India has one of the lowest smartphone penetrations in the region (Exhibit 1) with strong potential for an acceleration in subscriber growth and increased data usage over the next few years. Smartphone demand will likely be driven by:
- An underdeveloped fixed-line network;
- Demand for messaging, social media, and streaming video; and
- eCommerce and financial transactions.
India's low level of smartphone penetration is in part due to low incomes and an underdeveloped telecom network. Elsewhere in the region, we’ve seen J-curve accelerations of user penetration following network rollouts and improvements. India, with only a 13% smartphone penetration, likely has significant pent-up demand for smartphones that will drive a similar acceleration in user growth and data usage.
Exhibit 1: Data usage versus smartphone penetration
The challenges of low family incomes and an insufficient network are being overcome (Exhibit 2) as an inflow of cheap smartphones from China are making the technology more accessible to low-income Indian families. Access to cheap smartphones is coinciding with new spectrum and investment in towers and base stations, which are creating a high quality network that can handle the high traffic volume and deliver a reasonable online experience. We believe the combination of these two factors will create opportunities for growth investors in select mobile companies.
Exhibit 2: Mobile data subscriber growth
Source: CLSA, TRAI (Telecom Regulatory Authority of India)
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