While Reliance Jio has set forth its subscriber and ARPU targets, the size of the addressable market at present and five years from now will determine if these are achievable.
The addressable market for 4G services is constrained by 4G smartphone penetration and the number of subscribers willing to pay more than Reliance's Arpu threshold of Rs300/month. Analysts forecast this segment growing to nearly 300m subscribers by March 2018 led by higher data usage, ensuring a large enough addressable market for 4G services of Jio.
While the current 4G smartphone population is around 30m, Analysts foresee this number rising to 212m by March 2018 and nearly 500m by March 2021. Expect 4G smartphone population of about 500m in five years Clearly, a higher penetration of 4G devices will be the very basic requirement for Jio's success. Investors also see this as arguably the biggest challenge for Reliance, as they believe it may be difficult to persuade consumers to buy new 4G devices to experience Jio's services.
Mobile data traffic in India grew at 87% CAGR since the commercial launch of 3G services in 2012 to 1.8mn TB in March 2016. The impending 4G launch could give a similar push; our telecom analyst expects industry data volume to grow 47% over FY16-20, driven by both growing digital content (for example, online video content from providers such as hotstar and Netflix) and government's initiatives.