India’s Reliance Jio is giving away mobile phones to attract customers. The firm is close to annual revenues of €1 billion, but breakeven looks to be some way off.

Not content with disrupting the Indian mobile market by giving away its services for free – or thereabouts – Reliance Jio Infocomm is now giving phones away too…yet it appears to be generating enough revenue to stand alongside the biggest telecoms operators in the world.

India’s race to the bottom on prices in the wake of Reliance Jio’s arrival in the market last year has been well documented. The country’s smaller operators are heading for the exit, swallowed up by larger rivals desperate to build some scale to fend off the Jio effect, and anecdotal evidence suggests churn remains high.

Jio enjoyed success from the word go, which was perhaps not too challenging given that it offered a free service for many months. Its monthly net customer additions slowed from April, when it started charging for services, but it is still averaging 4.9 million new customers a month, according to the latest numbers from the Telecom Regulatory Authority of India (TRAI). By comparison, market leader Bharti Airtel averaged less than half of that number over the same April-June period.

The telco’s market share topped the 10% mark in June and it remains tireless in its quest for new customers.

This week Jio started taking pre-orders for a VoLTE-capable 4G feature phone that is more than just affordable; it’s effectively free. Essentially, users pay a deposit of 1,500 rupees (€20) for the device, known as JioPhone, which is fully refundable after three years.

(On the subject of VoLTE, Reliance Jio is the only Indian operator to have rolled out the technology, according to new research published by Hadden Telecoms this week. Globally, VoLTE deployments have now reached 123. But back to the topic in hand…)

Further evidence of the pressure Jio is exerting on its rivals – if any were needed – came with Vodafone’s immediate response to JioPhone. According to the Financial Express and other Indian news sites, the telco has teamed up with affordable device specialist itel on a scheme that could also give users a free phone…in a roundabout sort of a way.

Users acquiring an itel feature phone and topping up by INR100 per month will receive a bonus of INR50 per month, up to a total value of INR900 over 18 months. With itel phones starting at INR800, customers could effectively get a device for free. However, while the scheme is being reported as a cashback offer, it seems that users will receive INR50 worth of talk time per month, rather than actual cash.

Either way, it’s yet another sign of the lengths to which India’s operators are going to attract and retain customers. According to the Economic Times, Bharti Airtel is planning to join in, launching a INR2,500 smartphone, plus voice and data bundle before Diwali, that is, mid-October.

Although Reliance Jio is establishing itself based on affordability, the sheer size of the Indian market makes it possible for the firm to maintain a healthy top line.

Reliance Jio generated gross revenue of INR18.1 billion (€239 million) in the three months to the end of June, including mobile, long-distance and international services, according to a report published by the TRAI this week. Its wireless revenues came in at INR11.1 billion. The document is designed to lay out the licence and spectrum fees being paid by the country’s operators, but in Jio’s case it also gives a valuable insight into the state of the business.

Even if the firm’s revenues stay the same quarter-on-quarter, which seems unlikely given the rate at which it is adding customers – its net adds in June numbered 6.03 million, compared with 4.79 million in May, the TRAI said – that gives Jio an annual turnover of close to €1 billion.

That is just about enough to give it a place in Total Telecom’s Global 100, which ranks the world’s largest telcos by turnover. We’re still working on this year’s numbers, incidentally.

Of course, there’s more to running a business than generating revenues.

Last month Livemint shared some analysis of Jio’s financial performance from Kotak Institutional Equities. The firm’s analysts estimate the Jio would need to generate annual revenues of INR224 billion (€3 billion) to break even at the EBITDA level or INR448 billion to break even at the pretax profit level; the latter figure makes the most sense given the firm’s huge debts and high asset base, they explained.

The pretax profit breakeven figure is similar for Bharti Airtel’s domestic mobile business at INR449 billion; the market leader generated turnover of INR566 billion from its domestic wireless operations in the most recent full year.

The analyst firm’s comments were based on the limited figures provided by Reliance Industries at mid-year.

We will be able to gain a true picture of Reliance Jio’s financial position only if and when the parent company publishes a full set of numbers.

In the meantime, the newswires and industry watchers will keep reporting on customer growth, M&A and ever-decreasing prices…