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October 29, 2015

In Depth: The Real `4G’ Challenge


With the rollout of its national 4G network recently, Airtel launched a campaign throwing open a challenge to data service providers to come up with a better and faster network. If only BhartiAirtel and other incumbents were in such an enviable place in real life. In fact, the Indian telecom industry is headed for an upheaval. Reliance Industries (RIL) is due to launch its venture Reliance JioInfocomm (RJio), and Airtel, along with other incumbents, has no choice but to brace up for a faceoff.

There is little doubt that when a player of RIL’s size enters a new industry, it will shake things up. The competition hasn’t forgotten RIL’s last telecom outing, Reliance Infocomm, in 2001 and the way it forever changed the rules of the game. RIL had launched its Monsoon Hungama package offering wireless connectivity along with devices for as little as Rs 501. A bloodbath had followed. Airtel and others were forced to reduce their tariffs and face loses.

This time, the incumbents do not want to take any chances. The real challenge for them is not just to protect their turf but ensure growth and relevance.

“RIL is a very large player and it will have a big play on the data side. It is entering the market at a time when there are 8-9 players in most of the circles, so it would need to be disruptive and, of course, it will affect the big three players,” says Romal Shetty, partner and head, Telecom, KPMG India.

RJio’s launch of 4G services is likely to disrupt the market on both fronts — tariff and services. It is a given that RJio will need to offer competitive prices to pull customers from rival networks, but price alone will not cut it any longer, the way it once did 15 years ago, when call rates were exorbitant.

“RJio’s ability to disrupt will be driven by higher network efficiencies, robust product strategy, innovative pricing and packaging strategy, and a potential willingness to wait for a longer period of time for returns,” believes Rohan Dhamija, partner and head, India & South Asia, Analysys Mason.“Disruption in the mobile market could be even greater if RJio launches voice offering along with home broadband business (high wi-fi offload),” adds Dhamija.

RJio’s launch has spurred other telcos to expedite their 4G launch. Besides Airtel, Vodafone India is also planning to launch 4G by the end of this calendar year. Idea Cellular, which was initially planning to launch 4G in 2017, has now advanced its launch to early 2016.

The telcos will also need to take innovative and creative initiatives to protect their customer base, especially their top customers, as they still reel from the recent call drops controversy.

Battle Of The Titans
Possibly, the biggest competitor to RJio is Airtel, India’s largest telecom operator. The latter stands to take a hit not just to its business but its reputation. It is for this reason that Airtel is leaving no stone unturned to gain as much headway as possible in its 4G business.

Airtel was the first to launch 4G services way back in 2012. It recently launched in 296 cities and towns in the country and is offering services at 3G tariffs. It won’t be easy stealing RJio’s thunder as it prepares to launch services to 80 per cent of the country’s population,  but by taking the lead in launching India’s first 4G network Airtel may have gained invaluable technological experience. “Airtel has been in the business for more than 20 years now and has gained valuable experience in the delivery of voice and data. All this will come in handy in this fight,” says Mahesh Uppal, director, ComFirst, a consulting firm that advises telecom firms on policy and strategy.

Initially though, Airtel had a huge disadvantage vis-à-vis RJio. It managed to procure 2300 MHz spectrum only in four circles in the 2010 spectrum auction. On the other hand, RJio procured pan-India 2300 MHz spectrum. The latter further augmented its spectrum position by acquiring 1800 MHz in 20 circles and 800 MHz in another 10 circles. Today RJio has the largest holding of liberalised spectrum in the country.

However, over the years, Airtel acquired Qualcomm’s spectrum in four circles. Recently, it also acquired Augure Wireless’s 2300 MHz spectrum in one circle of Madhya Pradesh. Besides, the company also acquired liberalised 1800 MHz and 900 MHz in the auctions in the past two years. All this equips it to face competition from RJio.

The 3G Advantage
Airtel, like other telcos, has been modernising its network to be data-ready. Initially built to only offer voice services, the company had the disadvantage of TDM-based network. However, it has been making efforts to increase Ipfication of its network, enabling it to offer data too.

This is true of Vodafone and Idea Cellular too. Vodafone launched Project Spring to modernise its networks to deal with the data tsunami. As per its annual report of 2014, it added 15,000 3G sites in the past year. Idea also increased its 3G cell sites by 13 per cent from 21,381 at the end of FY14 to 30,291 in FY15.

Telcos are following a two-pronged strategy to leverage their advantages in a fight with RJio. On the one hand, they are expanding their 3G network and, on the other, they are trying to gain as much lead in 4G as possible.

Nearly four years after the launch of 3G in India, only about 30 per cent towers are 3G-enabled. This means most subscribers are using 2G or EDGE.

Telcos are fast realising that they might lose their high spending customers to RJio if they don’t expand and upgrade their services. Over the past few months, they have invested significantly in their 3G networks. This is also a more economical option than investing in 4G. “Incumbents could respond with an updated product and pricing strategy of their own. Their existing 3G business will be a key pillar as they try and address the potential profit erosion,” says Dhamija.

Bharti recently signed a four-year agreement with Nokia Networks to deploy 3G networks in five new circles and expand existing infrastructure in another three. Airtel has already launched 3G networks in Kolkata and Mumbai using 900 MHz spectrum, which it acquired in March this year. Besides, the percentage of its 3G towers rose from 22.6 per cent in March 2014 to 33.3 per cent a year later. Since 3G technology is more scalable and proven compared to 4G, it is not surprising that Airtel is planning to spend Rs 64 billion on expanding 3G networks. It remains to be seen whether this 3G expansion will help telcos curtail the RJio juggernaut.

