Why analysts expect Reliance Jio to cut JioPhone Next price

Reliance Jio Infocomm Ltd. has priced its budget smartphone, JioPhone Next, higher than expectations and that may deter an upgrade for low-cost users.

The current pricing doesn’t offer any material incentive for feature phone or JioPhone users to upgrade to JioPhone Next, according to analysts from research houses such as Jefferies, Kotak Securities and Emkay Global. That’s because low-cost or non-data subscribers might not have the inclination to pay the upfront cost and monthly EMIs.

Besides, Bharti Airtel Ltd.’s recent offer of providing a cashback of Rs 6,000 on several smartphones seems compelling and less costly for a customer on an overall basis than JioPhone Next, the analysts said.

The Mukesh Ambani-led telecom operator unveiled the new budget phone, co-developed with Google, on Nov. 4 at Rs 6,499 ($87). That’s higher than the earlier estimate of Rs 4,000. Buyers, according to a company statement, will also have the option of purchasing it on instalments after an upfront payment of Rs 1,999 and a processing fee of Rs 501. There are four EMI payment plans ranging between Rs 300 and Rs 600 over 18-24 months.

Emkay estimates the total cost to consumers through various EMI options at Rs 9,700–13,300.

The higher pricing, according to analysts, could also be on account of the ongoing chip shortage. The carrier may reduce the price as availability of handsets improves with supply chain normalising or through various promotional schemes if sales are not up to expectations.

Pricing conundrum
Screen size, processor speeds and battery capacity of JioPhone Next are lower than entry-level smartphones, analysts said.

According to Kotak Securities, the comparative pricing of bigger-screen entry-level devices such as Redmi 9A, Realme C11 and Samsung M02 with similar financing scheme and with no upfront payment may make it difficult for JioPhone Next to become the smartphone of choice at lower-end 4G subscribers.

Jefferies said JioPhone’s specifications are fairly similar to other smartphones in the sub-$100 price range and inferior to devices in the $100-120 (Rs 7,500-9,000) price range. So, downtrading among smartphone users using devices priced greater than $100 is unlikely.

Costlier plans
JPMorgan said the announced pricing plans for JioPhone Next are 11-18% above current plans offering similar data usage.

At current pricing, Jefferies said, the addressable market is likely to shrink by more than 80% to 10.5 crore low-end smartphone users. “The financing option implies 2.5-3% monthly interest rate, which is fairly high.”

According to Emkay, the target audience for JioPhone Next would be mid-segment subscribers — customers using mobile phones in the range of Rs 5,000-8,000. “The bottom-of-the-pyramid subscribers might not have the propensity to pay the upfront cost of Rs 1,999 and high monthly EMIs.”

Other brokerage views
Dolat Analysis said Jio and Bharti Airtel’s offers are not ARPU (average revenue per user)-dilutive and do not involve significant subsidies. But the competitive intensity to grab customers will continue.

Jio’s weak subscriber performance in August and September, coupled with potentially weak take-up of JioPhone Next (till Reliance cuts its price), may lead to delays in tariff hikes, said Jefferies.

Strong acceptance of JioPhone Next in the replacement phone market could potentially pose a risk to Bharti Airtel’s subscriber base, Emkay said. BloombergQuint