UBS On How A Low-Cost Smartphone Will Change Jio, Rivals’ Fortunes

Reliance Jio Infocomm. Ltd.’s plan to launch a $50 or Rs 3,500 smartphone will not only help it gain market share at the expense of rivals but also accelerate India’s 4G penetration and telecom sector’s average revenue per user, according to UBS.The phone will increase 4G penetration by 15% and will add 5-10% to sector average revenue per user by 2023-24, according to a research report by UBS. Jio will gain 400 to 500-basis-point subscriber market share if it can maintain exclusivity on the device for 12-18 months, it said.The impact on Bharti Airtel Ltd. should be moderate but Vodafone Idea Ltd. risks losing 200-bps market share, the report said.Jio is collaborating with Google LLC, which is expected to provide a lighter operating system, and Qualcomm for the processors, according to the UBS report. These two companies acquired 7.73% and 0.15% stake in Jio Platforms, respectively.What’s In It For JioThe key motivators for a cheap smartphone would be to accelerate the migration of 2G and feature phone users to smartphones, which will expand ARPU and accelerate market share gains for Jio, UBS said. It will also help Jio to manage churn in the JioPhone segment, one of the key reasons for Jio’s recent slower net additions.India still has 43 crore 2G subscribers as of January, according to the telecom regulator’s data. Migrating these users to 4G is a key driver of ARPU and revenue growth for the sector. At an assumed ARPU of around Rs 55, the user base of 2G subscribers forms around 15-20% of industry revenues. An increase in ARPU for these users could lead to significant revenue expansion for operators, UBS said.The cheapest smartphones in India are currently priced at $90-100 (Rs 6,300-7,000), which makes it difficult for feature phones users, who typically spend $20-30 per device (Rs 1,400-2,100) to upgrade, UBS said. A cheap smartphone would allow at least part of these feature phone users to upgrade, potentially leading to higher ARPU.There are 5-6 crore JioPhone users and it’s unlikely that they would downgrade to feature phones. A UBS survey in 2019 showed that they were more satisfied with the handset than other feature phone users. Also, more than half of JioPhone users wanted to upgrade at the next purchase.UBS has forecast two outcomes on how market shares could change.Outcome 1If the low-cost smartphone is not exclusive to Jio, it will increase market share from around 37% in 2020-21 to around 43% by 2023-24.Bharti Airtel and Vodafone Idea’s subscriber shares will fall from 29% and 24%, respectively, in 2020-21 to around 27% and 21% by 2023-24.Outcome 2If the low-cost smartphone is exclusively tied to Jio, its share will increase to around 45% by 2023-24.Bharti and VIL subscriber will fall to 26% and 20%, respectively.Why Losses Won't Be A Big Deal For JioAccording to the report, the manufacturing cost will be higher than the planned retail price of $50; and reducing costs won’t be easy. Even if Google and Jio develop a lighter OS, bringing it down to $50 will be difficult.UBS expects Jio to incur subsidy costs of $2-4 billion (Rs 14,000-28,000 crore). But, the report said, it makes sense for Reliance to launch a device at this price range while absorbing some losses. The potential long-term benefits in the form of accelerated market share gains, improved subscriber mix, and ARPU increase from a faster 2G to 4G migration could cover these costs in around a year or two.How Smartphone Makers Could ReactAccording to UBS, India’s largest smartphone maker Xiaomi is unlikely to follow up with a $50 smartphone because user experience and relative value are paramount than to offer a phone-based purely on price.Xiaomi will likely try to raise India smartphone average selling price to global with higher-specification phones. But if Reliance’s $50 phone proves to be successful, the Chinese company that makes in India will lose some share at the lower end, UBS said.

UBS On How A Low-Cost Smartphone Will Change Jio, Rivals’ Fortunes

Reliance Jio Infocomm. Ltd.’s plan to launch a $50 or Rs 3,500 smartphone will help it gain market share.

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