Indian Telecom Sector 2015 and the year ahead
Indian telecom sector has seen interesting transitions in the last two decades since the National Telecom policy 1994 was announced: from a supply constraint duopolistic market, high tariffs and very low penetration in 1995 to ultra-competitive, low tariffs that are probably cheapest in the world and mobile penetration at 70% 1 plus in 2014. A mobile phone that was an aspirational status symbol for rich and nouveau riche became an absolute necessity for all strata of society that now use it for communication, livelihood and increasing productivity.
2015 was a defining year for Indian telecom as we entered a new phase of telecom growth. We saw a consolidated voice market, data driven growth, beginning of broadband rollout increased smart phone uptake more applications/ content and probably for the first time, increased tariffs. We saw free OTT applications redefine the market and the public reacting strongly towards net neutrality with greater awareness across various platforms. Successful option of spectrum in early 2015 led telcos to aggressively rollout 3G network that father facilitated the growth of data.
The Indian telecom sector has proven most pundits wrong in the past, hense it is difficult to guess what 2016 has in store. However a few trends that will definitely emerge in the coming year/s are-
Broadband disrupting the Telco voice business model: Voice constitutes the largest revenue component in a Telco business but this will change with broadband where one won’t think of per minute pricing but price per GB (Gigabytes = 1000 Megabytes = 10,00,000 Kilobytes) and price per Mbps (Megabits per Second). Voice occupies only 8 to 16Kbps in a 1 Mbps “pipe” and is insignificant and incidental when speeds go up to 1 Mbps. 2G (GSM) was only 16 Kbps hence could only support voice and very low speed data and even with 2.5G( GPRS, EDGE) technologies, these speeds were less than 100kbps and voice continued to be important. While 3G showed some improvement in speeds, it’s truly with 4G (Long term evolution or LTE) that these speeds will cross 1 MBPS. The way we saw “anytime anywhere communication” with mobile phones and “death of distance” with high speed optic fiber communication in last two decades, we will see death of per minute pricing in the next few years beginning 2016.
Developing ecosystem for 4G: 3G failed to provide a true broadband experience and that explains its poor uptake but 4G its high speed and high throughput capability will finally give people broadband wireless on the move. China mobile has more than 200 million subscribers on its 4G LTE network in less than two years and India can definitely achieve the same in a reasonable period. The device ecosystem is developing to provide necessary access with handsets, data cards, dongles and desktop modems. Application and content ecosystem will develop quickly to fill the thick pipe that 4G can provide.
Broadband Revolution begins in 2016 with leading telecom companies launching pan India LTE networks and others quickly following them.
Data off road on Wi-Fi and multi layer architecture: The biggest challenge with wireless Technologies is that spectrum is a shared resource and as number of people using that resources increase in a particular area. The small slices that are available after sharing reduces the user experience. Given that Indian telcos have much smaller spectrum allocation compared to those in China, USA or other developed markets, this problem gets exacerbated. Congested 2G networks for voice and congested 3G networks for data or the result. Since a large percentage of mobile calls are made from fixed locations (like office, home, shop ) an effective solution to alleviate the congestion is to offload the calls to another Local Network such as Wi-Fi and small cells, freeing up the precious 3G/ LTE spectrum for mobility. 2016 will see and aggressive rollout of Wi-Fi and multilayer networks.
Market consolidation: Many telcos or stretched for finances as they have committed huge capital on 2G and 3G network rollouts and on spectrum auctions. They are not generating enough operating profits to service debt and continue to build networks for newer technologies. We will see merger and acquisition heating up amongst telcos -small and big, to achieve the scale and to get access to capital required to effectively compete. 2016 will witness the beginning of mega consolidation in the Indian telecom sector.
Focus on quality: Indian telcos have spectrum in small slices scattered across multiple bands and combined with multiple Technologies (GSM,GPRS, EDGE. WCDMA, HSPA), this has made network optimisation difficult leading to low call success rate, handover failures, poor voice quality and call drops. Extreme competition with 6-8 players in most markets and key telcos reaching competitive parity on infrastructure has led telcos to focus on cost optimisation leading to infrastructure sharing and outsourcing of network, IT and parts of customer service providers for upgrade and configuration changes, it often leads to slow response to customer needs, hence further increase in their dissatisfaction. Telcos look alike to customers on network quality that used to be a differentiator earlier. 2016 will see a focus back on quality and some “insourcing” reversing the outsourcing trend.
Focus on capability building: Government policy often focuses on diffusion since its main aim is to take services two masses and improve productivity. If industry responds to this without focusing and long-term capability building, it would impact the competitiveness of the companies and often the sustainability of the sector. We saw this happening in Indian telecom particularly in between 2007 and 2014. 2016 will see the Government and industry working together to balance the opportunities leading to “Diffusion” as well as “Capability building” to ensure long-term sustainability of the sector. The technology ownership will provide the necessary tool for innovations, which will be translated by some telcos into hefty cost advantage, service differentiation and business creation. “Make in India” is a brilliant attempt by the Government and 2016 will usher in capability building across design, development, manufacturing and innovation on all fronts!