MUMBAI (Reuters) - India's disruptive new mobile entrant Reliance Jio, backed by the country's richest man Mukesh Ambani, unveiled a low-cost 4G-enabled phone on Friday to woo tens of millions of new customers, further destabilising established telecoms players.
Jio has enjoyed a meteoric rise since its launch a year ago, with its months of free services and sharply discounted plans battering the fortunes of incumbents such as Bharti Airtel (BRTI.NS) and Idea Cellular (IDEA.NS), who have seen revenues and profits shrink dramatically.
Despite Jio's rapid rise, funded by mega-profits churned out by parent Reliance Industries' (RELI.NS) core refining and petrochemicals operations, it has been unable to tap more than 500 million non-smartphone users in India, who still rely on old feature phones to make calls and send text messages, as its network only supports 4G-enabled phones.
Reliance sees the new handset, named JioPhone, allowing it to target India's entire mobile market for the first time.
The new phone will "effectively cost zero" as buyers would be able to get the device for a one-time refundable security deposit of 1,500 rupees ($23.3), said Ambani, chairman of Reliance Industries, announcing the launch at the conglomerate's annual shareholders' meeting.
The announcement, which was greeted by applause from shareholders at a packed auditorium in south Mumbai, sent shares in rivals Airtel and Idea down 2 percent and 3.3 percent, respectively.
Jio's disruptive pricing of the new phone and its online content partnerships could further weigh on the sector's already dismal earnings and put pressure on lenders' balance sheets.
Earlier this year, India's central bank warned the telecom sector's earnings had deteriorated to the point that it was untenable for telecoms players to even cover the interest costs tied to loans.
"They are getting people hooked to the data with the content," said Varun Khandelwal, managing director, Bullero Capital. "Airtel, Vodafone do not have such bandwidth to give free phones, or the kind of content that Jio has."
Reliance shares closed up 3.7 percent, after touching a nearly nine-and-a-half-year high in trading following the meeting, where the company also announced a one-for-one bonus share issue.
Ambani said the new device would begin to hit store shelves from Aug. 15. Voice calling will be free on the JioPhone, while unlimited data packs will cost 153 rupees ($2.38) a month.
"The offer is quite compelling, as the phone has a lot of compelling features," said Nitin Soni, who covers the telecoms sector for Fitch Ratings.
Jio already boasts more than 125 million users, making it the world's fastest growing tech firm, and has added customers quicker than even the likes of free services such as Facebook (FB.O) and its popular messaging service WhatsApp, said Ambani.
It has propelled India to become the No. 1 data consumer worldwide, surpassing both the United States and China, he said.
"My sense is that they are looking at between 150 million and 200 million subscribers within the next 12 months," said Fitch's Soni.
Ambani, whose speech was frequently punctuated with loud chants of "Jio", said that the company was aiming to make 5 million JioPhones available every week after launch.
The company was bracing for huge demand after the launch and expected it might run out of stock, said a senior company executive who did not wish to be named.
Ambani dedicated Friday's launch to his father, Dhirubhai Ambani, who founded the company. It is the second time Ambani has upended India's telecoms sector - he did the same in 2002 with a different venture, Reliance Infocomm, launched with the advent of CDMA technology.
Unlike 2002, when Ambani indicated Infocomm would be profitable within a year, this time he has given no indication of a timeline for making profits from a business that has already guzzled around $30 billion.
The company believes the scheme offered with the JioPhone will make money and the entire business has a set internal target for reaching profits, the senior executive said.
The manufacturing of the phone will eventually be done "by the likes of Foxconn, Flextronics", working to a design and operating system produced by any in-house Reliance team, said the executive, adding that the company had been approached by foreign peers about exporting the phone.
Reliance plans to start reporting performance numbers for Jio along with its quarterly results from October onwards, said another senior executive who did not wish to be named.
Ambani said that Jio has more than 100 million paying customers with most of them on a 309 rupees plan.
Reporting by Promit Mukherjee and Sankalp Phartiyal; Additional reporting by Rahul Bhatia and Krishna V Kurup; Writing by Euan Rocha; Editing by Muralikumar Anantharaman and Alex Richardson