Mr. Mukesh Ambani’s announcement on Jio’s objective of making India “#2G Mukt” or “2G Free”, comes with their plan to launch entry-level 4G handsets. One of the articles I was reading in Wire mentions - “Their plan is to win over 350 million 2G feature phone users by launching a smartphone at a fraction of the current cost. ”
The number of 2G subscribers is indeed a huge opportunity for #Jio, which only offers 4G services currently. They can only gain. Along with #Google, they are not only planning big, but also aiming at a December ‘20 launch.
The opportunity to Jio is a threat to #Voda #Idea and #Airtel who are sitting on 2G subscriber base of 174 million and 135 million respectively. Voda Idea stands to lose more, both due to their higher number of 2G subscribers as well as their higher % of 2G users to the total subscriber base. To give an idea of the ratio of 2G subscribers to total subscribers, it stands at 60% for Voda Idea as compared to 47% for Airtel.
Both Airtel and Voda therefore need to come up with a counter strategy to protect their 2G subscriber base from the Jio attack while trying to upgrade this base to 4G on their own network. Both need to quickly undertake a case study of the Jio success story, their business model and a SWOT analysis.
Threats for Airtel/Voda Idea
1. #Reliance Jio’s past experience in direct product sourcing and supply chain makes it easy for them to launch these 4G phones. Airtel/Voda Idea on the other side have no such experience.
No device distribution network/team. They could leverage the existing brands in the sub Rs. 5k price. What they need is an advisor/experienced leader and team with contacts in the channel to set up everything for them. And set them up fast. This may however take some time and it is best that they initially tie-up with existing brands who play in the sub Rs. 5k price segment like the Indian brands, #Itel etc. These brands have an existing supply chain of products, immediate access to all the channels and team.
This may be an issue if they don’t do it fast, as I feel Reliance though capable of making and selling phones directly, will block Airtel and VI’s efforts by committing volumes and booking capacity of these brands.
They could later shift to buying and selling directly, if required.
2. Match the power of Reliance’s offerings. The phrase “Devices at a fraction of the current cost” says a lot. Airtel/VI have to not only learn from the Jio story but also lean heavily on their insights on these 2G customers who did not shift to 4G in the first wave.
Opportunities for Airtel/Voda Idea
1. I feel the standalone price of Rs. 4000 for the Jio phone, as is being talked about, may be high for the conversion to happen in volumes. Just to make a point here – while the #Jio1 got a great response, the response to the #Jio2 at Rs. 3k was relatively much lower. Of course Jio with its new partnerships with Google and #Facebook/#Whatsapp, and other offerings in terms of low down-payments, financing, relevant etc. could negate these to some extent. The “Device at fraction of the cost” phrase again comes to mind. Can Jio bring it down substantially, and if yes, how is the question!
2. A lot of the 2G customers may still not be willing to move to 4G – specially the elderly, those badly affected by COVID-19, those looking at long battery life and a small-sized phone.
3. The resistance of old users to move to a new operator if they get an interesting offering from their existing operator. Number portability at this level may not be that known/understood and users may prefer to stick to their existing network.
4. The targeted campaign the two operators can do for these customers as they have their data and pattern of usage with them. Jio does not.
Moving on to the survey I had floated, here are the findings:
1. 44% of the respondents feel that one could expect a shift of more than 25% of 2G users to 4G in the first year. In numbers it means 88 million! Well. That is huge! To set things in perspective the overall Indian Smartphone market was 152 million in 2019.
To give a broader range, close to 90% respondents expect a minimum shift > 10% which is also 35 million.
Shows a lot of confidence in Jio’s capability to convert. Voda India and Airtel have a serious reason to worry here.
2. What do the respondents feel could drive a high conversion in order of importance:
a. At the top is a low cost device with a price point not too far away from what a 2G feature phone user is willing to pay too. This was obvious. The typical 2G user today is more stretched on cash/income than he was a year back. Cost will therefore play an important role. “Fraction of the cost” makes sense here.
To give an example, if one has to go purely on price offerings, the respondents feel that a Rs. 2500 SIM locked phone as is being talked about by Airtel is a better option than a Rs. 4000 SIM locked phone planned by Jio. I am not taking into consideration the offerings around the devices which could change the result in favour of Jio. And that is a strong possibility.
3. In fact many respondents still feel that a 4G Smart-feature phone on the lines of the Jio1 phone with #KaiOS stands a better chance than a Rs. 4000 smartphone. Are we looking at a Google Android and a KaiOS device together?
Here is what the respondents had to say:
a. Even at a low cost the device(s) should come with options of low down payment or EMI/financing options to lure the customer to possess a device at a low price initially.
b. A support by the government in reducing the tax would be great. How about reducing the GST till a particular slab to 6% instead of 18%. The 12% difference is big for this customer and can be a game changer.
c. If one has to choose between ‘Pay for content’ with free data and pay for data and free content, the former will work better.
d. Battery life followed by a simple UI is key to the adoption of smartphones by the 2G users.
4. 80% of the respondents feel that 2G will not only take a major hit (as also mentioned in my 1st point), but that 2G will become much less relevant by end 2022. From operator perspective as well, this is bound to happen with operators wanting to farm 2G spectrum to 4G to generate higher ARPU.
5. 2/3rd of the respondents feel that Voda Idea and Airtel should also launch their own devices or tie-up with brands to launch devices to move their 2G subscriber base to 4G on their own network. As mentioned earlier, they may not have a channel but can ride the channel of an existing Indian brand with whom they can tie-up and support in volume commitments, funds for a strong supply chain and marketing etc.
6. Moving on to the channel most suited to reach out to the 2G customers ,the non-exclusive mainline stores with their extensive spread and operator/their group company stores are the best option as per respondents.
7. 60% of the respondents feel that the launch of these entry-level devices will impact the sales in the next higher price slab primarily between Rs 5k-Rs. 9k with users tight on funds (due to the current economic scenario) preferring to buy the entry level devices for their value for money. The value would be the hardware quality, experience and offerings on the device where Jio stands to gain with their association with Google.
8. To the question on which brands would be impacted the most with the entry of these entry level phones, the response is #Xiaomi, followed by the Indian brands. So the one at the top and the ones at the bottom. The Indian brands can still make it up in case they tie-up with an operator as ODM in generating volumes through that route. As they are a part of the companies shortlisted for #PLI, they could pass on the incentive in terms of a better price without losing their standard margins. For me, Xiaomi and #Realme need to stay alert here.
This may just be the beginning of operators getting into Smartphones to upgrade 2G customers to 4G. The involvement of operators in moving up the price ladder in 4G is not ruled out. I read about Airtel venturing into 4G smartphones and it did not say entry level only.
In fact, Jio is already talking about going beyond the entry level 4G phone to an entry level 5G phone. After all Jio’s partnership with Google and #Qualcomm and Facebook/Whatsapp is the best combination one can dream of in the backend. In the front end is Reliance Retail, the biggest mainline retailer by revenue and #Jiomart getting into smartphone sales online soon.
However, to develop a decent 4G smartphone for a highly price sensitive 2G phone user meeting minimum hardware and quality standards is not going to be easy. Not even for Jio.