Over the next three years, we expect smartphone penetration at 60% (current 15%) and consolidation into a five-player market. The Indian telecom sector has at least 5-6 players in each market (called circles). While a few have minimal competitive impact, Jio's presence tends to impact pricing at the margin and has led to fragmented spectrum holdings.
3G Rollout Helped Incumbents
Over the past two years (FY13-15), the three incumbents have gained 300bps rev-share to reach 69%. Data accounted for 61% of incremental revenues in FY15 ? this was largely captured by the incumbents, which underlined their share gains as they rolled out 3G networks. The laggards have been constrained by cash flows to roll out 3G in a meaningful manner.
Bilateral arrangements on spectrum sharing allowed the incumbents to provide 3G service across their existing pan-India subscriber base. However, they were restricted from acquiring 3G subscribers in market. India has witnessed 3G only since mid- 2013 due to a delay in network rollouts and relatively high handset prices.
The market is likely to transition rapidly to 4G due to three factors
1. the large-scale of Reliance Jio with a 4G-led strategy
2. Airtel's launch and rapid expansion of 4G footprint across major urban markets
3. Acceleration of 4G network rollout by Idea and Vodafone
