Fourth generation (4G/LTE) network, also known as wireless broadband, has finally been launched in India. While Reliance Jio has been hogging the limelight for the launch of its 4G services with a complete ecosystem around it, Bharti Airtel, which had launched 4G in Bengaluru and Kolkata in 2012, also surprised everyone with the launch of 4G in 14 circles, covering 296 towns of India.
But, to attract large numbers of customers and not just high-ARPU, Airtel has kept prices of its 4G offerings at the level of its 3G prices. Airtel has 21 million 3G users and that forms its primary target audience. There are 13 million 3G compatible devices active in the country, of which about 9 million are connected to the internet using 3G, as of 31 May 2015. A year ago, about 5 million devices were accessing internet using 3G. Airtel’s 4G Infinity post-paid plan begins at ?999 for 3 GB data and goes up to ?2,999 for 15 GB, while the prepaid plan starts at ?1,099 for 3 GB and ?3,249 for 15 GB. According to reports, China has 20 per cent penetration of 4G with 250 million 4G users and US has about 40 per cent penetration, with more than 100 million 4G users. But, according to another report on 4G coverage and speeds, the US is second slowest in speeds, while Australia is the fastest.
Airtel, of course, will get the first- mover advantage. According to a report, the top 20 per cent of high data usage subscribers has generated about 85 per cent of the mobile data traffic, which can drive data ARPU up by 3-4x. Users, who consume large amounts of data and therefore require higher data speeds, would be among the first ones to move to 4G. Since they use a lot of data, their spending on data is higher. “Airtel can get high- ARPU customers,” says Romal Shetty, partner & head, telecom, KPMG.
But, there are not enough users who
- use 4G compatible devices. Chinese
- smartphone manufacturers are focus- g sing on India with 4G enabled devices
- within ?7-10,000 as India embarks on ” a 4G revolution and China has started
to slow down. “We have launched 4G in 296 towns on the basis of device availability,” says Srini Gopalan, director, consumer business, Bharti Airtel. “As much as 25 per cent of the smartphones shipped in the country are 4G.” Airtel is partnering Xiaomi India to sell its 4G smartphone Redmi Note 4G through Airtel’s 133 stores in Delhi, Mumbai, Bangalore, Kolkata, Hyderabad and Chennai.
Bharti Airtel has a strategic collaboration with China Mobile, a telecom service provider in China to work towards the growth of 4G LTE ecosystem. They will create a strategy for procuring devices used for 4G including MiFi, smartphones, data cards.
One of the most precious resources in Telecom is spectrum. And though Airtel has launched 4G first and might have a first-mover advantage, Reliance Jio has the lion’s share of the spectrum.
After the Broadband Wireless Access (BWA) or 4G spectrum auctions held in 2010, RIL bought 95 per cent stake in Infotel Broadband, which won spectrum in 2300 MHz for all 22 circles of India, for ?4,800 crore. This acquisition marked Mukesh Amba- ni-led Reliance Industries’ re-entry in telecom.
The 2300 MHz frequency band used by Indian Telcos for 4G has lower penetrating power, which means, it doesn’t give good coverage inside a building. According to the law of physics, as the frequency increases, wavelength decreases. As its wavelength is shorter, it requires more towers to be set up, which means, more investment. Use of technology can solve this problem, but, only up to a certain extent.
Radio waves using 900 MHz band give 30-40 per cent better coverage compared to 1800 or 2300 MHz band.
Although government has made these frequency bands neutral to technology, meaning any band can be used for any type of service, the 900 MHz band has been used for 2G, 1800 MHz band for 3G and 2300 MHz for 4G.
Globally, 4G network is used only to carry data. Voice is carried through 2G or 3G networks even if the user uses 4G, to avoid congestion on the 4G network and penetrate inside the buildings. “That’s called Circuit Switch fallback and it’s used worldwide for 4G,” says Gopalan. How will Reliance Jio offer voice services since it cannot fallback on 2G and 3G networks?
A senior Reliance Jio official says Jio has the option to use Voice over LTE by using the 2300 MHz for which they have pan-India licence. Jio can also share spectrum with other operators for Voice or offer Voice using the 1800 MHz spectrum it has in 20 circles or using 800 MHz spectrum it has in 10 circles. “All bands have been declared technology neutral (by the government). Operators can use it for anything (any band for any purpose),” says B.K. Singhal, former chairman & managing director, Videsh Sanchar Nigam Ltd (Now Tata Communications Ltd). Jio had acquired spectrum in 1800 MHz and 800 MHz in the subsequent round of auctions post the Infotel acquisition.
