Can Mukesh Ambanis Reliance Jio force rural India to do what other telecom companies couldnt?

Key Highlights

• Jio’s subscriber base to increase nearly 20-80 crore subscribers.
• With the new launch Jio is looking at an effective ARPU of Rs 141 per month.
• JioPhone may boost internet penetration in the country which is still low. 

India's richest man Mukesh Ambani took centre-stage on July 21, 2017 at Reliance Industries Ltd's (RIL) 40th annual general meeting (AGM) to announce JioPhone and in the process threw light at the spectrum of telecom market that the incumbents have long ignored -- Bharat. 

The primary reason for launching the ‘low-cost’ phone, Ambani said, was that majority of mobile phone users in India could not afford 4G enabled smartphones.

“There are 78 crore mobile phones in India. However, let us not forget that in this 78 crore, there are more than 50 crore feature phone users who have been left out of the digital revolution. They cannot avail any benefits of a smartphone, much less the benefits of a 4G LTE smartphone. They can neither afford the cheapest 4G LTE smartphone, nor the exorbitant cost of data charged by existing 2G operators,” Ambani said.

With these words, he launched the cheapest 4G enabled feature phone in India with his daughter Isha and son Akash taking the shareholders and the world through a detailed step-by-step guide of how the phone will work with its features rivaling any upmarket smartphone.  
 
Rural tele-density, as per Telecom Regulatory Authority of India’s latest report, was at 50.41 crore; in comparison urban tele-density was at 67.66 crore.

In percentage terms share of urban and rural wireless subscribers in total number of wireless subscribers was 57.30% and 42.70% respectively at the end of May-17, as per TRAI data.
 
At the heart of this presentation by Ambani was disruption. Therefore, it was apt for him to announce the price of the feature phone like Steve Jobs of Apple Inc did with his presentations. 

“Most of the feature phone users come from rural part of India and there is a huge digital divide in terms of they can’t afford smartphones or they are not literate enough to use them. So they still prefer feature phones. Thus there is still a huge opportunity for feature phones,” Neil Shah, Research Director at Counterpoint Research told Zeebiz.

Ambani said that in order to check misuse, the company will collect Rs 1500 as deposit to be returned after three years. He further said that Reliance Jio aims to supply the market with 5 lakh of these feature phones each week from September this year. 

With an aim to find new customers in Indians who cannot afford internet on their phones, Ambani may have devised a plan to make huge money in a very short span of time. 

A bank of the envelope calculation shows that even if 10 crore of these targeted people pay Rs 1500 deposit for this feature phone, it will leave Reliance Jio with a cool Rs 15,000 crore in its bank account as security deposited locked-in for three years. Ambani is targeting the entire 50 crore feature phone market. 

To do this, Ambani announced a new tariff plans of Rs 153 per month. 
 
“Currently, the 50 crore feature phone users are charged Re 1.2 to 1.5 per min for basic voice calling. They end up spending their entire month's telecom budget of Rs 150 – 200 only to get 150 minutes of basic voice. With Jio's network coverage reaching 99% of India's population and by making voice calls free, this potentially empowers each and every Indian to make free voice calls to any operator anywhere in India,” Ambani said.
 
The rural customers of telcos do not spend much on their monthly recharges (nearly Rs 80), making the urban crowd attractive customers to cater to (GSM ARPU Rs 120). Ambani-backed Reliance Jioi is waking up to the untapped rural demand.

“The Rs70+/month spend segment would be around 35-45% of the 50-55 crore feature phone base, in our view. An incremental addressable market of 17.5-25 crore subs for Jio, in other words,” Rohit Chordia of Kotak Equities Research said in a report dated July 21.

The urgency in Reliance Jio to garner the rural market in India has been visible for quite some time now. 

Jio launched its services in September last year and by December 2016 the share of rural subscribers on its network were abysmally low, amounting to just 5% of its total. Other telcos had nearly 50% of its subscribers stemming from rural areas.

However its rural base grew drastically to 24.05% by the end of March 2017. Jio said it had a total subscriber base of 12.5 crore at the RIL AGM on Friday.

Reliance Jio's rural customers rise dramatically over the past few months