Analysts, Telecom News, ET Telecom

Calcutta: Reliance Industries may need to subsidize consumers to the tune of Rs 15,000 crore over the next 2-3 years if it aims to sell around 75 million units of its next low-budget 4G smartphone, developed with Google, amid rising component costs and shipping challenges, analysts said.

The calculation is based on the estimated subsidy element per unit of the new JioPhone Next at Rs 2,000, which is equivalent to 50% of the probable target cost of Rs 4,000 of the low-cost 4G device. Currently, the cheapest 4G smartphone costs around Rs 3,800, while those of popular brands start at around Rs 6,000, market participants have said.

Analysts added that attracting the bulk of the nearly 300 million multifunction phone users to JioPhone Next will also not be fun for the telecommunications market leader, as pricing is not the only challenge. the adoption of smartphones in India, as value hunters prefer phone features due to their ruggedness, long battery life and less complex user interface (UI).

“Industry sources suggest that Jio is targeting a price of Rs 4k for Jio Phone Next, but higher shipping costs from China and rising component prices, such as in the microprocessor / display ( tariffs), could make this difficult and potentially increase the subsidy element. … The overall grant could be Rs 15,000 crore, assuming 75 million of these smartphones are sold over the next 2-3 years at Rs 2k grant each, ”IIFL Securities said in a note.

UBS brokerage added that although Google and Jio develop a lighter operating system, cost reduction will only be possible in a few areas such as display (around $ 5) and memory (around $ 4), which will make a bill of $ 50, or the cost of the device, elusive.

“Our scenario analysis shows that even though Jio could incur subsidy costs of $ 2-4 billion, improving the subscriber mix and increasing market share could cover these costs in about 1 to 2. years, an attractive proposition in our opinion, ”said UBS.

Jio did not respond to ET’s request for comment.

Reliance Industries shares closed down 2.3% at Rs 2,104.30 on BSE on Friday, while Airtel shares ended 1.2% higher at Rs 535 and Vodafone Idea stock jumped by 10.7% to complete Rs 10.59.

RIL Chairman Mukesh Ambani said Thursday that the Jio-Google 4G smartphone, which will launch on September 10, would make India “2G-mukt”, but did not disclose its likely price. Jio seeks to reach a user base of 500 million users, up from around 425 million currently, targeting a portion of the 300 million 2G mobile phone users currently with Vodafone Idea and Bharti Airtel in 12 to 18 months.

In a report, Goldman Sachs said Jio could add 75 million new users between FY21 and FY25 if “JioPhone Next is launched at prices closer to 2G phones ($ 15-20).” And a price of $ 15 to $ 20 would only be possible if Jio offered a subsidy, analysts said.

Jefferies expects JioPhone Next to attract more existing JioPhone users upon exiting their three-year JioPhone contracts – rather than attracting 2G users from Vodafone Idea and Airtel – and added that such a migration would increase the average revenue per user (ARPU) of Jio, going forward. He ended the January-March quarter with an ARPU of Rs 138.2, against Rs 145 for Airtel.

BofA Securities, however, is more optimistic about the prospects for the JioPhone Next, saying Jio is expected to see an acceleration in its net user additions after September 10 at the expense of Bharti Airtel and Vodafone Idea, and expects the launch to accelerate. budget smartphone acts as an overhang over the share prices of its competitors.

Currently, Vi has around 149 million 2G users and Airtel around 131 million.

Jio had previously attempted to target featurephone users by launching low-cost Lyf-branded 4G smartphones in 2016-17 to attract featurephone users. It went on to launch its own 4G phone called JioPhone, of which around 100 million units have been sold to date.

Edelweiss Research said Reliance Industries’ new 4G phone may not attract a significant proportion of multifunction phone subscribers as the average price of smartphones in India is well over $ 150 and demand for devices in the Rs range. 4000 to 7000 is low.

He added that Reliance Industries’ success with affordable 4G smartphones “has been limited”, especially with Lyf-branded devices.


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