Jio is expected to be launched in Beta soon before the commercial launch in December. It got delayed by nearly two years. According to reports, to check delays, the department of telecom has been contemplating issuing notices to operators 0io, Airtel, Aircel) who won 4G licences in the 2010 auction. As per the auction and licence conditions, the operators are obligated to provide 90 per cent 4G coverage in metros and 50 per cent in rural areas within five years from the date of allocation of the spectrum.
But, Aircel, which had won 4G licence for eight circles in the 2010 auctions, had launched wireless broadband 4G services last year in six circles. At present, it is available for use only as a data service through Dongle, 4G Hotspot and ‘not voice’. Aircel 4G is available in Andhra Pradesh, Assam, Bihar, Orissa, Tamil Nadu, and
Gopalan: consumers want superior service
Jammu & Kashmir.
Tikona digital networks, which also won licence in five circles in the 2010 auction: Gujarat, Himachal Pradesh, Rajasthan, Uttar Pradesh East and UP West, had announced it would start 4G services from October 2012. Vid- eocon Mobile, which received licence in six circles in 2012, plans to commence commercial operations of 4G by the end of the year. Both Tikona and Videocon didn’t start operations. And the reasons behind their adoption can be many. The prominent one is the lack of affordable 4G devices at a time when they planned to launch.
Except, Airtel and Aircel, which have already commenced operations, all other operators – Vodafone, Idea, Rcom, Videocon and Tikona – plan to start commercial operations later this year. And their strategy appears to be: let someone test the ground, and let someone build the ecosystem, then we will move in. “We are seeing beginning of 4G ecosystem and we will launch 4G in the fourth quarter of 2015-16,” says Rajat Mukarji, chief corporate affairs officer, Idea Cellular. “Also, 3G is more developed from the perspective of device ecosystem.”
Apart from Reliance Jio (which has pan-India 4G licence), Airtel (14 circles) and Idea (11 circles), no other player has licences for large geographical presence. Airtel has acquired Augere wireless which holds 20 MHz spectrum in 2300 MHz in circle Madhya Pradesh and Chhattisgarh.
As people start using more data, they prefer their carrier to be with them providing high-speed data, wherever they travel within the country. “These days, consumers prefer to use the operator which has pan-India network,” says Singhal.
In such a scenario, spectrum sharing appears to be an option for operators to share spectrum in areas where they do not have a licence. But, should an operator share a critical resource, which is already scarce? “I don’t see players sharing 4G spectrum,” says Shetty.
What are MTNL and BSNL doing? MTNL will not offer 4G. The lossmaking, state-run company has surrendered BWA spectrum for both the circles: Delhi and Mumbai. But, BSNL will be offering spectrum in 14 circles after surrendering spectrum in six circles.
Content and ecosystem play
While spectrum is crucial, there’s more to 4G. “Content is an important part of the 4G ecosystem play/’ says Gopalan. “It’s a demonstration of the power of 4G.” Airtel is offering Over-The-Top services ‘Wynk Movies’ through a tie-up with Eros Now, Hooq and Sony Live and ‘Wynk Music’ for subscribers to stream movies and music.
Its competitor Reliance Jio is going beyond music and movies to create a complete ecosystem. In April this year, Jio launched ‘Jio Chat’ a messenger app for Android and iOS, which has video conferencing among other features. It has been downloaded by 1 million users.
On the cards are ‘Jio Drive’, a cloud storage app on the lines of Google Drive of Google, ‘Jio Play’ for TV, music videos, movies, ‘Jio Beats for music streaming, ‘Jio Mags’ and ‘Jio News’ for reading magazines and news, Digital Healthcare, Digital Education, and Jio Money.
But, the important question is do people really need these apps? There are already similar popular services available to users. If Jio wants users to shift to its services, there has to be an incentive for it. And then the question comes, how will Jio monetize these services? A Reliance Jio spokesperson declined to comment.
Beyond this, the availability of 4G will have an impact on our lives in general. Since a lot of content consumption or usage of services
happens on the go, with faster speed, it will increase. Jio is working with 28 OEMs including Samsung, Hua- wei, Intex, micromax, ZTE to offer a 4G smartphone for as low as ?4,000 and 4G plans at a monthly bill of ?300-500.
For telcos, data, as a per cent of total revenues, contributes to less than 20 per cent. More than 70 per cent of the revenues come from voice. But, this will change. Content consumption on 4G will increase dramatically. “There is substantial consumption of data as people move to 4G,” says Gopalan of Airtel. “If we provide superior service, consumer will use it more.” Airtel’s revenue from data increased 68 per cent y-o-y in the first quarter of 2015-16.
