The Indian telecom industry is at a crossroads currently. While the growth of voice services has almost stagnated (with voice traffic growing at the rate of 2% to 3% year-on-year), data services are growing rapidly (12% 2G data traffic growth and 17% 3G data traffic growth quarter-on-quarter, for a leading carrier). It is evident for everyone in the industry that the next phase of growth will be driven primarily by data services.
However, the existing network resources and infrastructure such as spectrum, last mile infrastructure, backhaul, active equipment or core infrastructure are insufficient to offer full-fledged data services at the mass-market level. At an industry level, the currently allocated four 5 MHz blocks of 2100 MHz cannot offer 3G services to more that 10% to 12% of the existing mobile subscriber base (by our estimates). And, the 20 MHz block of contiguous 2300 MHz spectrum used for offering TD-LTE (4G) services has inherent issues of lack of coverage and in-building penetration. Also, of the ~42 mn copper lines currently laid in the country, only 20 mn to 22 mn are capable of offering DSL services.
Apart from issues/limitations pertaining to the availability (and optimization) of network resources, there exist other structural issues including lack of investments, high debt, varied business, operations & monetization models, lack of visionary teams, etc. There exist multiple issues at each stage, and the types of issues are unique and vary for each player in the industry.
Data broadband services (to the mass-market) will eventually have to be offered through a combination of heterogeneous networks (wireline/short-range wireless for dense urban and long-range wireless for semi-urban & rural), technologies (3G/WiFi/4G; HFC/FTTx) and spectrum bands (900/2100 MHz for 3G and 850/1800/2300 MHz, and in the long term 700 MHz for 4G services). Achieving this along with balancing the current services, business and operations, and making requisite changes (such as migrating existing subscriber base to a different network/spectrum band, in order to free up spectrum/network resources for potentially offering data services, with minimal service disruption) is not a quick or easy task, especially for incumbent players.
Experience is the Key
Although the number of active internet users in India have more than doubled between early 2012 and late 2013, most of them are on narrowband networks, with significantly compromised experience, and by extension, the data services used by a majority of these users are also limited.
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Source: TRAI; Avendus ‘India’s Mobile Internet Report’, Sept 2013; CC Estimates & Analysis
One of the key issues faced by the carriers in India is creating a market for data-based services. Before the mobile revolution took off in early 2000s, there was a significant demand for voice-based connectivity. And, the mobile carriers successfully leveraged this pent up demand for rapid growth.
However, offering voice-based services is relatively easy as compared to offering data-based services. Data-based services are all about experience. And, offering premium quality services, with superior experience and monetizing these services at a mass-market level is a big challenge for the carriers.
Creating and Growing the Ecosystem is Imperative
Mobile devices adoption, especially that of smartphones is growing rapidly in India, and is independent of the carrier ecosystem. And, due to the loosely connected (if not totally disjointed) value chain, smart devices are marketed, sold and used as merely hardware blocks instead of experiential gateways to apps and data services ecosystem. Also, access to media and content that can be packaged into monetizable data services is important.
On the whole, it is evident that for sustained data-based services driven growth, transformation of existing business and operational models is imperative. With multiple supply and demand side issues, the existing relationships between various value chain players cannot lead the industry into the next phase of growth. A strong ecosystem, developed by a tightly integrated value chain needs to be created. And, no single player has all the sufficient resources to kick-start and grow this ecosystem. In this context, the recent regulatory liberalization in terms of unified license, 100% FDI, M&A policy and spectrum sharing and trading policy modifications will be leveraged by various players. The set of players who will enable the development of the ecosystem will emerge as winners in the future.
Many key players have already realized this and are working on their business, operational, investment, product and services, network layout, partnership and go-to-market strategies. The organizational changes at Airtel and Reliance Communications, the partnership for sharing network resources between Reliance Jio Infotel, (initially with) Reliance Communications and (then, later with) Airtel, etc., are signs of players implementing their redefined strategies to emerge as an integral part of next growth phase.
We expect many players to continue working in this ‘Project Phase’ for the most part in 2014. From a services perspective, we expect only incremental innovation, offerings and growth this year. Having said that, this is also an opportune time for various players – big and small – to modify their strategies and align themselves to play a key role in the development of the data services ecosystem. This window of opportunity is going to be finite.