Jio Phone: Reliance Jio Said to Be Subsidising Cost by 40 Percent

Jio Phone deliveries have started across the country, with the device being “essentially free” after a refundable security deposit of Rs. 1,500. But it turns out that Jio achieved the the Rs. 1,500 (roughly $23.05) price point after subsidising the cost by as much as 40 percent.

The handset costs at least Rs. 2,500 (approximately $39) to assemble, a good Rs. 1,000 less than what the customers have to shell out for Jio Phone, according to two sources familiar with the matter. This means the company will likely carry more than $150 million in costs for every 10 million Jio Phone units sold.

The company has a subscriber base of approximately 128 million consumers, and one of the sources says it is aiming to raise the user base to 250-300 million in the next two years. Some Reliance Industries investors may flinch at the cost of subsidies, but the scale of the outlay is a clear signal of the level of Jio’s ambition, as it targets an audience of some 500 million who still cannot afford smartphones in India.

Reliance Industries did not respond to a request for comment.

Jio’s advanced voice over LTE (VoLTE) network only works with 4G enabled devices, inaccessible to many even at subsidised rates. The significantly cheaper JioPhone, however, will open the Internet to a less affluent segment of Indians for the very first time.

“The 3,000-rupee smartphone was not cutting it,” the second source said. “Reliance is making a bold attempt with this phone and data will be the key driver for them.”

Analysts estimate a majority of Indian feature phone users have an average revenue per user (ARPU) of Rs. 50 or lower. JioPhone’s Rs. 153 monthly plan for so-called pre-paid users aims to drive up this ARPU, the first source said.

Over half a dozen wireless carriers compete for market share in major Indian cities, but Reliance, the first source said, sees the telecom market being winnowed down into a three player market with just Jio and current leader Bharti Airtel and the Vodafone-Idea combine likely left standing.

The JioPhone is currently being manufactured in China, based on a unit reviewed by Reuters, but Reliance is likely to tap the likes of Foxconn and Flextronics, which have facilities in India – to assemble it in the country, a Reliance executive told Reuters previously.

The phone’s chipset, being supplied by Qualcomm and China’s Spreadtrum, is likely to be its most expensive component while batteries are likely to cost $3-$4, the first source said.

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