The Question Of Voice
Airtel has a key advantage where voice is concerned. Since it owns 2G and 3G networks as well, it can offer voice through Circuit Switched Fall Back (CSFB) technology. This is somewhat more developed than Voice Over LTE (VoLTE), which will be deployed by RJio for voice services. Besides, Airtel, like other incumbents, can leverage other networks to offer seamless data and voice coverage to subscribers.

There is speculation in the industry that RJio will offer voice through a combination of VoLTE and CSFB (through a tie-up with Anil Ambani’s Reliance Communications), though there is no confirmation. This can be the biggest disruption to the market. Ambani also mentioned in his AGM speech that RJio will offer data and voice services at just Rs 300-500 per month. “It is definitely a concern that they might just offer free voice services. We will cross the bridge when we reach it,” says a senior executive of a tier-1 service provider.

“Analysis shows that in certain circles incumbents could lose as much as 25-40 per cent of their profits from  RJio’s entry,” says Dhamija of  Mason.

Subscribers are Strength
The incumbents will leverage their biggest strength, their subscribers. The top three telcos, Airtel, Vodafone and Idea together  have nearly 80 per cent of the total subscribers. Mobile number portability makes it extremely easier for them to move from one network to another. “The telcos will take steps to protect their customer base. They will also make efforts to reduce call drops and offer best possible services to subscribers,” says Shetty of KPMG.

Deploying big data analytics and customer experience management (CEM) is a step in this direction. Over the past three years Bharti Airtel and Vodafone have deployed CEM to manage the customer experience of their subscribers.

These advantages apart, there is no denying that RJio is a formidable competitor. It has deep pockets, which few can match.
“In Monsoon Hungama, the competition was somewhat taken by surprise, but this time the competition is well armoured for the onslaught. Both Reliance and the incumbents have deep pockets to fight this battle now,” says Brijendra K. Syngal, senior principal, Dua Consulting. He is the former chairman and managing director of VSNL.

If the scale of RJio’s vision is an indication, it is rightly touted as one of the biggest launches ever in the history of the Indian telecommunications industry. Ambani himself termed it as “one of the largest transformational greenfield digital initiatives anywhere in the world,” in his speech at the 41st annual general meeting of Reliance Industries. The company seeks to cover 80 per cent of India’s population by the end of the year and 100 per cent national coverage within the next three years.

The company has spent nearly Rs 1,00,000 crore since it entered the market after acquiring Infotel in 2010. A significant percentage of this amount was spent on acquiring airwaves, deploying a world-class network and building a workforce of around 17,500.

While the top three telcos have deep pockets and sustenance power to weather the RJio storm, it might be game over for the smaller telcos.
“There are far too many players in the market; consolidation has to happen. This is, of course, not a natural way of consolidation, but RJio’s entry might work as a catalyst,” says Syngal.

Duel Over Devices
A crucial part of the 4G battle would be fought on the devices front. Since 4G is a relatively new technology, the devices ecosystem is far from developed. This can be the make or break factor for both RJio and the incumbents.

While earlier the telcos stayed away from the devices market, they cannot afford to do so in the case of 4G. In a recent investor presentation, RJio said that it was in talks with almost 27 companies, which practically includes all the device manufacturers. It will be launching its own devices brand soon, which would be available in the price range of Rs 4,000. The company will also leverage its retail chain, Reliance Digital, to sell devices. Though LTE-compatible handsets are now available in all price ranges, VoLTE might demand some configuration and the ecosystem for VoLTE-enabled devices is still evolving. For this reason alone, it is important for RJio to make devices available.

In spite of launching 4G a long time ago, Airtel has not  been able to make a killing due to lack of devices in the Time Division Duplex (TDD) segment. Now that it would be launching a combination of TDD and Frequency Division Duplex, the devices would need to be available.

RJio will also differentiate on the basis of content and applications. They have already launched a number of applications, like Jio Beats (music), Jio Connect and many more. On the content side, the company acquired a stake in Network18 about two years ago, which it will leverage to offer unique content to its subscribers. Airtel, on the other hand, offers free movies on Wynk Movies and Wynk Music to its subscribers.

So, what does RJio need to do to make a success of its venture? “It has to come up with a robust network that has a good geographical reach and is able to offer superior quality of service. Call drops can still be tolerated but data drop can be very disadvantageous. It goes without saying that tariffs have to be competitive. A lot will also depend on the kind of content or applications it introduces in the market. If consumers get free content in a congestion-free network, it will help the company in pulling customers from other networks,” elaborates Syngal.

Advantage Consumer
Like Monsoon Hungama, the biggest beneficiary of the launch would be the end consumer. Not only will RJio’s entry significantly bring down the tariffs for customers but also offer them a plethora of new services, content and applications. It can be safely said that there are happy “data” days ahead for the end consumer.

“Reliance Jio’s entry will definitely expand the market and it will bring forth new ways to offer data services.

It will create greater use of services and bring more price competitiveness in the market. Time will tell whether it will also lead to consolidation,” says Uppal.

Whatever be the outcome, RJio’s entry has forced the incumbents out of their comfort zones. Beyond offering vanilla services, they now have to offer innovative products to retain their customer base.

The author is an independent journalist who has tracked the telecom industry for the past 8 years

– See more at: http://www.businessworld.in/companies-markets-telecom-services/depth-%E2%80%98real%E2%80%99-4g-challenge#sthash.hASqM0Gi.dpuf

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