Instigated by the Reliance JioPhone, Idea Cellular, which is soon likely to be merged with bigger rival Vodafone, has announced that it is working with handset makers to produce the cheapest ever smartphones.
However, the Aditya Birla Group firm made it clear that it will not subsidise the handsets.
"The practical solution that we are working on is to work with the handset industry and work with them to be able to bring down cost of handsets by bringing down the bill of material, so that the gap between the announced price of a Jio feature phone versus a smartphone can be brought down to reasonable levels," Idea managing director Himanshu Kapania told analysts.
Kapania said the ideal price point for a handset will be Rs2,500.
In the past, the telecom operators had worked with handset makers when they were challenged by Reliance Infocomm's cheaper handsets, he noted.
"Given the fact that this (Jio announcement) has happened, and it is going to be distributed in large volumes, our belief is that we need to work with the handset industry and introduce similar phones in the marketplace," he said.
This will be an "affordable phone" which will allow customers the choice of dual SIM, selection of 2G and 4G networks, sign up with telecom operators of choice and use applications of choice, he said.
There will be extensive market research on the number of features that can be brought down, the operating system and whether it should have a touchscreen, among others, he said.
"With the launch of the 4G feature phone, not only the existing telecom operators will get affected, it will add a big threat to the handset suppliers," he said, adding that the biggest market for 2G phones will "vanish".
"They (handset makers) believe the proposition will not be strong enough if there is no support from telecom operators. While we have no intention to subsidise handsets, both handset manufacturers and telecom operators need each other to make sure that the offering to the consumer is strong enough when you have to make a choice between a bundle offer and telecom operator with a locked handset," he said.
The telcos will help the exercise through their domain knowledge, needs of the customers and distribution channels, he said, adding that financial help is not required.
He conceded that margins might be squeezed in the process for the handset makers, but said larger volumes will offset it. For the telcos, bundled plans - where they sell handset along with voice and data plan - will help increase the average revenue per user over a longer term, he said.
Jio announced a 4G feature phone for refundable deposit of Rs1,500 last week (See: Jio launches 'effectively free' 4G phone; data starts at Rs24).
Kapania also said that the company is looking at multiple options of monetising its tower assets and will look at all options, including an IPO for Indus Towers.