Jio's upcoming cheap smartphone might turn out to be damp squib; here's why

Even as the Mukesh Ambani-controlled Reliance Industries is busy signing new deals for its retail and platforms ventures, the conglomerate's deal with Google to develop low-cost smartphones is being actively followed by the telecom industry watchers. "We believe we can design an entry-level 4G or even 5G smartphone for a fraction of its current cost. Google and Jio are partnering to build an Android-based smartphone operating system," Ambani said at the RIL's 43rd annual general meeting in July.

Despite having a fair good start with its low-cost feature phone - JioPhone - the chances of emulating that success with low-cost smartphones might be difficult. How? Indian handset market is divided into two parts: feature phone users and smartphone users. As per IDC, the average selling price of smartphones in India is about Rs 12,000 with just 20 per cent of the smartphone shipments below the price of Rs 7,300.

It's not that Indian mobile users are waiting for a Jio smartphone. In fact, customers are already spoilt for choice when it comes to cheap smartphones. As per Goldman Sachs, the Android-based 4G VoLTE smartphone prices start at around Rs 3,799 with major brands such as Samsung at prices starting around Rs 5,000. "We note that the sub-Rs 7,500 segment is already quite competitive, with the presence of multiple brands including the likes of Samsung and Xiaomi," says the Goldman Sachs report.

"Getting existing smartphone users to switch to Jio's smartphone is going to be challenging due to two reasons. Firstly, customers have a lot of options to choose from at various price points. There will be no monetary incentive for them to shift to Jio's smartphones having similar specs. Then, the easy financing options generally lead to customers upgrading their phones, especially in the smartphones space," says a telecom consultant.

Experts say that just because the product is available for cheap doesn't ensure its success. A classic case is Tata Nano which struggled from the beginning due to the "stigma" of being the cheapest car.

It's now believed that Jio's smartphones can possibly take away a large share of the customers who are migrating from the 2G networks of Airtel and Vodafone Idea to 4G networks. That's because nearly 40 million new smartphone demand, nearly 80 per cent would be in the sub-Rs 7,500 category. With a likely price point of Rs 2,500-3,000, Jio can capture a significant part of this demand.

Though there are doubts that Jio's smartphones would lead to existing 2G (feature phone) customers upgrading to its cheap 4G smartphones. Why? Feature phone market, which has an annual sale of about 80 million handsets, is extremely price-sensitive. The average selling price of feature phones is Rs 720-1,090.

While JioPhone, which is priced below Rs 1,000, has been able to capture 30 per cent of the overall feature phone market, it could not capture a significant share despite offering a device which has more specs (entertainment, social media) than the other feature phones. That's because JioPhone's tariffs are 1.5 to 2 times higher than the 2G tariffs of Airtel and Vodafone Idea. This essentially shows that most feature phone users are not willing to spend a few extra bucks to own better devices.

The other big issue in front of Jio is that over 80 per cent of the smartphone components come from markets like China, Taiwan and South Korea. It could be tricky to develop a locally-built product in the wake of huge anti-China sentiments.

Also read: AGR dues: Can Bharti Airtel and Vodafone Idea afford to increase tariffs?