Booming Data, Growing Voice

BERYL M
berylm@cybermedia.co.in

The highlight of this year's telecom story for the Indian industry has no doubt been the much-awaited 3G technology, finally making its appearance in May this year, with auctions that resulted in seven leading operators, including Bharti Airtel, Vodafone Essar, Reliance Communications, Aircel, Idea Cellular and S Tel winning spectrum in the 22 circles of the country, and finally set to roll out services for consumers and enterprises by the year-end. A young nation with the largest number of operators in the world (numbering 15), the fastest growing subscriber additions-currently adding close to 20 mn subscribers per month-with 3G expected to take the figure to 1.2 bn subscribers by 2015, combined with the lowest tariffs globally, make India a unique market. While VAS is expected to drive 3G with high-quality voice and high-speed data applications, pricing will be the most important component and most operators are keen on a pay-per-use model or sachet pricing, that will be particularly useful in rural areas.

Looking to increase broadband penetration in the country, BWA auctions soon followed 3G in June this year, with 6 successful winners including Infotel, Qualcomm, Bharti Airtel, Aircel, Tikona, and Augere, promising to roll out high-speed data services by mid-2011, hoping to increase the total number of broadband subscribers in the country to 100 mn by 2014. While state-run BSNL and MTNL have had a go at 3G and BWA for 2 years now, it remains to be seen how the competition and quality of services offered will pan out, with the emergence of private players on the scene today. Just these two technologies alone have made the Indian government richer by almost ` 1.5 bn crore.

New Entrants and M&As

Among the new entrants since the past year, Uninor and Videocon have definitely left their mark on the Indian telecom space. Uninor crossed the 2 mn subscriber mark as of October 2010, and expanded its reach to 13 circles-the fastest greenfield launch globally-with a dynamic pricing plan started in Mumbai, Kolkatta, Maharashtra, Goa and West Bengal called 'Badalta Discount plan', offering subscribers up to 60% discount on the per-second tariffs 24 hours a day, based on traffic in a given BTS and time of day and location. Remarking about their flying success in the Indian market, Olav Sande, EVP, Mumbai hub, Uninor said, “Designed to be a telco of the next decade, our objective is to come closer to the customer.” Videocon is yet another promising greenfield operator. Having crossed the 1 mn GSM subscriber mark as of August 2010, it has a target of 100 mn subscribers within 3 years of operation, with a goal of expanding to 100 cities within 100 days of operations. While Videocon made a conscious decision not to bid for 3G, stating that 4G is actually the technology of the future and would help in building the brand, Videocon most recently launched its Android phone in the Indian market. According to S Krishnan, CTO, Videocon Telecommunications, “Three factors that help us have an advantage over the rest are value for money, brand history (Videocon brand backing), and the fact that we strictly follow the Indian cycle of market trends.”

The Bharti-Zain deal for $9 bn made Bharti Airtel the world's first telecom services MNC and also the world's fifth largest company, buying into the 42 mn African mobile subscriber base of Kuwait's Zain telecom. With this acquisition, Bharti Airtel now has a total subscriber base of 180 mn subscribers in 18 countries. The Indian telco's 70% stake in Bangladesh's Warid Telecom, also helped it expand its global footprint in the Saarc region. This has made Bharti Airtel maintain its position as the leading telco in the Indian market, clocking a revenue of ` 38,800 crore in FY 2009-10.

And talking about M&A's, the tower business in India scored high in this respect, with the much debated active and passive infrastructure sharing really being put to practice. While the excitement in the tower business began early in the new year with the GTL-Aircel merger, making GTL the first independent tower company to cross the 10,000 towers' mark, the Quippo-WTTL deal, between TTML and Quippo, saw the merger taking the lead in the country with 35,000 towers. It is estimated that there are roughly 200,000 towers currently in operation in the country and the number is expected to increase to 463,000 in the next 5 years, propelled by 3G. The industry is expected to have grown to 330,000 towers as on March 2010 from 280,000 towers in FY 2009. About ` 66,000 crore is the expected figure to be spent on tower acquisitions in India in the next 3 years.

Urban-rural Growth

The telecom equipments industry saw a fall in growth to 19%, as compared to 24% last fiscal, but this is expected to pick up rapidly with the recent import of new telecom equipment for 3G and BWA by operators. This fiscal witnessed a growth of 31.3% in the enterprise equipment segment, as compared to a growth of 21.1% in the carrier equipment segment, propelled by the 26.1% growth in wireless infrastructure. While fixed line revenues saw a continued drop with negative growth of 23.3%, NLD and ILD both grew by 13.6% and 17.3%, respectively, while broadband numbers grew by 20%.

