Airtel shows the way for 4G in India?

Airtel’s recent deals with existing players Videocon and Aircel will bring it’s 4G spectrum in all circles across India. This is good for Airtel and to fast track growth of data services. It is also a clear fallout of the recent reform in spectrum rules that now allow spectrum trading between operators.

The government will need to build on such reform if consumers are to be able to access data services across India at affordable rates, as they do telephony.

4G services are key to expansion of data services and increasingly, to market success of operators. They offer data speeds several times higher than those available in 2G or 3G networks. With increasing internet usage, data services, like 4G, will form an increasing part of operator revenues which, earlier, came primarily from voice telephony.

Airtel’s transactions are therefore shrewd and also, veritable coups. Both sellers had reportedly been in talks with Bharti’s competitors. Videocon had agreed to sell a substantial part of its spectrum to Idea. Similarly, Aircel has been in talks to merge its telecom business with Reliance communications. Airtel has not just outwitted its rivals but also insured itself against uncertainties posed by spectrum auctions.

This is in line with Airtel’s journey in the telecom sector so far. It was arguably among the smallest business houses that entered the telecom market when it was opened to private players in the early 1990s. It has expanded its reach nationwide through some licences obtained in auctions and others, through a series of acquisitions over the years.  It has successfully fended competition from industry heavyweights including Tata, Birla, Reliance etc., who all entered the market at the same time.

Today, while some of its competitors are ahead of Airtel in some circles, it is by far the national champion. It leads in subscriber numbers and revenues in virtually all segments of India’s telecom market.

By acquiring 4G spectrum in all circles, and having already started 4G services in several parts of the country, Airtel has stolen a march over Reliance Jio (RJio). The latter acquired nationwide 4G spectrum in the spectrum auction six years ago but has yet to launch its services commercially.

RJio however still poses a formidable challenge to Airtel. By all accounts, it has ambitious plans to offer triple play – i.e. voice, data and television – services. Unlike Airtel, RJio is also investing heavily in optical fibre which will augment its data carrying capacity several fold. The data battle is far from over. Indeed, it has barely started.

India has a relatively small data market. While it has grown significantly in recent months, Indians are some of the lowest consumers of data. The average data consumption in India is a fraction what it is in Singapore, Brazil, Korea and developed western countries. Less than 20% of Indians access the internet at least once daily. Roughly one billion Indians have yet to connect to the internet.

Data is still unaffordable
Demand and supply issues are both to blame for the weak data markets. Data services and devices are still unaffordable to the vast majority of Indian dependent on handsets that cost less than Rs 1,000 and spend around Rs 100 monthly on the service. Predominance of English content is a challenge. Relevant content is sparse. More so in local languages.

 Much excellent work is already underway in expansion of local content and services. E-governance programmes will also go a long way to spur demand by offering relevant and usable content. However, the expansion will inevitably increase demand for network capacity.

That makes 4G important for an another reason too. India has a sparse fixed line network with very little copper or optical fibre installed in the ground. It relies predominantly on wireless technologies for telephony and data. Wireless accounts for over 97% of phone connections and 65% of traffic carried. 4G therefore offers arguably the fastest way to expand data services, if 4G networks can be deployed speedily and services are priced affordably.

Fortunately, 4G ecosystem has improved considerably. Barely a couple of months ago, customers had few, relatively expensive, handsets to choose from. Today, dozens of 4G handsets are on offer below Rs 5,000 and prices are still falling further. Players with 4G spectrum, wondering if there would be takers for their services, in the absence of affordable devices, now have a greater incentive to rollout networks. Not surprisingly, we now see aggressive marketing of 4G services.

However, two nationwide players—even champions—in the 4G market may not be enough. We have seen how intense competition brought down prices and expanded telephony to low income users. We need greater competition in the 4G market to achieve the same for data services.

Harmonising spectrum
India will need to free up more spectrum to expand competition in 4G market. But it is not enough to increase the total amount of spectrum available. 4G technologies cannot be deployed if spectrum is not available in units of at least 5MHz. Unfortunately, thanks to ad hoc allocation, a large part of 1800 MHz which can support 4G is unusable because it is fragmented across the country.

Several companies have discontinuities in spectrum in the same circle that make it impossible to use it for 4G. Fortunately, the government has recognised the urgency of ‘harmonising’ spectrum to improve efficiency in its use. Delaying this task, not only promotes inefficiency, but also hurts government’s own revenues in auctions.

However, 4G services cannot possibly meet India’s data needs indefinitely. Capacity on offer in wireless services depends on spectrum, a scarce resource. Fixed line technologies like fibre and cable offer orders of magnitude greater capacity which can also be expanded easily. They are critical for transporting data in the backbone. All major economies and India’s peers like Brazil, China, Russia and South Africa have extensive fixed line networks. India’s policy makers need to expedite the much delayed—the national optical fibre network or BharatNet.

This is therefore a necessary complement to the genius of champions like Airtel, to realise the dreams of Digital India.

(The author consults on regulatory issues in the communications sector. Reach him at [e-mail])