Reliance Jio's plan to launch a 4G phone at a market-low price of $12 to capture the broadly untapped entry-level 2G market in India will disrupt the bottom of the consumer pyramid, but not spark a price war reminiscent of its first such move in 2016, analysts said on Tuesday.
Jio, late on Monday, unveiled an entry-level phone, called Jio Bharat, that is equipped with internet services such as digital payments to reach the roughly 250 million 2G users yet to migrate to smartphones.
The prices for call and data plans were significantly lower than prices for similar plans by top rivals, Bharti Airtel and Vodafone Idea that, per brokerage Emkay Global, had 111 million and 103 million 2G subscribers, respectively, at the end of fiscal 2023.
While Airtel's and Vodafone Idea's shares fell 2%-3% on fears of a price war, analysts were not as sure of a race-to-the-bottom price war that broke out when Jio first disrupted the market with ultra-low prices in 2016.
In fact, the bruising price war that followed eventually led to telecom companies, especially Airtel, focusing on higher-paying customers to shore up their revenue. Airtel and Vodafone Idea recently hiked prices of their entry-level plans in some service areas.
Kotak Institutional Equities does not expect Airtel to roll back those hikes but said Vi could be more calibrated in further tariff hikes.
"The launch ... could potentially raise concerns on rising competitive intensity even at the lower end, especially when incumbents have (recently) raised the prices for entry-level packs sharply," Kotak analysts said.
However, JPMorgan said Jio's "disruptive" move would prevent further tariff increases for 2G plans and could help it gain market share after the fading success of its JioPhone Next device, launched in 2021 as a successor to the 2016 JioPhone.
Morgan Stanley said Airtel was better positioned than in 2016 to weather Jio's new attack.
"While the price point is competitive ... we do not view this as immediately disruptive for Bharti but would be watchful," the brokerage said.
It expects Jio will take 15-16 months before breaking even on a user.
Shares of Jio's parent Reliance Industries, an oil-to-retail conglomerate, were down about 1%.
Jio's launch also comes about a month after India's cabinet approved a $10 billion revival package for loss-making state-owned telecom operator Bharat Sanchar Nigam Ltd (BSNL) to help deploy 4G and 5G services.
(Reporting by Indranil Sarkar in Bengaluru; Editing by Savio D'Souza and Dhanya Ann Thoppil)