JIO’s bid to seek fortune at the bottom of pyramid in Indian telecom sector: IIFL Capital Services

5 Jul 2023 , 10:33 AM

JIO’s move to target the bottom-end of the market through JIO Bharat Phone (JBP) comes at a time when its peers have raised entry-level pack prices, and amid a slowdown in 2G-to-4G conversion cycle. While JBP handset pricing and pack pricing are attractive, analysts of IIFL Capital Services believe that it would most likely appeal to feature phone (FP) users close to the end of the useful life of their handsets. If analysts of IIFL Capital Services assume that 50% of Bharti FP users at the end of their replacement cycle move to JBP, Bharti est. 2.5% Ebitda hit in FY25 is manageable. The above 50% assumption is contingent upon JIO’s seamless execution. While JIO’s move suggests continued competitive intensity, it does not incrementally worsen the tariff hike outlook since most of the Street (including us) was not factoring in a direct tariff hike in FY24.

JBP handset and pack attractively priced: 

JBP is attractively priced at Rs999; comes with no complications like security deposit (analysts of IIFL Capital Services estimate no subsidy as well) and is pre-loaded with JIO Cinema, JIO Saavn and JIO Pay. With limited browsing capabilities and no app store, JBP is largely targeted at the bottom-end of the market and positioned even below JIO Phone (sales stopped 12-18 months back). The 28-day plan is priced at Rs123 — at a 20-30% discount to peers’ comparable plans, despite offering significantly higher data allowance.

JBP likely to appeal to users changing FP: 

Analysts of IIFL Capital Services do not see FP users who have recently changed their handset switching en masse to JBP. However, FP users looking for a replacement (FPs typically have long useful lives of 4-5 years) may find JBP attractive, if they are willing to trade off the flexibility to change their telco. Analysts of IIFL Capital Services estimate that FP replacement market is ~50mn p.a., of which 40% are on Bharti’s network.

JBP’s success would also depend on initial user experience: 

When JIO first launched JIO Phone a few years back, lack of support for popular apps, teething issues such as overheating and supply-side constraints, limited its offtake initially. While JIO has roped in partners to address supply issues for JBP, initial user experience would play a key role in JBP’s success. JIO’s beta-testing for 1mn users would help address some of these issues, especially since JBP comes with custom OS.