As Indian companies ready themselves to launch and expand their fourth generation (4G) telecom services, industry analysts expect the advent of the technology to prove a game-changer as in China, but also forecast a shakeout that could rattle incumbent players.
"TD-LTE (China's long-term evolution, or 4G standard) has proved to be a game-changing technology shift in China by providing incumbent China Mobile a working data network. This is facilitating improved data monetisation, particularly as compared with its WiFi network," says Credit Suisse.
"We also expect TD-LTE to be a game-changer in India, for quite different reasons. Specifically, TD-LTE has allowed new entrants to utilise a large, until now unused spectrum resource to enter the market," said the research consultancy in a recent report.
"We expect this to have a negative impact on incumbent operators in the shape of upward revisions in spectrum costs and capex costs and downward revisions in revenue forecasts and Ebitda margins (earnings before taxes and some charges), most of which is yet to come," the consultancy added.
"The success of China Mobile's TD-LTE network over the past 12 months confirms our view that RJio (Reliance Jio, broadband arm of the Mukesh Ambani-led group) can be a meaningful threat to Indian incumbents," it said, adding the strategy to sell both services and handsets will prove valuable.
According to Platinum Asset Management, an Australia-based fund manager, with only 2.5 land lines per head of population in India versus 20 in China, wireless allows a leapfrogging of technology.
"While the market frets about the losses that will be incurred, we suspect that the usage of digital may be underestimated. Cisco predicts that by 2018 mobile traffic per connected device in India will increase to 1.1 GB per month from 60 MB in 2013," the report by Platinum said.
According to the Credit Suisse report, argument remains that the LTE opportunity in India is at least a couple of years away primarily due to weak ecosystem and expensive handsets.
It mentioned the fresh wave of additional capacity by a well-capitalised new entrant will have a material negative impact on the incumbents. This would manifest in slower revenue growth, a fall in margins, rising spectrum cost and rising capex-all leading to pressure on earnings and returns.
The report said spectrum was necessary but not sufficient resource for mobile service provision.
"However, we note that RJio has also been investing heavily in network equipment. Indeed, RJio has already spent Rs.850 billion in the telecoms business in the period up to March 2015, including spectrum investments," it said.
"Even excluding spectrum investments, RJio's investment stands at Rs.510 billion ($8.2 bn) and is comparable to the network investments that incumbents have made to date."
It added that while new entrants always initially suffer quality perceptions from coverage blind spots, the network can be optimised and matured over 12-18 months.
"The critical point is that, using the experience of China, we can say that RJio will not be at a structural technology disadvantage versus peers. In fact, the opposite could be true." Reliance Jio will start commissioning telecom and data services in phased manner from December 2015.
In a similar report, another research consultancy, Edelweiss said: "We estimate RJio to post strong revenue (compounded annual growth) of more than 105 percent over 2016-21 as it is likely to enjoy a 40 percent share in 4G data services market."
It also forecast a better average revenue per user for the company at 4 percent and 17-percent premium over Bharti Airtel and Idea Cellular for 2016-17.