Author(s): Raghu Gopal
We recently highlighted the unprecedented deals wireless operators were offering subscribers for the iPhone 7. Operators rushed to follow each other with variations of free iPhone deals or attractive interest-free financing (see The Magnificent 7). For Apple, intense competition between wireless operators has been an incredible windfall.
In India, this formula is developing into a mirror image with operators offering free service packages for subscribers who buy a full-priced iPhone on financing plans. Purchasing and financing a device is subsidising the service plan.
LTE operator Jio is offering buyers of a new iPhone (iPhone 7, 6, 6s or SE) a free 12-month Jio Digital Life service plan, which it claims is worth 18,000 rupees (about $270). It includes unlimited voice and texts, 20GB of LTE data per month and 40GB of hot-spot Wi-Fi data. The phone must be purchased through the operator's retail channels. Furthermore, Jio announced it has reached a deal with Apple to offer enterprise customers a 25 percent discount on new Apple devices together with generous wireless pricing plans for the enterprise segment. As of this writing, no prices were listed for the hardware or software.
Airtel, the largest operator in India, is offering 10GB of free mobile data for 12 months to customers who buy an iPhone 7 or 7 Plus from the operator on top of existing plans.
Apple devices are now in play in India. It should be noted that iPhones are expensive in India and the addressable market for post-paid accounts is a small subset of the near 900 million mobile subscriptions. The 32GB version of the iPhone 7 is currently listed for 70,000 rupees (about $1,050), a considerable premium to the many high-value smartphones sold in India.
Apple's market share in India, estimated at about 2 percent, is currently slim. However, operators wishing to address the premium segment are looking to exploit consumers' eagerness for the iPhone. This includes enterprise users, who have a higher lifetime value for operators as they roll out 4G services.
Jio and Airtel are using a business model that appears to be the opposite of that used in the US and other Western markets, but the operators' goals are the same. Yet, there's a significant difference here. Subsidies typically lead to users undervaluing the subsidised asset. Thus, when Western European operators subsidise mobile phones through services, customers believe they are paying for the valuable mobile service. The device, as important and personal as it is, appears to be free or at least perceived to cost less than it actually does. The approach of the Indian operators could lead to customers valuing only the smartphone (in this case, the iPhone) and undervaluing the "free" services, which could be risky for the operators in the long term.