Jio Phone at Effective Zero Price a 'Clever Marketing Position', Attempt to Avoid Levies: COAI

Cellular Operators Association of India (COAI) has termed the launch of JioPhone a "clever marketing" and said Jio selling the device at effective zero price is an attempt to save government levies like licence fee by the company. Reliance Jio's new 4G-enabled feature phone JioPhone at a fully refundable one-time payment of Rs. 1,500 will offer free voice calls to customers with unlimited data when they recharge their account for Rs. 24 onwards, whereas the full-month service will cost Rs. 153 only.

The JioPhone comes with 'unlimited' Internet data, capped at 500MB per day and access to various Jio services like JioTV, JioMovies, and more. Customers can even connect their JioPhone to a big screen TV using a Jio Phone to TV-Cable if they subscribe to the Rs. 309 Jio plan.

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COAI Director General Rajan S Mathews said Jio's announcement is a bundled offer and the plan to sell the JioPhone at an "effective zero price" is a "clever marketing position" as the move will help the company save licence fees and other government levies.

"Previously, when you bundled handset along with services the 14 or 11 percent that an operator paid as licence fee got imposed on handsets. So as an operator one can't compete with a handset seller because handset seller is not required to pay this extra levy of 11-14 percent," Mathews said.

He said a bundled offer would have increased cost of providing service for operators.

"Reliance Jio offer is clever marketing position... they are saying the handset price is effectively zero. So no licence fee, spectrum usage charge has to be paid on that. Government will have to look at what sale of price for zero means," Mathews said.

Mathews termed Friday's JioPhone launch as "clearly a big win for Jio" that will put pressure on incumbent telecom operators as well as on handset makers to match the offer and cable service providers. Mathews, however, said this might have a bit of adverse impact for Jio as well.

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"For existing (Jio) consumers who are already paying Rs. 303 and above, unless they want to spend additional Rs. 1,500, there is no impact. Of the 120 million customers, some of them might switch to this new plan. In such cases, there will be dilution for Jio from customers paying Rs. 303 moving to Rs. 153," Mathews said.

He said that with the JioPhone launch, data usage is expected to significantly increase.

"There will be a shift also from 2G to 4G. The whole game is going to shift again to high volume, low margin. If you go to that segment where device price was impediment from switching to 4G from 2G, clearly this helps them. But competition is not going to stay put," Mathews said.

He said handset manufacturers will have to scramble to compete with a Rs. 1,500 handset. A top official of a leading telecom company said it is too early to assess the impact of the JioPhone He said that customers may prefer to have choices rather than being "locked into" into a handset for three years.

Also, the offer at Rs.153 a month needs to be seen in the context of three years and whether the consumers are prepared to commit themselves to such an outgo on a monthly basis, he added.

At present, the average revenue from feature phone subscribers is up to Rs. 100 a month, said the official who did not wish to be named.

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Mobile phone companies body Indian Cellular Association (ICA) termed the JioPhone launch as a disruptive move that will expand scope of 4G technology in the country.

"It is a very well crafted package to enable entry-level subscribers to step into the digital data revolution. This package will be a catalyst also for spreading 4G networks into the deeper hinterland," Indian Cellular Association National President Pankaj Mohindroo said.

Samco Securities CEO Jimeet Modi said that considering the size and scale of Reliance it will capture a lion's share of the market and therefore will disrupt many other ancillary businesses also.

"The bigger threat will be the dominance that the company will enjoy over many business processes which will be offered digitally... (It) will be a cause of concern from the country's point of view," Modi said.

He said that the bargaining power that the company will enjoy once the competition is marginalised would be immense which is good for the investors in their long term wealth creation journey but may not be appreciated by the government.

The Jio Phone looks awesome but is there any catch? We discussed that on our weekly technology podcast Orbital, which you can subscribe to via Apple Podcasts or RSS or just listen to this episode by hitting the play button below.