It is estimated that Airtel’s revenue from data as a per cent of total revenue can go up from 15 per cent in 2014-15 to 21 per cent in 2015-16 and 28 per cent in 2016-17. If 4G service is successful and data consumption exponentially grows, it will be an industry-wide trend. This will increase the ARPU as well. “ARPUs will not go up in the short run. After 12 months, yes,” says Shetty of kpmg.
4G network, which is capable of delivering broadband-like speeds, is used not just for mobile data, but also for dongles and 4G hotspot. Beyond use in mobile phones, 4G can be used through dongles, 4G hotspot devices, also called MiFi, to provide wireless broadband wherever needed. All the players are interested in offering these services.
Jio will also be offering its own or private label branded MiFi devices and 4G smartphones through RIL’s retail arm Reliance Retail. India has 104.96 million broadband users, who get more than 512 Kbps download speed: 15.56 million wireline broadband customers and 88.96 mobile device users (phone and dongle), 0.44 million fixed wireless subscribers.
RJio plans to initially cover about
- towns and cities, accounting for over 90 per cent of urban India, as well as over 215,000 villages in
India and will gradually expand to over 600,000 villages. It will have pan-India fibre-optic cable network. The partnership it has with Reliance Communication is for sharing its fibre-optic cable infrastructure.
And it denies speculation that Jio will acquire RCom, promoted by younger brother Anil Ambani. A Jio spokesperson says, if we had to acquire other players to begin our operations, we would have done that earlier. We are not a telecom company. We are a digital services company. LTE (4G) is a way to deliver and consume these services.
Investment and profitability
Reliance Jio has invested ?1 lakh crore in buying spectrum and setting up tower infrastructure, among others. Apart from investments in Spectrum, Reliance Jio has laid 250,000 km of fibre-optic cables, covering
- cities and over 100,000 villages, with the aim of covering 100 per cent of the nation’s population by 2018. It has an initial end-to-end capacity to serve in excess of 100 million wireless broadband and 20 million fibre-to-home customers. It has also built 500,000 sq ft of cloud data centres and a multi-terabit capacity international network.
Since Jio will begin anew from scratch, to get customers, it will need physical retail presence. The group, RIL runs 1,000 Reliance Digital retail stores across India and the same can be used for Jio. Over and above the investment already made, as launch nears, Jio will also have to start spending on marketing. Airtel since its 4G launch, is running a marketing campaign, touting its 4G service as the fastest.
After investing heavily, how will 4G players become profitable?
There are about 130 million 3G enabled devices active in the country. Of which, about 90 million are active users as of 31 May 2015, according to the TRAI report. A year ago, about 50 million 3G users were active in the country, implying that 3G adoption is growing rapidly. Assuming that 50 per cent of the 90 million, that’s 45 million users migrate to Reliance Jio’s LTE services. And assuming these are
high RPU customers or power users which gives monthly ARPU of ?500 to Jio. The average RPU of telecom players is less than ?200. Going by these statistics, the annual ARPU of Jio is ?6,000 (?500 x 12), which brings its first year top line to ?27,000 crore (45 million x ?6,000). Operating profit margins of the telecom companies are around 30 per cent. There is no data on the number of high-ARPU users in the country. But, realistically, getting 45 million users to migrate to Jio in 12 months is not possible.
Although 4G has been launched in many developed markets a few years ago, blind spots are still present. According to a report, in the US, where LTE rollout began in 2010, devices manage to keep connection to LTE about 67 per cent of the time. The UK manages to stay connected to LTE 53 percent of the time. In the UK, operators started rolling out their LTE networks in the second half of 2013.
And, remember, why ‘mobile number portability was introduced? Mobile subscribers were not happy with their service providers, whether it is quality of service, data speeds or call drops. And telecom operators blamed it on one significant reason: lack of enough spectrums.
While Airtel has launched 4G first, what happened with 3G may happen with 4G: unsatisfied and complaining customers who migrated from one operator to the other, because of poor services as there’s not enough spectrum. “Spectrum is always constrained in India,” says Gopalan. At the same time, Reliance Jio, although it won’t have the first-mover advantage, has everything else: a lion’s share of spectrum pan-India, grand plans, bandwidth to achieve it and lessons learned from its earlier telecom venture.
Jio will have no option but to keep prices low to make customers switch to it. And Jio’s low prices will force other players to keep low prices and offer competitive plans. While the competition becomes fierce, customers are the winner.
♦ ROHIT PANCHAL [email protected]