Key highlights:

  • Reliance Jio may provide subsidies of around Rs 640-970 per handset
  • Reliance Jio will launch the 4G feature phone around September or October
  • We may see 3G being shut down in metro markets sooner than later

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There may be more bad news coming telecom players in India, as Reliance Jio could get at least 50% of the subscriber base for incumbent telcos with the company launching its low cost 4G feature phone. Reports have emerged that Reliance Jio will be launching a 4G VoLTE feature phone priced at just Rs 500.

“Given Jio’s aspiration to own 50% of the market, it is a matter of time before it launches low-cost 4G feature phones in an attempt to expand 4G market. This may be the right move as competition is still catching up on 4G coverage and yet to deploy voice over LTE (VOLTE),” said analysts Rajiv Sharma and Darpan Thakkar in a HSBC Securities report.

If Reliance Jio prices the 4G feature phone between Rs 500-800, such a pricing may imply subsidies of around $10-15 (around Rs 640-970) per handset, said the report.

Source: HSBC Securities

It added that given Jio's $29 billion so far in the telecom venture, this 4G entrant would have any hesitation in giving such a high subsidy.

The report estimates that Reliance Jio will launch the 4G feature phone around September or October as it will be targeting the rural markets.

Rural markets are linked to farming and thus have seasonal cash-flows with their cash collection months being October and February when they harvest and sell their produce in the market.

However, the impact of Jio's 4G feature phone on other players depends on several factors. The first being the extent of subsidy which Reliance Jio is willing to spend per handset and the overall target volumes. For instance, if the subsidy is too high, it will make it tough for competing handset vendors to respond with their own cheap 4G feature phones any time soon.

Source: HSBC Securities

“Nonetheless incumbents may still have some respite, as we expect handset players across the board launching low-cost 4G feature phones, at least by 30-40% post Jio launch in anticipation of the large volumes this segment may see,” said the analysts.

This will help incumbent telecom players to some extent and may limit the disruption in the telecom market as there will be other handset players.

Source: HSBC Securities

The second thing that the incumbent telcos have to worry about is that they have not yet deployed VoLTE capabilities. While most of them are getting ready, only Airtel is much ahead compared to the rest on a 4G launch.

“It will come in handy for all incumbent telcos if 4G feature phones allow for 2G voice fallback. This may allow incumbent telcos more time to not only deploy VOLTE but to ensure it works seamlessly on their network,” the report said.

The low-cost 4G feature phone by Jio may imply that incumbents possibly have to vacate the existing 3G and 2G spectrum for 4G. Moreover we may see 3G being shut down in metro markets sooner than later, say the analysts.

“If the 4G feature phone roll-out is executed well, Indian wireless market may see 4G becoming the primary technology for the Indian wireless space and significantly boost consumption of online videos going forward in our view,” they said.

Source: HSBC Securities

The reason why 3G may come to an end is that they believe that there is a good amount of overlap between 3G and 4G users and, in most cases, the same subscriber is using both 3G and 4G subscriptions.

The total wireless data subscribers are estimated at 370 million, out of which 3G and 4G combined is estimated at 250 million or 65% of the total data subscriber base.

“Our analysis suggests that human penetration for 3G/ 4G is around 18% and 3G/ 4G combined represents 54% of the total data market, with the rest of data subscribers still on 2G. A low-cost 4G feature phone is bound to change this mix and we may see 4G becoming the primary technology for the Indian wireless market which has been predominantly a 2G market for the last two decades. Such a move may not only drive data consumption but significantly boost consumption of online videos going forward in our view,” say Sharma and Thakkar.