The incumbents are counting on substantive elasticity of data with inevitable continuing data price declines (from both newer class of subs entering the data category & existing subs embracing 3G/4G consume exponentially more data).
What if data revenue disappoints, (which we think could be the case)? Our research indicates why India may not be as elastic for data as other markets such as China, Philippines and Indonesia.
Or, what if current margins cannot be sustained given increasing customer acquisition costs with RJio now also in the game? Could network opex rise as % of revenues with aggressive site roll-out on the acquired spectrum (though Idea does not believe that this is the case given its view that roll-out will largely be via loading and very little of pure, full-blown data sites)?
What if sub-base addition continues to slow for the incumbents (as we have seen in the past 3-4 months)? All of these factors could so easily undermine returns on the spectrum investments.
Finally, with Big 3 and RJio accounting for 93%+ of the spectrum auction (by value) marginalizing the smaller incumbents further, industry consolidation will only hasten, in our view.
