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A Maturing Ecosystem: Strong outlook for 4G

April 19, 2018
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The 4G segment in India has evolved significantly over the past two years. While improved availability of affordable 4G smartphones and plummeting data tariffs have helped in driving 4G service uptake, increasing competition among operators has played a key role in augmenting service reach. Going forward, even as the country gears up for 5G, 4G will remain a key focus area, especially in rural and remote areas where internet penetration remains low. Industry analysts share their views on the evolving 4G landscape, the adoption of voice over long term evolution (VoLTE) and the future outlook for 4G...(From left - Amitoj Arya, Director, Telecom Strategy, EY; Hemant Joshi, TMT Leader, Deloitte India; Murtuza Onali Kachwala, Managing Director, Telecom, Media and Entertainment Industry Practice, Protiviti, India; Inderpreet Kaur, Analyst, Ovum)

How has the 4G landscape in India evolved over the past two years? What are the key consumption and uptake trends?

Amitoj Arya

The Indian telecom market has witnessed intense competition during the past two years, which has led to a steep decline in data tariffs. Overall, data traffic grew by 144 per cent in 2017, driven by a surge in 3G and 4G data consumption. At a pan-Indian level, 4G constituted 82 per cent of data traffic in 2017 and the data consumption per subscriber remained at around 11 GB per month. The number of 4G subscribers overtook the number of 3G subscribers during the first quarter of 2018. Data consumption by 3G subscribers also increased substantially, from less than 1 GB to nearly 3 GB per month in 2017. Video streaming continues to remain the single largest driver for data traffic and constitutes 65-75 per cent of mobile data traffic.

Hemant Joshi

Although 4G services were launched in 2012, full-fledged, pan-Indian commercial services were launched by major operators only in 2015-16. Today, 4G accounts for 82 per cent of the data generated in the country. Further, India is expected to overtake the US to become the country with the second largest 4G smartphone base in 2018. Unlike 3G services, 4G has managed to generate high demand in the past two years due to affordable tariffs, availability of budget mobile devices and a growing demand for high speed data services.

Murtuza Onali Kachwala

In April 2012, 4G LTE services were commercially launched in India by Airtel. However, voice services continued to be delivered on 2G and 3G networks. Then, in September 2016, VoLTE services were launched by Reliance Jio Infocomm Limited (RJIL), which provided internet and voice services using 4G networks. Within the first month, RJIL acquired 16 million subscribers. This triggered a surge in data uptake and intensified competition in the 4G space.

Due to the proliferation of smart devices and reasonable broadband speeds at competitive prices, consumer behaviour is moving towards higher data consumption. As per the Ericsson Mobility report, data traffic grew by 70 per cent between 2016 and 2017, particularly in the fourth quarter of 2016. Further, data is expected to be the key growth driver in the telecommunication industry, going forward. This data growth will be driven by the government’s Digital India initiative, its focus on smart cities and villages, new use cases for internet of things (IoT), and the launch of 5G. The pricing and go-to-market strategies used by telecom operators also reflect this trend, as operators have shifted from voice- to data-driven pricing.

In terms of consumption, the Indian consumer is now hooked to virtual applications ranging from digital payment apps to over-the-top videos, streaming videos, social media or chat-driven apps. Among these, video continues to be the largest data consumer, accounting for 50 per cent of the total data consumed.

Inderpreet Kaur

In the past two years, the 4G space has witnessed intense competition in India with incumbents like Bharti Airtel, Vodafone and Idea battling it out against new entrant RJIL. Over the past 12 months, significant financial pressure and competition have forced sub-scale operators with no (or limited) 4G footprint to exit the market. While uptake has been strong with the penetration of 4G connections increasing from less than 1 per cent in 2014 to about 20 per cent in 2017, Indian service providers continue to have the slowest 4G LTE speeds. Competition from RJIL, which has widespread 4G network coverage, has driven service providers to augment their LTE networks. Indian carriers, which started by offering LTE in the 2.3 GHz spectrum band, are now using the 1800 MHz and 850 MHz bands for 4G LTE. Recently, operators started deploying LTE in the 900 MHz band. Bharti Airtel, for instance, is using the band to offer LTE, GSM and universal mobile telecommunications service simultaneously, using dynamic allocation of available spectrum.

