The market leader Reliance Jio has announced two new plans for low-end users. These plans are for JioPhone users - priced at Rs 1,499 and Rs 1,999 for one year and two years, respectively. Both plans offer JioPhone handset, unlimited calling and 2 gigabytes (GBs) of data per month. The plan is for existing users as well who can pay Rs 749 for one-year validity.
The launch of these plans highlights two things. First is the Jio's aggressiveness to add more subscribers. Second is an unlikely hike in tariffs across the industry for the time being. For instance, for the past couple of quarters, Jio has been lagging behind its archrival Airtel in terms of subs additions. Between July 2020 and December 2020, Jio added just about 0.8 million subscribers whereas Airtel added 1.88 million subscribers during the same period. These plans, experts say, are primarily aimed at hitting the subscriber base of both Airtel and Vodafone.
"We see the following reasons for Jio's renewed aggression in these offerings targeting bottom-of-the-pyramid subscribers: significant moderation in subscriber additions in the last few months; an inability to make any major headway in the post-paid market despite aggressive efforts made in September 2020; free voice calls across networks as a result of zero IUC [interconnect usage charges]; delay in launching low-cost 5G smartphone; and fear of losing current JioPhone users whose three-year security deposit payback scheme is coming to an end," said a recent report from Emkay Global Financial Services. As per estimates, out of around 130 million JioPhone users, over 40 million will have their three-year lock-in period ending in the first half of CY21.
Since last year, incumbent telcos Vodafone Idea and Airtel have been hinting at a possible tariff hike to improve their financial situation which has been affected by the AGR (adjusted gross revenues) dues. Jio reportedly has not planned to join the bandwagon due to slower subs addition. Experts say that these plans might put an end to the conversations around tariff hike for some time. Jio's move is likely to hit the Vodafone Idea harder as Airtel is presently focusing on the premium end of the market.
In India, the telecom market is largely divided into three segments: postpaid, middle segment, and bottom-end. Last year, Jio tried to improve its postpaid penetration by slashing tariffs. But it could not make a significant dent to the subs base of Airtel and Vodafone. Middle segment, which is primarily prepaid, is the largest chunk of the market. Jio doesn't want to touch the tariffs in this segment as it might directly impact its profitability. The new JioPhone plans are focused at the bottom-end of the market which are highly sensitive to the tariffs, and don't have loyalty to any specific brand.
However, these plans come at a cost for Jio. As per Emkay Research, the telco will have to give subsidy of Rs 1,479 on the one-year validity plan and Rs 1,956 on the two-year validity plan - assuming that the cost of handset for Jio is Rs 2,000.