While the urban growth story continues to range between 80-90% penetration, rural subscriber rates have been ever on the rise, taking the rural-urban penetration ratio to 70:100. Total rural teledensity stands at 26.4%, as of June 2010, out of the total teledensity of 55.4%. With increasing upward mobility in rural areas, operators are now catering specifically to rural areas, hoping to quickly bridge the urban-rural divide, offering a range of innovative VAS applications in local languages, and at unique price points. The most heartening of these efforts is towards financial inclusion and mobile-wallet, providing banking facilities to the unbanked, from the comfort of their own homes. “With over 680 mn mobile subscribers in India and an addition of 16-18 mn subscribers every month, the objective before the UPA government is to use these mobile devices to drive financial inclusion to the people. The start of secured, authentic, and cheap mobile trading will help more people to become part of financial inclusion,” remarked Sachin Pilot, minister of state for IT & Communications. He also added that mobile phones will act as the last mile service provider and will bring in a paradigm shift in e-governance and services. Mobile number portability which is finally set to take off on November 25, will also help in increasing subscriber numbers, allowing customers to switch from one operator to another more easily, determining churn rate and also keeping operators on their toes, with the quality, variety, and pricing of services offered.

Possibilities with 3G

With every operator trying to outdo the other with the range 3G services offered, a few facts are very clear on how the uptake of 3G services will actually pan out in India. Expected to be rolled out in a phased manner with the top 75 cities in urban areas getting the first taste of high-download speeds, enterprises and youth, amongst consumers are likely to be the main takers for 3G in urban areas, and services like live mobile TV, high-speed video and music streaming, social networking, video-calling and video conferencing between multiple users, as well as multi-player m-gaming and m-commerce, with the ability to transfer money in seconds from one mobile to another, are some of the initial services being looked forward to. Education, government, health, advertising, and location based services, are other areas where 3G is expected to make a mark.

While it is expected to take at least 2-3 years for 3G to catch up in rural areas, many service providers are already ready with unique 3G services for small towns and villages, doing an uptake on the ever-popular mandi-bhav, mKrishi and weather updates for farmers, with m-wallet and mobile IVR or video-audio conferencing for education and health facilities through the mobile phone. TCS's PIM2R (Packet Interactive Multimedia Response) voice solution for rural areas, powered by 3G, is also an interesting solution. According to Pankaj Doke, associate consultant, TCS, “With a combination of voice and text, this solution provides voice prompts to the user by pushing the right keys in the user's own dialect, with video imaging provided as well. PIM2R is a customized solution for rural areas that is based on IP technology, that makes use of a client server model for offloading data to server. This is an end-to-end IP, multiple-language choice, and low-cost offering, thanks to VoIP and low hosting cost owing to shared data center infrastructure. A simple solution, all that the user needs, is one good computer and a server as the solution works on scalable architecture. Since the solution is interactive, one can change configuration at the back-end, without touching front-end. Since this mobile IVR application speaks out and points with images, it can be used even by illiterates, and works on a variety of mobiles-being tried and tested on a Virgin mobile and Tata Indicom platform already.”

With VAS contributing 9-10% of income for telcos and adding up to a total of ` 6,900 crore of the total telecom market, telcos are banking on VAS to help them recover the huge investment in 3G. According to Arvind Vohra, co-founder and MD, Wynn Telecom, “Apart from our winning combination of easy-to-use and low-cost handsets, we are building VAS services for content on mobile and differentiated product offerings, putting in an investment of ` 400 crore for the same.”

Low-cost 3G handsets have also taken the Indian market by storm in recent times, with local handset manufacturing finally giving cheap Chinese handsets a run for their money. As per the figures of the Indian Cellular Association, 26 mn of India's 563 mn mobile phone subscribers have handsets that are 3G enabled. However, 3G services may not come too cheap, making it difficult for operators to initially cash in on 3G. “Take the case of Delhi or Mumbai-the amount for spectrum that has been charged is close to ` 3,500 crore each. Just to recover license fees and input cost, it works out to be ` 700-900 per month,” remarked Sunil Mittal, chairman of Bharti Group recently. Thus, he was of the opinion that 3G prices would vary according to rates paid for different circles.

