Analysts believe that Reliance Jio’s move to introduce a 4G phone at a remarkably low price of $12, targeting the untapped entry-level 2G market in India, will disrupt the lower segment of consumers. However, they do not anticipate a repeat of the intense price war that occurred when Jio first entered the market in 2016.
On Monday, Jio unveiled the Jio Bharat, an entry-level phone designed to provide internet services, including digital payments, to the approximately 250 million 2G users who have yet to switch to smartphones.
Compared to similar plans offered by its top rivals, Bharti Airtel and Vodafone Idea, Jio’s call and data plans are significantly cheaper. Emkay Global reports that Bharti Airtel and Vodafone Idea had 111 million and 103 million 2G subscribers, respectively, at the end of the fiscal year 2023.
While Bharti Airtel and Vodafone Idea experienced 2-3 percent decline in their shares due to concerns over a potential price war, analysts are skeptical about the likelihood of such a scenario. The price war that ensued after Jio’s initial disruption in 2016 ultimately led telecom companies, particularly Airtel, to focus on attracting higher-paying customers to boost their revenue. Recently, Airtel and Vodafone Idea increased the prices of their entry-level plans in certain service areas.
Kotak Institutional Equities does not anticipate Airtel rolling back those price hikes, but it suggests that Vodafone Idea may implement more measured tariff increases in the future. Analysts at Kotak expressed concerns about rising competitive intensity, especially in the lower segment, considering the recent price hikes for entry-level packs by incumbent players.
However, JPMorgan believes that Jio’s disruptive move will prevent further tariff increases for 2G plans and could assist the company in gaining market share, following the diminishing success of its JioPhone Next, introduced in 2021 as a successor to the 2016 JioPhone.
Morgan Stanley suggests that Airtel is better positioned now than it was in 2016 to withstand Jio’s latest challenge. The brokerage states that while the price point is competitive, it does not immediately view it as disruptive for Bharti Airtel but will closely monitor the situation. Morgan Stanley predicts that it will take Jio around 15-16 months to break even on a user.
Jio’s launch coincides with the Indian cabinet’s approval of a $10 billion revival package for Bharat Sanchar Nigam (BSNL), a state-owned telecom operator that has been incurring losses. The package aims to support the deployment of 4G and 5G services by BSNL.
