India’s Reliance Offering Deeply Discounted Phone

Jio, the telecom upstart of India’s Reliance Industries is covering a minimum of 40% of the cost for its basic 4G smartphone, said two sources who are close to the situation, as it is betting on recovering that investment through enticing millions of new smartphone customers.

The new JioPhone, which this week started to roll out for a deposit of 1,500 rupees or $23 that is refundable, costs a minimum of 2,500 rupees or $39 just to assemble, said sources.

What that means is Jio will have costs of over $150 million for each 10 million of its JioPhones sold, and the smartphone company is hoping to build a subscriber base of 250 million to 300 million users over the next couple of year, said the same sources.

Some of the investors in Reliance might second guess the cost of its subsidies, but the grand scale of that outlay is a clear sign of the level of ambition at Jio, as it focuses on an audience of more than 500 million who are still not able to afford other smartphones across India.

The advanced voice over Jio LTE network works only with devices that are 4G enable, inaccessible to many regardless of the subsidized cut rate prices. The JioPhone, which is significantly less expensive, however will open Internet to a segment of less affluent Indians for just the first time.

One analyst said that the company’s 3,000 rupee phone did not do the trick, so Reliance has made a bold attempt with its new JioPhone and has bet big on data being its key driver.

Market analysts estimate that a majority of users in India of feature phones have revenue on average per user (ARPU) of just 50 rupees or lower.

JioPhone’s 153 rupees per month plan for pre-paid users is aiming at drive up the ARPU said sources.

Jio, which is backed by the richest man in India Mukesh Ambani, has been able to amass over 128 million subscribers since launching in 2016, through offering cut-rate data and free voice for months.

Wireless carriers, which number over a half dozen, compete for India’s market share in its major cities, but Reliance sees today’s telecom market being whittled down to just three players and only Jio and Vodafone-Idea combining and Bharti Airtel, the current leader, left remaining.

The JioPhone is being manufactured at this time in China, but Reliance likely will tap Flextronics and Foxconn, which have India facilities to assemble the phone domestically.