Overall Industry Outlook

In a major setback, Reliance Communications, India's fourth leading mobile operator saw a fall through in its $11 bn merger with GTL Infratel, for what would have been a combined tower strength of 80,000 towers, making it the leading tower company in India. The deal would have also helped reduce the telco's debt burden by $3.9 bn, and would have come as some solace, after Reliance Communications failed to sell of a 26% stake in the company to Etisalat. According to an official statement by an RCom spokesperson, “Following the expiry of the non-binding Term Sheet with GTL Infrastructure, Reliance Communications is now engaged in discussions with certain other strategic and financial investors, to pursue a similar transaction aimed at significant reduction in the Company's debt and unlocking of value for RCOM shareholders from the passive infrastructure and related assets in its 95% owned subsidiary, Reliance Infratel.” Other telcos also continue to bleed with cut-throat tariffs, high capex and low ARPUs, and unflinching government policies.

However, there is some light at the end of the tunnel. With the recent relaxation of norms with respect to import of telecom equipment, as well as liberalization with respect to mobile banking policies, with the RBI increasing the mobile payment limit to ` 50,000, and an emphasis on increasing broadband penetration for mass rollout, things are looking up for the Indian telecom industry. However, some clarity with respect to security policies, is much needed, say industry bodies like AUSPI and COAI. With the recent hurdles faced with respect to setting up of a BlackBerry server in India, the DoT has now agreed to set up a dedicated security agency, and hire professionals to work with operators and vendors and smoothening out security and regulatory hurdles. Apart from this, Trai's open policy framework in asking for suggestions from cellular operators and framing guidelines based on these, have helped India retain its image of having one of the most successful telecom stories in the Saarc region.

NGN Aspirations

3G may have finally come to the Indian market, but in the rest of the world, 4G is what is currently in focus-especially for its close relation to LTE, the futuristic technology, currently on trial in all advanced technology nations. Broadband Wireless Access, or BWA, which in India is expected to increase broadband penetration manifold, with 20 Mhz of spectrum being allotted to winners of the BWA auctions, can be used for either WiMax, or TD-LTE; the latter which might be upgradable to an LTE standard that is affordable and in use by the rest of the world-finally bringing India on par with the rest of the world, in terms of NGN technology. At the close of the 3G auctions earlier this year, telecom minister A Raja had said that 4G could be expected in a year's time. In June this year, he is quoted as having said, “The government has initiated the process to bring in next generation 4G telephony, and the 4G process would be expedited after the receipt of the required feedback and Trai's recommendations.”

Besides investing in a one-time technology which keeps pace with the rest of the world, operators will also look at a long term solution that can provide fast RoI. Remarks Anil Sardana, MD, Tata Teleservices, “3G networks are simply not intended to handle the rapid transfer of massive amounts of data such as that necessary to watch streaming video on the Internet. Further, 3G has limitations of scalability in terms of number of data users which one can put in a given base station at basic per user broadband speed of 256 kbps and above.”

With increasing need for data access and smooth, faster connectivity, 4G definitely holds the promise of high download speeds for data consumption and high-quality voice calls over the Internet, or any other tasks previously reserved for computers with high-speed DSL connections, which in future may be free of cost and routed without the help of a third party connector, as well. In the near future, customers in India are also more likely to use their mobile phones to make voice calls, routed through the PC, which 4G is apt for.

Speaking about the latest that the telecom regulatory body is doing to further aspirations for 4G, J S Sarma, chairman, Trai said, “It is always an endeavor of the Authority to bring the best available technology in India. Regarding future technologies like IMT advance technologies, Trai has already floated a pre-consultation paper on “IMT-Advanced (4G) Mobile wireless broadband services. The comments received by various stakeholders are being analysed and the Authority shall come up with a detailed consultation paper in this regard shortly.”

India can take a feather out of the hats of other Saarc nations, like Pakistan and Bangladesh, who are actively gearing up for NGN technology. In October, a leading Pakistani daily reported that, “After proper consultation with stakeholders, the government would soon introduce a policy about 3G and 4G broadband technologies, which will result in investment, employment and growth in the country.” Bangladesh, too, has already deployed 4G WiMax broadband, which is in widespread use across the nation today. Vendors and equipment are already in place. Now all that is left is simply a green signal from the government for NGN technology to make its presence felt in India.