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India's MVNO Industry- The $10 Billion Cable Cowboy Opportunity!

By AltG Innovation Centre On Behalf Of Poornima Vardhan And Taponeel Mukherjee

India's MVNO Investment Opportunity

The recent news of Indian Telco majors Airtel and Vodafone exiting their stake in the WiFi Infrastructure company brings to the fore the opportunity for connectivity in India. In the grand scheme of things, it's a small business with about $2 Million in revenues in FY 2022. But the number we like here is the 24% EBITDA with little debt sitting on the books. Could someone create Ryan Reynolds’ Billion Dollar Mint Mobile MVNO but in broadband in India? We think there is a play!

Essentially, the key points to keep in mind about India's MVNO Industry are:

  1. Given the scale of India and the depth of the consumer market, there will be a multitude of ways in which connectivity will be delivered via broadband and wireless to a country of over 1.5 Billion people. This is similar to any other product in India; last-mile distribution needs partners regardless of how big a company you are. We see an opportunity for platforms to help in last-mile connectivity.

  2. There are a multitude of players that will continue to generate high cash flows using "asset-light" models in spite of the onset of 5G.

  3. As India zips past the USD 2,000 per capita mark, a disproportionate share of income will go towards communication services. This shift is in line with the one that the Chinese consumer market witnessed over the last two decades. In the paper "Consumer Spending in China: The Past and the Future", Jun Nie and Andrew Palmer showed that as household spending in China increased 3x (in real terms) in the 15 years since 2000, the expenditure on transportation and communication services jumped 7x.

Here's a bit more colour below:

As we delve into the broader connectivity and wired broadband market in India (everything except wireless mobile), we find a landscape characterised by fragmentation, where the top three players, namely Jio, Airtel, and BSNL (FY 22 Data), control just slightly more than half of the market share, standing at 51%. In stark contrast, the wireless market is dominated by the top three players, commanding a staggering 97% of the market share.

This situation presents an intriguing scenario, with the remaining 37% of the wired broadband market being served by a myriad of smaller players offering ISP services under ISP and UL-Virtual Network Operator licences. Consequently, the stage is set for significant opportunities for consolidation and industry growth.

Despite the stronghold of major telecom players in the market, the presence of over 600 ISP and UL-VNO licence holders remains a substantial component of the landscape, paving the way for an industry ripe for consolidation.

The Potential of the Market

India's wired broadband subscriber base is on the cusp of reaching nearly 35 million users. Bridging the gap between India's numbers and China's 590 million wired broadband subscribers presents a unique chance to generate returns.

So, what is the potential market capitalization that can be achieved in this evolving landscape?

Let's assume an Average Revenue Per User (ARPU) of INR 400 per month, which equates to approximately $5. This results in an annual ARPU of $60. Envisaging that India reaches halfway to China's subscriber numbers in the next 10-15 years, we can anticipate a 300 million-strong subscriber base generating revenues of $15-20 billion. By applying a conservative 5% net profit margin and a Price-to-Earnings (P/E) ratio of 45, we arrive at a potential market capitalization of $45 billion. Another perspective is that by capturing just 2% of this growth, one could achieve a billion-dollar valuation.

In summary, India's connectivity market is a burgeoning sector offering enormous potential for growth, consolidation, and expansion. With increasing incomes, widespread technology adoption, and a fragmented landscape, there lies an astounding opportunity to create market capitalization worth up to $45 billion. We think it's time for India's Cable Cowboy.

Disclaimer: In The article above any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.


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