In India, Mobile Data Service is already substituting traditional revenue streams like SMS, with data use per sub increasing 316%, vs a decline of SMS sent per subscriber by 34%, over the past 2 years.
With the upcoming launch of LTE on a large scale, incumbent operators [Airtel, Vodafone, Aircel] have chosen a middle path between making large investments to develop an LTE-based network and protecting their existing voice-driven businesses. While operators recognize the potential of the data opportunity, we see the level of investments to build data networks varying significantly. Further, operators which are not fully prepared to spend on building a 4G LTE network (Idea Cellular), run the risk of being late movers in a competitive data market.
Key drivers for data growth accelerating over other revenue sources include: Cheaper smartphones; Better connectivity through more fibre coverage, better tower / indoor infrastructure, greater spectrum availability, and more localized content to boost uptake of internet usage.
Affordable SmartPhone In India, we have seen 3G capable smartphone prices fall steadily as processor prices soften and a higher number of Chinese imports reach consumers. In addition, we expect a high replacement demand from feature phone users (who bought their phones in 2010-2011).
Ubiquitous Coverage of High Speed Mobile Broadband – Typically deployment of data network in the 1800 MHz to 2300 MHz band is 5X to 15X more expensive than sub 1 GHz frequency network due to lower cell coverage and higher backhaul requirements. We believe that with improving connectivity and faster speeds, a larger number of services and media options can be serviced through the same channel.
Localization – At present most of the operating systems, mobile apps and media tends to be English language driven. However, we note that while the English media is more influential than the size of its user base, the key driver of growth from 100 mn smartphone users in FY15 to 650 mn smartphone users by FY21 (according to Ericsson) will need a high degree of localization.
We believe that convergence towards Internet Protocol (IP) is already playing out in some segments such as messaging, international calling and music. While the previous decade (2000-2010) saw a convergence in devices with personal computers, cameras, music players, and books converging into smartphones / tablets, we believe that the current decade is seeing an increasing convergence in platforms with the Internet of Things (IoT) taking over as a unified platform for delivering products / services. One can expect with better connectivity and higher data speeds, more media will move over to IP based consumption including live television, news, movies and voice calling. Companies offering the widest range of services are likely to benefit most from a switch to IP Networks.