Data consumption too has witnessed meteoric growth. Data traffic on operator networks has grown by 5 to 10 times during the period 2015-17, driven by the introduction of unlimited data plans. Idea reported that its mobile broadband customers are using nearly 5 GB of data per month, which is five times the data usage a year back. Idea’s pure-4G customers’ average mobile data usage per month was even higher at 7.5 GB.

What are the strategies that operators are adopting to enhance 4G penetration? What are the key challenges they face?

Amitoj Arya

Some of the strategies adopted by operators to enhance 4G penetration are tariff simplification in the form of bundles that charge consumers only for data while voice services are virtually free and content partnerships for TV, music and news. Partnerships with handset vendors to roll out VoLTE-based feature phones are expected to further increase the adoption of 4G. 4G-capable device penetration reached 22 per cent at a pan-Indian level in 2017 from 12 per cent in 2016.

The key challenges that operators are facing are reduced data realisations due to high competitive intensity on the one hand, and increased capex spends for 4G network deployment on the other. While the incumbents need to monetise their 3G networks, they are being forced to direct the additional capex for 4G network deployments. Stressed financials are forcing telecom companies to wind down operations or look at mergers and acquisitions.

Hemant Joshi

Low data penetration and high data demand have made India an attractive market for 4G service providers. The market disruption created by the new entrants has forced the existing operators to re-strategise their business models. Operators have lowered their data tariffs from approximately $5 for 1 GB of 3G data to almost $9 for 28 GB of 4G data. Further, bundled services, wherein the customer does not need to pay separately to use voice services, are being offered. Tariff plans with three to six months’ validity are also becoming popular and every operator is providing an average of 1 GB of data per day to woo customers. Moreover, some operators are collaborating with device manufactures to provide budget handsets or handset-bundled services to customers.

While the demand is high and consumers prefer to stick to their operators, low tariffs are a huge challenge for operators. Operators are getting an average of $0.20 per GB of 4G data and the average revenue per user per month is below $2 against the global average of $10. With such low returns on the back of huge capex and a high debt burden, the long-term sustainability of the industry is a huge challenge. Further, operators need to ensure compliance with quality of service (QoS) parameters for calls, which requires better infrastructure and more capex spending. Low returns on investment (RoIs), regulatory burden such as right of way, high spectrum usage charges, taxes and spectrum prices, and litigation issues are the other challenges facing operators. While 4G has done well in the urban areas, rural penetration is still low due to the lack of infrastructure, limited backhaul capacity and inadequate ecosystem readiness.

Murtuza Onali Kachwala

Indian telecom operators are racing to be “the best in the business” by readying their internet facilities and investing in network restructuring. In the past two years, operators like Airtel, Vodafone and Idea Cellular have announced plans to improve their networks. To this end, Airtel recently announced a partnership with South Korea-based SK Telecom to enhance its network coverage in India and bring 5G services to the country as early as 2019. Further, Vodafone launched over 500 new sites to provide its SuperNet services in more than 8,000 towns. Idea Cellular too has announced the expansion of its network to 260,000 sites across the country. According to the operator, 50 per cent of its sites will be dedicated to mobile broadband services.

While India added a whopping 43 million mobile subscribers during the quarter ended June 2017 (as per the Ericsson Mobility report), this rapid growth will come at a significant cost to the telecom industry. One of the major challenges in 4G deployment is spectrum pricing and regulatory uncertainty. High spectrum prices have weakened operators financially, resulting in debt on their balance sheets. In the past, spectrum auctions have contributed to a sizeable debt on the industry’s books, estimated at Rs 4.6 trillion as on March 31, 2017. Another major challenge is the upgradation of the existing network, which requires huge investments in infrastructure development (4G equipment, spectrum and fibre), resulting in an additional burden on the industry. There are other challenges such as those relating to QoS, backhaul, security, chipset compatibility, and expansion of LTE coverage to rural areas.

Operators are making efforts to address these challenges. They have started network sharing and circle sharing. This not only ensures a uniform presence, but also reduces the operators’ burden of deploying and managing infrastructure throughout the country. Further, operators should give importance to customisation, personalisation and scalability of 4G services for new usage patterns like social networking and peer-to-peer services.

