The recent announcement of Jio to supply its new phone free of cost to users who are ready to deposit Rs 1,500 with the company for three years is seen as a big development in the telecom market. If this becomes a success, the tide of battle will turn from the present smartphone to the newly evolving VoLTE feature phone segment -
The current Indian telecom market is going through a disruptive phase, brought in by the launch of Rs 1500 VoLTE Jio phone. So much so that the feature phone segment is now seen likely to contribute the majority of mobile phone shipments in 2017. The migration to smartphones is expected to further slow down due to the introduction of low-cost 4G feature phones and its continued relevance to its sizeable target consumer.
“It’s a welcome change in the Indian market, which will shift millions of 2G telecom network consumers to the high-speed 4G network. Also, the cheaper cost will habituate the Indian market for higher data consumption. While this will impact the players working under 30 USD product lines on short term, this will fuel the growth for smart phones and data consumption on the long term. Hence we see a big potential growth in the lower segment and Tier 2 to Tier 4 market,” says Ashwin Bhandari, CEO - iVOOMi India.
With this development, domestic handsets makers will surely launch LTE feature phones to counter Jio offering. “But that is going to be an uphill task for them as Bills of Material (BOM) cost doesn’t allow them to compete with Jio at this point unless subsidized. To bring the cost down they might tie up with other operators going forward and bundle the data with 4G feature phones. Alternatively they can be an EMS to the operators launching their LTE feature phones,” says Karn Chauhan, Research Analyst - Mobile Devices & Ecosystems, Counterpoint Research.
Will 2017 be a challenging year then?
If not for all, but the year 2017 will be a tough year for handset vendors. Though many feel that the impact of this Jio phone launch on the smartphones market growth will be minimal as there are no features or specifications in the Jio phone that can actually impact the buying or sales of other smartphones.
Like Ashwin who still sees a consistent growth in the Indian smartphone market. “This market has seen the highest growth globally for past 2 years and is likely to continue with similar growth pattern. We see the market under 50 USD growing much faster, which will take the development in smartphone industry exponentially.”
Counterpoint also estimates the smartphone market to increase by 11% in CY 2017. This will be primarily driven by installed base of 3G smartphone users who are looking to upgrade to 4G smartphones in short term.
However apart from the Jio effect, another setback for the smartphone category is the recent news of the IT Ministry asking 21 smartphone makers, majority of them being Chinese manufacturers, to share the procedures and processes they follow to fortify the security of data and Smartphones sold in India. This comes on the heel of the recent escalation in the number of security issues and data leakage reports, indicating that these smartphones might not be safe.
Imran Merchant - Product Head - Fox Mobiles however opines that in India, feature phone sales have always defied the pundits. Especially with the new category of 4G feature phones with WhatsApp/browsing and streaming capabilities on the rise, the feature phone market growth is expected to continue strong. “By this we don’t mean that smartphone growth will plateau; it might slow down in the lower segments. In a way, these 4G feature phones are nothing but cheap smartphones without a touch screen, which we believe is not as bad as it sounds. Hence, the internet penetration is continuing.”
It is also true that in a country like India that faces constant power outrage and bandwidth issue, merely introducing an Rs 1500 phone is not enough. It is the combination of service quality, the coverage that would together be necessary for running a phone.
“I was going through a survey analysis, which revealed that 30% of smartphone users are still not using 4G services. This is quite surprising, because while it is important to give them a device that can help them get into that category, it appears from the analysis that people are still not aware about it. Even if they have a device, either they are still not aware of how to use the browser or they are intimidated of using a smartphone. So yes there is a segment of population that can be pulled out and can be taught to use a smartphone, but again the proper awareness should be there. Simply introducing an Rs 1500 phone is not sufficient. There is a multiplicity of factors in deciding of how soon the Indian populace will start adopting the smartphone or a 4G phone,” points out Rajan S. Mathews, Director General – COAI.
But irrespective of what the industry says, the Jio Phone will indeed have an impact on the sale of feature phones, at least for the time being. Majority of customers that will be swayed are smartphone users looking for a second phone and users buying phones (both smartphones and feature phones) between Rs. 1000 to Rs. 3000 and having a monthly expense of Rs. 100 on mobile services. Another important thing to keep in mind here is that the Jio Phone will be locked to the Jio network.
“Currently 5% of total smartphones are less than INR 3000 and primarily within smartphones only this segment will be competing with VoLTE feature phones. Smartphone players in sub INR 5000 are looking to launch affordable VoLTE smartphones with bundled data to compete with VoLTE feature phones. Other strategies include trade-in in entry level smartphone segment to attract smartphone to smartphone upgrade which wasn’t happening earlier. Having said that we believe much of the VoLTE feature phone users will upgrade only from 2G feature phones. Additionally, people will have VoLTE feature phone as an additional device,” states Karn Chauhan, Research Analyst - Mobile Devices & Ecosystems, Counterpoint Research.
