India's disruptive new telecom entrant Reliance Jio, backed by the country's richest man Mukesh Ambani, unveiled a low-cost 4G-enabled phone on Friday to woo tens of millions of new clients, further destabilising legacy telecom players.
Jio has enjoyed a meteoric rise since its launch a year ago, with its months of free services and sharply discounted plans battering the fortunes of incumbent telecom players in India such as Bharti Airtel and Idea Cellular, who have seen revenues and profits shrink dramatically.
Despite Jio's rapid rise, funded by mega profits churned out of parent Reliance Industries' core refining and petrochemicals operations, it has been unable to tap over 500 million non-smartphone users in India, who still rely on old feature phones to make calls and send text messages, as its network only supports 4G-enabled phones.
Reliance sees the new handset, named JioPhone, allowing it to target India's entire telecom user base.
The new phone will "effectively cost zero" as buyers will be able to get the device for a one-time refundable security deposit of Rs. 1,500, said Ambani, chairman of Reliance Industries, announcing the launch at the conglomerate's annual shareholders' meeting.
The announcement, which was greeted by applause from shareholders in a packed auditorium in south Mumbai, sent shares in rivals Airtel and Idea down 2.0 percent and 3.3 percent, respectively.
Jio's disruptive pricing of the new phone and its online content partnerships could further weigh on the sector's already dismal earnings and put pressure on lenders' loanbooks.
Earlier this year, the Reserve Bank of India (RBI) said the telecom sector's earnings had deteriorated to the point that it was untenable for telecoms players to even cover the interest costs tied to loans.
"They are getting people hooked to the data with the content," said Varun Khandelwal, managing director, Bullero Capital. "Airtel, Vodafone do not have such bandwidth to give free phones, or the kind of content that Jio has."
Reliance shares closed up 3.7 percent after touching a nearly nine-and-a-half-year high in trading following the meeting, where the company also announced a one-for-one bonus share issue.
Ambani said the new device will begin to hit store shelves from August 15. Voice calling will be free on the JioPhone, while unlimited data packs will cost Rs. 153 a month.
"The offer is quite compelling, as the phone has a lot of compelling features," said Nitin Soni, who covers the telecoms sector for Fitch Ratings.
Jio already boasts more than 125 million users, making it the world's fastest growing tech firm, and has added customers quicker than even the likes of free services like Facebook and its popular messaging service WhatsApp, said Ambani.
It has propelled India to become the No. 1 data consumer worldwide surpassing both the United States and China, he said.
"My sense is that they are looking at between 150 million and 200 million subscribers within the next 12 months," said Fitch's Soni.