Reliance's bundling offer for iPhone: Do other telcos have incentive to follow?

Reliance's bundling offer for iPhone: Do other telcos have incentive to follow?

An Apple Iphone 5S for Rs 2,999. If you run up a mobile and Internet bill of at least Rs 3,000 a month, two years of network loyalty to Reliance Communications can fetch you an iPhone 5S costing Rs 53,500 effectively for Rs 2,999. Such bundled offers-which mostly entail an operator subsidising the cost of a handset with free network minutes-are a staple in several developed markets.

In India, though Reliance has laid down the gauntlet, bundled handsets are far from becoming the staple, with operators divided down the middle on taking it up. At the heart of it, such offers boil down to one number: the minimum monthly usage required to appeal to a consumer, which is Rs 2,500 in the case of Reliance's iPhone offer.

Data of how many such consumers are in India is unavailable. A crude proxy is the number of post-paid consumers, which, according to Mohammad Chowdhury, the India leader on telecom for PricewaterhouseCoopers, is a big barrier to the bundled handsets model. "The post-paid base is very small, less than 5%," he says. Or, about 40 million of the 800 million customers.

That line is, today, determining operator positions on bundled handsets. The three operators who have most of those 40 million post-paid subscribers-Bharti, Vodafone and Idea-don't see reason to make the second move, says Kamlesh Bhatia, telecoms analyst, Gartner. Their networks are reasonably occupied and they have a loyal pool of postpaid customers, most of whom, in normal circumstances, would baulk at the idea of switching to Reliance. Bharti and Vodafone declined comment, while the Idea spokesperson pointed to the company's other bundled deals going.

But, at the other end of the spectrum, there are operators whose networks are going empty. Some of those operators see bundled handsets as a way to attract customers. They are weighing the costs and benefits, and plotting a move. Reliance has fired the first salvo. Elsewhere, Russian operator MTS, according to its spokesperson, is lining up a December launch for handsets costing "$150-200" (about Rs 9,000-12,000).

Last month, Aircel started offering Micromax handsets. "Telecom service providers are looking at multiple methods to keep the momentum going," says Sunil Kuttam, vice president-marketing, Aircel. "Given this scenario and the popularity of bundled devices in western markets such as the US, bundled smartphones are now gradual ly making their way into India."

Any ramp up, however, will not be easy, as such arrangements take an operator away from their core, into managing handsets. According to Prashant Singhal, telecom partner in a member firm of Ernst & Young Global, a consultancy, this model can be adopted for smartphones at any price above Rs 15,000, but operators are circumspect.

"Anyone who will massify this will burn their fingers," he says. "Carriers will not be keen to take on any unwanted debt (buying handsets) or credit risks to recover that debt."

MANY KINDS OF BUNDLING

There are, generally speaking, three kinds of bundling. The first kind is what has been seen in India, where an operator offers free minutes with a handset. The second is the US model, where an operator offers a phone at a big discount in return for your custom. The third is what Reliance is doing.

The Reliance-Apple model is an intricate one, which insulates it from some of the risks that Singhal mentions. In this, a buyer makes a down payment of Rs 2,999 (for a 16 GB iPhone 5S), and walks away with an iPhone that works only on the Reliance network for two years. Every month, she has to pay Reliance Rs 2,999 as usage charges, Or, about Rs 72,000 over two years, for which she gets unlimited calls, messages and data. But the buyer does not pay the Rs 2,999 every month to Reliance. Instead, the entire amount is blocked on her credit card.

This amount reduces by Rs 3,000 a month, for 24 months. The risk of default is borne not by the operator or the handset maker, but by the bank. The country's "small number" of credit card holders-18.4 million, according to data from RBI in August-is another barrier for volumes in such offers, says Chowdhury of PwC. According to Gurdeep Singh, chief executive officer of Reliance, the company has been "swamped" with inquiries and purchase requests, though he declined to share exact numbers on the scheme's sales so far. "The offer is in line with our strategy to become a dominant data player, and to create, and take, a larger share of smartphones and tablets that come into the market," he says.

Although Singh admits that less than 5% phones in India are sold bundled with services, he believes bundling will catch on and co-exist with the unbundled sales model. "We will reach a tipping point if we can achieve 20-25% sales through bundling (industry-wide)," he says.

BURDEN OF BUNDLING

news by November 19, 2013 at 08:06PM