“We see the Jio Phone as something healthy for the mobile industry as it will empower and democratise the internet by making it available to the lowest rung of the market at a relatively low cost,” reiterates Imran. “Yes, Jio is selling the device at approx. Rs.300 below its cost price (Assuming the Rs.1500 “deposit” will for the most part not be claimed by the customer as the device will not last for as long as 36 months!). But, the real innovation that they have brought to the table is the low cost of internet and calling and their strategy to recover the cost of the phone from this.”
Counter strategy to beat the Jio impact...
“We expect to still be competitive with the Jio phone because we are confident that this increased awareness will only broaden the market, rather than choke it. We are already working on a number of models in a similar price bracket, and some even above it. One particular segment we are focusing on is our mini-series of phones which can fit in your wallet and they synchronise with your smartphone. We plan a 4G iteration of it with all the features of the Jio Phone. These models will be contract-free and hence will give the customer more freedom to choose their operators,” says Imran.
“Also, knowing how Jio has worked in the past, their model is to disrupt a market and set a standard, then let the other manufacturers take over from there. We hope to capitalise on this as well. Many other brands have already embraced this fact and have a segment like this planned in their roadmaps, not to compete with the Jio Phone, but to benefit from it,” he further adds.
For a new entrant like Infinix that is just starting its journey in the India market, it does not sense any competition as because they are talking to a different set of customer altogether. The company is eyeing a 10 per cent share as its initial plans. “We are already in the end of 2017 and one of the key things as Transsion or as Infinix understands is that India is an emerging market and so we really want to invest here and focus here because I think that’s where the growth is going to come from,” says Anish Kapoor, CEO - Infinix India.
He further says, “I don’t think there is a competition at all, because we are talking to a different customer set altogether. 1500 Rs buyer is not our customer. We are talking to people who really want a different level of experience and so our Target audience is completely different and we are not really competing with Jio.”
Lava that has a significant presence in the feature phone category has been aware of this upcoming disruption by Reliance in the market in the form of 4G enabled feature phones. “To ensure that we stay ahead of the curve, we started our journey of building a robust sales and distribution infrastructure focused towards selling differentiated and experience led products,” says Gaurav Nigam, Senior VP, Head of Product, Lava International Limited.
Lava launched its high experience smartphones led by the “Z” series of phones in March 2017, and have continually invested in R&D capability. “As a company, we have also invested in Area Sales Officers on Lava payrolls and will continue to hire these officers who will visit 1.5 Lakh LAVA retail outlets every month. We plan to take our Relationship Executives count up significantly, by end of this year. On the technology front, Lava now has the capability to track all handsets even at a retail outlet level. This facility will be used to ensure that no high ageing stocks are kept at any retail outlet. With our robust R&D capabilities, we had launched the Lava 4G Connect M1 which is India’s first 4G feature phone at an affordable price,” he says.
iVoomi is similarly working on customised offerings for the first time smartphone users with buying power of less than 3500 Rs. One such offering was recently released with 22 regional languages and a complete smart phone as Me4 and many such offering are further lined up. “We are looking to upgrade 4G/2G feature phone consumers with a smart phone at a small gap, as low as 500 Rs, the same can be launched in Q1 of 2018. We are waiting for the 4G feature phones to reach the consumer and get the ground level feedback on the features and expectations directly from the users. All that will help us make a better product that will be well accepted by the market,” explains Ashwin.
As a part of its plan, Zopo will also be launching some budget friendly low end 4G smartphones, and some very cost effective 2G feature phones. Reason being, even after Jio introduced the free 4G network, the number of 2G customers is more and acceptability of 2G Feature phone is still prominent and that will give the competitive edge.
“One of the major setbacks of it is that, for the Jio phone, Rs 1,500 cost is being taken from the customer, thus binding the customer for 3 years. We have a very focused plan and we will stick to it as we understand the need of the young generation of India, they want something new, something unique and innovative with loads of features and that is what will be our focus in the future,” says Sanjeev Bhatia, CEO – Zopo Mobile.
Reliance Jio feature phone also does not have any impact on Panasonic because Panasonic has phones in the 6k to 25k range. “Now assume a scenario where a customer buys a smartphone. A Rs 6000 Smartphone user will never buy a feature phone. Secondly these phones will not have WhatsApp as a feature and India cannot run without WhatsApp. So as of now Panasonic doesn’t need any counter strategy,” says Manish Sharma, President & CEO - Panasonic India & South Asia.
This is however just the beginning though, as many more manufacturers are gearing up to launch 4G feature phones. Spreadtrum, whose chips are used in the new Reliance Jio handset, has also revealed that another 4-5 brands are in talks to launch similar feature phones powered by its chip.