Reliance turns to China to reprise cheap phone revolution in India

MAY 14, 20158:05 PM

[MUMBAI] Reliance Industries is in talks with Chinese manufacturers to secure cut-price phones that could be sold in packages from US$30, as it seeks to repeat the low-cost revolution it unleashed with its first dip into India's mobile market more than a decade ago.

Industry and company sources said Reliance, which aims to roll out India's first national 4G service in the coming months, has been talking to groups including Gionee, Huawei and Xiaomi, as Chinese firms also seek a platform to build their presence in a lucrative and growing market.

Reliance has spent US$13 billion in the last 5 years on the 4G Reliance Jio push that will mark its return to telecoms, but it has faced a string of delays as it completes its network. It has also been faced with the absence of cheap devices opening access to its services, making these Chinese deals critical. "(Jio) will go for the kill from the start," said Neil Shah, research director at Counterpoint Technology Market Research. "They definitely want to go for mass market play with 4G, because only that will give them the scale to be profitable." Reliance's return to telecoms could be a game-changer in India, where only one in 10 people currently use smartphones but with a population of 1.3 billion where the majority of people already access the Internet through mobiles.

Internet users are expected to almost triple to more than 550 million by 2018, according to the Boston Consultancy Group: more than the population of Western Europe.

If successful, it will also mark a key personal victory for Mukesh Ambani, Reliance's chairman. With Reliance Jio, India's second-richest man will be returning to telecoms for the first time since he and brother Anil split the family business after a bitter feud, with Mr Mukesh ceding the telecoms arm.

Anil's Reliance Communications said last year it would also offer 4G from 2015, pitting the two head-to-head for the first time since a non-compete agreement ended in 2010.

Attracting consumers with cheap phones is a strategy used before by Reliance, whose founder, patriarch Dhirubhai Ambani, once vowed to make phone calls "cheaper than a postcard".

In 2003, Reliance revolutionised India's nascent mobile market by offering phones to consumers for as little as US$11, making handsets affordable for most Indians and capturing a million customers in 10 days.

Reliance wants to repeat the feat with 4G, thanks to China's cheap smartphones but also tablets and pocket routers. "Their internal target is to have 5 million customers in 50 hours," a person familiar with the matter said.

Reuters spoke to officials at three different Chinese smartphone vendors who confirmed discussions with Reliance. They spoke on condition of anonymity since discussions were ongoing. "Reliance Jio is actively working with all major handset device manufacturers to ensure and certify their phones for use on Jio network and shall ensure adequate availability of phones in entire price range," the company said in a statement.

While the company is unlikely to subsidise devices directly, industry sources say it could lure customers with an upfront payment of 2,000 to 3,000 rupees, or roughly $30 to $45, by buying a customer's existing handset and bundling Jio services. "Right now their entire focus is to reduce the entry point for the customer," said Pankaj Agrawal, director at telecoms advisory firm Capitel Partners.

That matters for Reliance but also for the Indian government's digital push and for the e-commerce industry, which is counting on widespread adoption of high-speed Internet among smartphone users in semi-urban and rural India to grow.

REUTERS