Improving Voice Good for A-Vo-Id, Reliance Jio Challenge from Data in Medium Term

Improving Voice Business India - Headwinds from DataWe expect sustained improvement in the Indian wireless industry’s fundamentals as basic scale economics of the business catch up and both the scope and intensity of competitive pressure reduce. The A-Vo-Id group is very well-positioned to benefit from this theme and expect sustained market share gains for these company over the next few years. We also believe that incremental regulatory developments should be in favor of the industry as spectrum pricing and allocation start falling in sync with the economic realities of the business – increasing (even if forced) industry discipline should drive this change.

Rural wireless tele-density at 39% still offers a good few years of penetration-led voice volume growth. In addition, vintage effect (usage for a new sub increasing for the first few years before plateauing) for new subs added in the past three years should aid volume growth too. From the perspective of incumbents, some market share gains on voice volumes should aid, as well.

A good example of industry discipline can be seen in the recent announcements of ‘free incoming roaming’ plans across operators. Challengers followed the incumbents on pricing of these plans and we note that none of them has attempted to undercut the incumbents to gain some ‘quality’ market share; heavy-roaming customers typically tend to be higher quality ones, as well

Two key headwinds – Disruption by Reliance Jio and CAPEX in data
Reliance Jio Infocomm launch turns out to be more disruptive than the Street is factoring in, at this point; this would of course need RIL-Jio to overcome the current techno-commercial challenges around TD-LTE on 2.3 GHz spectrum band, find a way to be cost competitive versus scale operators, and be ready for years of cash burn.

Negative surprise on the data capex front; data capex is not as easily understood as voice capex given lack of separate disclosures on this front; even as we are positive on strong volume-led growth in data revenues over the coming years, we are not sure if we fully comprehend the associated capex intensity at this point.