Idea Cellular, who need to make huge investments in their networks and handsets.

‘The Rural Demand Will Increase’

RS Sharma, chairman of Telecom Regulatory Authority of India (Trai), is a pioneer of Digital India. He was responsible for conceptualising and initiating the programme. In a chat with Manoj Gairola,  he discusses the status of the Digital India programme.

Edited excerpts:

Q: You are the architect of Digital India. What is the reason the results of the programme couldn’t reach the masses, especially in rural areas?
Since the commencement of the programme, the broadband numbers have seen a steady increase.

For broadband penetration in rural areas, the government is rolling out BharatNet using the Universal Service Obligation Fund (USOF). Once it is implemented, availability of broadband in remote areas will improve. Interestingly, a few service providers are planning to roll out their networks in rural areas. We will have to wait and see.

Q: Why could the National Optical Fibre Network (NOFN) project, which was supposed to provide broadband in villages, not meet its deadlines?
A Department of Telecommunications  committee identified accountability fears and misaligned incentives for the implementation agency as major issues responsible for massive delays in the project. When Trai did a suo-moto consultation, it emerged that public-private-partnership (PPP) model is best suited for this project. Under PPP model, private sector’s capacity for delivery is combined with the government’s role as an enabler and regulator to overcome market failures. Our understanding is that the implementation of a project such as BharatNet should be done by entities that have their own interest in monetisating the network.  

Q: Why have private players not shown interest in providing broadband in rural areas?
In our recommendations to the government, we have stated, ‘It becomes desirable to structure the private sector’s involvement in a manner that aligns long-term private sector incentives with the State’s social and public service delivery objectives. Such alignment of incentives is possible in a PPP model and can go a long way in reducing the need for extensive and granular public sector monitoring, reducing the state/monitoring agency’s role to simply ensuring outcomes in special circumstances. Bundling construction and operation is efficient as it requires private parties to internalise operation and maintenance costs, generating incentives to design the project in a manner that minimises life-cycle costs’.

Q: Reliance Jio chairman Mukesh Ambani has said that his company will cover 99 per cent of the country’s population by the end of the year. Jio has also introduced a 4G feature phone. Do you think private players are serious in providing broadband in unconnected villages? In the last 20 years, the performance of all private players on this issue has been very poor?
As on March, 2017, there were 136.5 million broadband connections in rural areas, a 27 per cent jump from March, 2015 (107.5 million). We feel the rural income is likely to grow in the near future. The overall development thrust in the country will ensure this. Once it happens, rural demand will also increase. A company planning and deploying the network first will certainly have the first-mover advantage. We want all the operators to offer broadband services in rural areas.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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magazine 19 August 2017 rjio 4g-lte bharti airtel vodafone

Manoj Gairola

The author is editor of TelecomTiger

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