Telecommunication Sector Update - JioPhone Next: Competitive but not aggressive By Emkay Global
JioPhone Next: Competitive but not aggressive
Reliance Jio has launched the much-awaited JioPhone Next at an upfront cost of Rs1,999 (excluding processing fee of Rs501). Customers will have to pay the balance amount in EMIs over 18-24 months. Depending on the selected plan in terms of the data offerings, the monthly instalments range from Rs300 (5GB data + 100 voice minutes per month for 24 months) to Rs600 (2.5GB/day + unlimited voice for 18 months). The phone, which can also be purchased with a bullet payment of Rs6,499, will be available for sale from Diwali. While we believe that pricing is not aggressive enough as per Jio standards, it is trying to play big in the replacement market and middle-of-the-pyramid subscribers as upfront cost and monthly EMI for the non-data users looks high.
Target customers:
Looking at the device cost, we believe that the target audience for this would be mid-segment subs, i.e., customers using mobile phones in the range of Rs5,000- Rs8,000. Apart from first time users, replacement demand could be a big potential opportunity to gain volumes as upfront cost to the consumer reduces meaningfully with EMI offers. As per industry data, average replacement cycle for smartphone in India stands at 20 months. Surprisingly, there is no exchange offer for existing JioPhone users to upgrade. It hints that Jio is looking to create stickiness in the mid-segment user base
Pricing is not lucrative enough for masses:
In our view, the bottom-of-the pyramid/nondata subscribers might not have propensity to pay the upfront cost of Rs1,999 and high monthly EMIs. Considering general usage trends, we believe that potential customers will opt for the 1.5GB/day, or the 2GB/day plan (EMI range of Rs450-550). The outright cost of device is competitive with existing budget smartphones available in the market (Exhibit 9). However, the features mentioned below make it a unique offering.
In the past, even after the launch, the company had slashed JioPhone prices multiple times, which accelerated its acceptance. We believe that there is a possibility of it doing the same through various promotional schemes, if the sales are not up to expectations. The current pricing could also be on account of ongoing supply-side challenges and Jio might want to test waters in terms of acceptance.
Bharti’s positioning:
Based on our calculations, Jio’s plans (adj. for the cost of the handset) on a monthly basis place it at a 16-20% discount (for the most commonly utilized 1.5GB/day and 2GB/day plans) to Bharti’s current offerings. This is similar to the current listed prices. Bearing in mind the upfront cost of Rs6,499 for outright ownership, we believe that Bharti could tie up with handset makers (like the recent cashback offer of Rs6,000 for customers that purchase smartphones priced up to Rs12,000). Strong acceptance of JioPhone Next in the replacement phone market could potentially pose a risk to Bharti’s subscriber base. Long-pending tariff hike would define the next leg of up-move in the stock. We have a Hold rating on Bharti, with a SoTP-based TP of Rs730.
Key features of JioPhone Next
Voice-first capabilities: Google Assistant helps to operate it by just speaking to it.
* Read aloud: Enables users to have any content on their screen read out to them.
* Translate now: It allows users to have information translated into 10 Indian languages.
* Access to millions of apps: It supports all Android apps from the play store.
* Automatic updates: Over-the-air updates for new features, customization & security.
* Easy and Smart Camera with various modes.
* Easily share with friends: Sharing of apps & files, even without internet, using the ‘Nearby Share’ feature.
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