Inderpreet Kaur

Operators are working to take 4G to the mass market through aggressive promotional tie-ups such as free data bundles and cashback offers with low-priced 4G handset brands. They have increased their focus on data and voice bundles to drive data consumption. The introduction of pure bundled plans, wherein a phone is available only with a tied tariff plan, will further help operators in increasing 4G penetration. An example is RJIL’s 4G VoLTE-capable feature phone, which comes bundled with a monthly plan priced at Rs 49. However, ensuring the quality of data services on these low-cost devices will remain a challenge. In the high-end segment, RJIL is using a similar strategy that bundles Samsung’s Galaxy S9 with 1 TB of 4G data and unlimited voice for a monthly tariff plan that includes the handset cost. In this segment, service providers are focusing on differentiation through content partnerships. Bharti Airtel’s Double Data plan offers a year’s free subscription to Amazon Prime, alongside free subscriptions to Airtel TV and Wynk. Vodafone, meanwhile, gives a free subscription to Netflix with high-end Vodafone Red plans.

What are your views on the adoption and success of VoLTE services in India?

Amitoj Arya

Given the cost pressures in the industry, telecom companies are being forced to adopt VoLTE in an accelerated manner. While the new entrant has a pan-Indian VoLTE network, the incumbents have also started launching VoLTE networks in some circles. Further, most operators are expected to continue launching VoLTE networks across the country. The availability of devices that support VoLTE has also aided in the proliferation of this technology.

Hemant Joshi

VoLTE is definitely the technology of the future. However, in India, it has so far received a mixed response. One of the limitations of VoLTE is that both the calling and the receiving party need to have VoLTE connectivity. For VoLTE to be successful, it is important that QoS parameters are taken care of.

Murtuza Onali Kachwala

Following the pan-Indian launch of 4G VoLTE services by RJIL, the other operators seem to be catching up to launch VoLTE services. Recently, Vodafone, Airtel and Idea launched these services and plan to extend them in the coming months. The biggest advantage of handling voice calls over a 4G network is that its greater bandwidth allows for high quality voice calls. There are also fewer instances of call drops, greater voice clarity, and calls get connected much faster as compared to standard voice calls over 3G and 2G networks. Moreover, if there is good 4G connectivity, the battery life of handsets may also improve as the phone will not have to switch to 2G or 3G networks every time a call is made and back to 4G again when the user starts using an app or browses the web. However, there are limitations too. A key limitation is that both the parties involved in the call need to have VoLTE connectivity. If the call recipient does not have VoLTE services, the call will remain a standard voice call. Further, there is the issue of pricing these calls. VoLTE will be the next big trend that could significantly improve the voice call experience, once the roll-out is wide enough and users sign up in large numbers. One of the major operators has already announced its plans to phase out 3G services over the next two years and upgrade all its subscribers to 4G by offering VoLTE nationwide.

With the growing industry focus on 5G, what is your outlook for the 4G segment?

Amitoj Arya

With 5G standards having been finalised recently, we expect some global telecom companies to commercially launch the technology by end 2018. However, for the consumer segment, the key use case is still going to be increased bandwidth. In India, 4G is still expected to be the dominant mobile data technology for the next few years. In the Indian context, a lot needs to be streamlined before telecom companies earmark spectrum for 5G and start looking at it as the next technology, especially for fibre backhaul.

Hemant Joshi

Developments for 5G technology have started worldwide. Korea is expected to commercially launch 5G services in 2018. Although 5G has many advantages such as data speeds of about 10 Gbps, low latency of 1 ms, smaller antenna size and support to IoT by connecting billions of devices, commercial launch in India is still far. Considering the commercial success of 4G and the huge demand for data, 5G has great potential in India. However, before the commercial launch of 5G, operators need to make significant investments in developing infrastructure and acquiring spectrum. With very low RoI, operators are expected to play safe while investing in 5G.

Murtuza Onali Kachwala

Fifth-generation wireless systems, popularly known as 5G, are the next-generation of mobile communication systems that provide ten times higher speeds than 4G. 5G standards are still evolving globally, with the first global commercial launch expected in 2020. However, operators are already deploying future-ready technologies such as multiple-input, multiple-output on the current network. They are also working on network function virtualisation and software-defined networking technologies to make their networks 5G ready.

Meanwhile, the future of 4G is good in India as there remains a real and immediate need to build and optimise 4G networks because 56 per cent of mobile phone users in India use feature phones, and smartphone and internet penetration remain low. In this landscape, it only makes sense that operators continue to focus on shifting from 2G and 3G to 4G in order to offer better speed and connectivity.

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