A $12 phone is opening doors for rural India to get on the internet

The world may be moving on to super-fast internet speeds on 5G or even 6G, but masses in rural India are still stuck in the 2G era.

All that could change with a new $12 phone from Reliance Jio this week.

The telecommunications arm of Indian conglomerate Reliance Industries, has opened the door for more people to gain access to the internet through the launch of its new internet-enabled phone with a 4G mobile network. Feature phones are essentially non-smartphones that have a push-button keypad and a small non-touch display.

Reliance Jio’s new feature phone aims to reduce the mobile connectivity gap between rural and urban India by giving non-smartphone users a cheaper alternative to switch from 2G to 4G mobile networks. 

“There are still 250 million mobile phone users in India who remain trapped in the 2G era, unable to tap into basic features of the internet at a time when the world stands at the cusp of a 5G revolution,” Reliance Jio’s Chairman Akash Ambani said in a press release. 

5G refers to the next-generation mobile networks that offer data at very high speeds, and are needed to support advanced technologies like driverless cars and virtual reality.

The new phone, named Jio Bharat, serves as an entry-level phone for first time internet users that would just rely on the basic functions without being convoluted by the endless number of applications that can be found on a smartphone, Varun Mishra, senior analyst at Counterpoint Research, said. 

India is already the world’s second-largest smartphone market and is likely to add 300 million new internet users, making it the fastest country to provide internet services to those who remain unconnected, Mishra said. 

“With a familiar form factor and internet connectivity, this device can help users experience key services like digital payments, content, and more for the first time through Jio’s ecosystem,” Mishra told CNBC.  “However, screen size can limit the experience a bit, but still good for first-time internet users.”

Jio has an upper hand against its competitors in the telco service space, such as Vodafone Idea — a partnership between Aditya Birla Group and Vodafone Group — as well as Bhati Airtelas and BSNL. 

Apart from selling the phone at an extremely low price point, monthly plans from Jio are also very affordable — and the other telco companies could even start losing customers, Mishra highlighted. 

Reliance Jio claims that their monthly plans are 30% cheaper than other telcos, and offer customers seven times more data. 

Paying $1.50 will get users unlimited voice calls and 14 gigabytes of data, compared to almost $3 for other voice calls and just 2 gigabytes of data from other operators, Reliance Jio’s press statement claimed. 

This is Jio’s tactic to attract more feature phone users to sign a plan with them even though they only offer 4G and 5G mobile network services, according to Navkendar Singh of the International Data Corporation (IDC). 

There are about 250 million feature phone users in India, and many of them still use 2G phones and only for voice calls, according to Mishra.

Reliance Jio attracts these consumers and take them away from “legacy operators” by offering more “palatable” price plans, Singh told CNBC in a phone interview. 

“From what we understand, the main objective for Jio is to get more customers on the Jio platform and the Jio network, and they can then start cross-selling the services,” he said, explaining that customers can also tap on Jio’s payment and streaming services. 

Additionally, Singh highlighted that Reliance Jio hopes first-time internet users who purchase the Jio Bharat will eventually upgrade to more advanced phones down the road. 

“Right now, Jio gets revenue of about $1.50 to $2 a month, and when customers subsequently upgrade their phones in three or four years time, they would choose more advanced feature phones or low cost smartphones at some point in time,” he added. 

Analysts who spoke to CNBC also agree that despite Jio’s cost-friendly plans, other telco companies are unlikely to significantly drop their prices. 

“There’s been an ongoing tussle between Jio and other telcos in India,” said Nikhil Batra, research director of IDC. 

“Lowering prices across the board will not be a viable option, but it will be a challenge for [other telcos] to create new customer experiences and product bundles to increase customer stickiness,” Batra said. 

According to data from Macquarie Research, Jio currently has the biggest subscriber market share in Delhi (34%), Mumbai (35%), and Kolkata (42%), compared to Vodafone Idea, Bharti Airtel and BSNL. 

However, other telcos could still benefit from those in India who continue to choose phones that do not let them surf the internet.

Macquarie data also showed that in rural areas such as Bihar, Jammu and Kashmir, and Himachal Pradesh, Bharti Airtel holds a larger market share than Jio.

India has the world’s second largest telecom industry with a subscriber base of 1.17 billion people as of September 2022, data from IDC showed. The growth trajectory of the sector is just going to get higher from here, the market intelligence firm said.

“The industry’s growth over the past few years has been primarily driven by lower tariffs, availability of affordable smartphones, launch of telecom services by Reliance Jio, expansion of 4G coverage, and higher data consumption by subscribers,” Batra said. 

More consumers are also expected to purchase smartphones that have a 5G mobile network. 

About 52 million 5G-enabled phones were purchased in 2022, an increase from 26 million the previous year, IDC data showed.

“India’s 5G rollout has been much quicker and smoother and is well on course to reach pan-India by Jio by the end of the year. Jio and Airtel already have 5G services, and Vodafone Idea and BSNL are expected to join in rolling out 5G by 2024,” Counterpoint Research’s Mishra said. 

Counterpoint Research estimates there are nearly 85 million users of 5G capable smartphones in India, and 5G handsets had captured 32% of market share in 2022. Over 50% of smartphones shipped in April 2023 had 5G capabilities as well. 

However, this is largely supply driven, Batra said. That’s because “brands are able to bring in more 5G devices due to the better supplies achieved by 5G roll out and demand for 5G phones in other countries such as China and Korea.”

“Consumers in India have not really demanded a 5G device until now, their purchases being driven by the availability as almost all smartphone models are priced around $300 and are 5G capable,” he added. 

Despite regulation and telecom infrastructure challenges, “India will be a major market for 5G by 2026 and will dominate the 5G net additions just as China starts to mature and decelerate,” Batra said. 

Technology is playing a much bigger role these days and “we can expect India to further accelerate and set an example,” he said citing the example of banking and Unified Payments Interface as an example.

“India leapfrogged the majority of developed nations in making digital payments convenient, accessible, and widely accepted, irrespective of merchant sizes,” he added.