Nov. 7 (Bloomberg) -- Billionaire Anil Ambani’s Reliance Communications Ltd. is offering iPhone contracts for the first time in India as it counts on data users to help revive earnings that shrank about 89 percent in four years.
The country’s third-biggest operator by market value aims to extend the plan to include models other than Apple Inc.’s, seeking customers who surf the Internet, download music and videos and help boost revenue from data services, Chief Executive Officer Gurdeep Singh said in a telephone interview. The company started giving out the iPhone 5C model last week on a two-year contract for a monthly payment of as little as 2,599 rupees ($42), he said.
The wireless carrier is betting on smartphones to help increase income in a country where the average monthly revenue per user is $1.60, compared with about $69 in the U.S. The arrangement also helps Apple -- whose $550 iPhone 5C is unaffordable to most Indians -- make inroads in the world’s fastest growing smartphone market, where it ranks a distant eighth and is struggling to close the gap with leader Samsung Electronics Co.
This plan is likely to help the carrier lure higher paying customers onto the network, boosting revenue per user through lucrative data subscriptions, Singh said. “We are hungry for growth and this could be the tipping point,” he added.
The company has tied up with banking partners that would take on the risk of collecting money from customers, according to Singh, a decade after a similar plan failed when buyers disappeared with phones without making the monthly payments.
The stocks with the Mumbai-based company were sold out in the first 37 minutes of the launch, said Singh.
Carriers in India, grappling with more than $25 billion of debt after paying for third-generation airwaves in 2010, have slashed fees for data subscribers by as much as 90 percent, betting cheaper rates will help fuel a surge in mobile social networking and gaming.
Manufacturers shipped about 28 million smartphones to India, the fastest growing market, as of March 2013, compared with 301 million units to China that accounted for 33 percent of the global market, according to data provided by researcher IDC. India is growing fivefold annually, versus China’s 52 percent.
Almost 80 percent of Samsung’s smartphone sales in India come from models priced below 23,870 rupees ($382), according to IDC. Handsets priced below $200 are the fastest-growing smartphone segment in the Indian market, which is projected to overtake the U.S. as the second-largest by 2017, according to IDC.
Revenue from data usage as a share of total sales for Bharti Airtel Ltd., the nation’s biggest mobile-phone operator, is about 7 percent, versus 32 percent at China Mobile Ltd. For the local industry, that may climb to 20 percent by 2017, according to Nitin Soni, an analyst at Fitch Ratings in Singapore.
“The tie-up with Apple will provide positive traction for Reliance Communications,” said Abhinav Ganeshan, a Mumbai-based analyst with Canara Bank Securities. “It has never been easier for India to buy an iPhone and now this U.S. model will really get young spenders to buy into Reliance’s offer.”
China Telecom Corp., the country’s third-biggest mobile phone company by users, and China Unicom (Hong Kong) Ltd., both carriers that offer the iPhone, beat earnings estimates in the three months ended Sept. 30 aided by iPhone sales. China Mobile, which has yet to reach to agreement with Apple, missed estimates.
In Japan, NTT DoCoMo Inc. agreed to offer the latest iPhones in September to help reverse a loss in market share.
Customers in India aren’t used to a long lock-in period with a service provider and a two-year contract may be a deal breaker for many Indian subscribers, said Harit Shah, a Mumbai-based telecom analyst with Nirmal Bang Institutional Equities.
“Six months maybe, but not two years,” he said. “Lock-in period is an established concept in developed countries. I am not sure about here.”
Reliance is also offering the costlier iPhone 5S for 2,999 rupees a month over a two-year period. The plan bundles the handset with unlimited local and inter-city calls, text messages, roaming and 3G data usage, according to the company. There is no down payment for the 16 gigabyte device, nor will users receive a separate usage bill for 24 months, it said. Only international calls and international roaming will have to be paid for separately.
Group profit at Reliance Communications dropped to 6.2 billion rupees in the financial year ended March 31 from as high as 60.4 billion rupees in the 12 months through March 2009, according to data compiled by Bloomberg. Sales declined to 192.9 billion rupees from 207.4 billion rupees in the same period.
Reliance Communications deactivated 10 million connections, it said in a statement on Nov. 5, in a move to weed out customers generating low revenue and those who hadn’t used their phones for more than two months.
“This is in line with industry practice,” according to the statement.
Reliance Communications shares fell 4.4 percent to 139.95 rupees at the close in Mumbai, the most since Aug. 21. They have jumped 145 percent since the end of March, as Anil Ambani and estranged elder brother Mukesh ended a prolonged feud and announced their first cooperation.
In April, the two signed a 12 billion-rupee deal to share a fiber-optic network and in May, Mukesh’s Reliance Industries Ltd. said it will share Anil’s mobile-phone towers in a transaction valued at 120 billion rupees.
“We created the zero plan” with this iPhone offer, said Singh. “It has zero down payments, zero bill of usage for 24 months, zero limits on your use, zero hidden charges and zero conditions apply.”
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