Home > Finance > RIL may need to offer Rs 15,000 crore subsidy to attract users to JioPhone Next: Analysts

RIL may need to offer Rs 15,000 crore subsidy to attract users to JioPhone Next: Analysts

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may need to subsidise consumers to the extent of Rs 15,000 crore in the next 2-3 years if it targets selling around 75 million units of its upcoming budget 4G smartphone, developed with Google, amid rising component and shipping costs and supply challenges, analysts said. The calculation is based on the estimated subsidy element per unit of the new JioPhone Next at Rs 2,000, equivalent to 50% of the likely Rs 4,000 target cost of the low-priced 4G device.

Currently, the cheapest 4G smartphone is priced at around Rs 3,800, while those from popular brands start from around Rs 6,000, market players said. Analysts added that attracting the bulk of the 300 million-odd feature phone users to JioPhone Next won’t be a cakewalk either for the telecom market leader, as pricing is not the only challenge to smartphone adoption in India, given that value hunters prefer feature phones due to their ruggedness, long lasting battery and less complex user-interface (UI).

“Industry sources suggest Jio is targeting a Rs 4k price-point for Jio Phone Next, but higher shipping costs from China and rising component prices, as in micro-processor/display (rates), could make this challenging and potentially raise the subsidy element…the overall subsidy could be Rs 15,000 crore, assuming 75 million such smartphones are sold over the next 2-3 years at Rs 2k subsidy apiece,” IIFL Securities said in a note. Brokerage UBS added that even if Google and Jio develop a lighter OS, cost reduction will be possible only in a few areas such as display (around $5) and memory (around $4), which will make a $50 bill of materials (BOM), or cost of the device, difficult to achieve. “Our scenario analysis shows that while Jio could incur subsidy costs of $2-4 billion, the improved subscriber mix and higher market share could cover these costs in around 1-2 years, an attractive proposition in our view,” UBS said.

Jio did not respond to ET’s request seeking comment. Shares of Reliance Industries closed 2.3% lower at Rs 2104.30 on the BSE Friday, while Airtel shares ended 1.2% higher at Rs 535 and the Vodafone Idea stock jumped 10.7% to end Rs 10.59. On Thursday, RIL chairman Mukesh Ambani said the Jio-Google 4G smartphone, to be launched on September 10, would make India “2G-mukt,” but did not disclose its likely pricing. Jio is looking to achieve a 500-million user base, up from its around 425 million now, by targeting a bulk of the 300 million 2G featurephone user base currently with Vodafone Idea and Bharti Airtel in 12-18 months. In a report, Goldman Sachs said that Jio could add 75 million new users between FY21 and FY25 if “JioPhone Next is launched at price-points closer to 2G feature phones ($15-20).”

And a price point of $15-20 would only be possible if Jio offers a subsidy, analysts said. Jefferies expects JioPhone Next to appeal more to existing JioPhone users coming out of their three-year JioPhone contracts – rather than attract Vodafone Idea and Airtel’s 2G users – and added that such a migration would boost Jio’s average revenue per user (ARPU), going forward. It ended the January-March quarter with an ARPU of Rs 138.2, compared with Airtel’s Rs 145. BofA Securities, though, is more upbeat about the JioPhone Next’s prospects, saying Jio is likely to see an acceleration in its net user additions after September 10 at the expense of Bharti Airtel and Vodafone Idea and expects the budget smartphone launch to act as an overhang on its rivals’ share prices. At present Vi has some 149 million 2G users and Airtel around 131 million. Jio had previously made attempts to target featurephone users by launching in 2016-17 low-cost Lyf branded 4G smartphones to attract feature phone users.

It followed that up by launching its own 4G feature-phone called JioPhone, around 100 million units of which have been sold so far. Edelweiss Research said Reliance Industries’ new 4G phone may fail to attract a significant proportion of feature phone subscribers, since the average smartphone price in India is well over $150 and demand for devices in the Rs 4,000-7,000 range is low. It added that Reliance Industries’ success previously with affordable 4G smartphones “had been limited,” especially with the Lyf branded devices.

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