‘Wi-Fi will help expand reach of broadband internet’

Hetal Gandhi, Director, CRISIL Research, shares her view on the telecom sector.

What has been the trend in telecom companies’ spend on network infrastructure, given their increasing debt levels and pressure on revenues?

In the wake of 4G launches, the network spends for telecom operators have been on the rise over the past two years.

Bharti Airtel and Idea Cellular had cumulatively spent around ₹80,000 crore, their highest over the past 10 years, mainly on mobile broadband (3G and 4G) network building for India operations. Some players have focused on providing pan-India 4G network.

Post auction last October, players have significant spectrum and hence with carrier aggregation requirement of additional sites will reduce, rationalising their network spends. However, the focus on fiberisation of networks will drive rise in spends over the next 2-3 years.

What is preventing telecom companies from implementing 4G or VoLTE services immediately?

One of the key reasons for telecom players to not launch 4G services on a wide scale was the nascent handset ecosystem. 3G networks were rolled out by companies from 2012 onwards and 3G pricing enjoyed over 60 per cent premium on the existing 2G data pricing.

With nascent device ecosystem on 4G, the companies chose to monetise their investments in 3G networks first. This has postponed 4G launches.

Similarly, post launch of services by Reliance Jio, VoLTE (Voice over Long-Term Evolution) devices entered the Indian market. Prices of such devices fell globally, thanks to pick-up of 4G services in China.

Given significant investments in spectrum, capacity does not appear to be a constraint for offering such services. The entry of a new player (Reliance Jio) and evolution of the ecosystem have nudged players to focus on such services now.

Reliance Jio has disrupted the market and continues to do so with its recent launch of 4G phone. What will be the impact of this on other players?

Reliance Jio launched its 4G services in India a year ago in September 2016. While the impact of the launch of free services was felt across players, small players felt the heat more than the larger players.

As of June 2017, the company managed to have a subscriber market share of over 10 per cent — with smaller players ceding 6 per cent share and the top three players 4 per cent of their market share to the new entrant.

The launch of the RJio phone in August 2017 at a deposit of ₹1,500 is expected to have a moderate impact on the market. This is because of the availability of comparable feature phones at similar price points and more launches expected at a lower prices.

We believe that this will have more impact on players with greater presence in the pre-paid segment of Tier-2 and Tier-3 cities (with higher usage of feature phones) with a net ARPU between ₹100 and ₹120.

What is the future of mobile data?

Between fiscals 2012 and 2017, India’s mobile data usage per subscriber rocketed at around 80 per cent annually to around 1.25 GB per month on increasing adoption of 3G and 4G services, free data offered by Reliance Jio, and a sharp (around 40 per cent) fall in tariffs in the past fiscal alone.

CRISIL Research expects mobile data usage growth to moderate to around 12 per cent annually and touch 2-2.5 GB per user in the five fiscals through 2022, and stabilise thereafter.

Is there a threat from other technologies such as Wi-Fi and portable Wi-Fi in the near future?

Wi-Fi infrastructure in India is at a very nascent stage at the moment. Data carried by mobile networks is higher for India compared to global levels. The Wi-Fi cost per MB is about 2 paise on average, or a seventh of that for mobile internet. However, the penetration of fixed broadband services has been limited to about 7 per cent of total households. This is significantly lower than in developed markets such as the US, where fixed broadband penetration is 83 per cent. Thus, Wi-Fi has the potential to play an important role in increasing the reach of broadband internet.

Large telecom players who are moving towards integrated service solutions would also want customers to be on their network, whether at home, on the go, or at public places.

At times they would also want to offload traffic during peak hours to networks without additional investment in their own networks.

This would push them to support Wi-Fi, as reflected in the deal Bharti Airtel struck recently with Facebook for 20,000 Wi-Fi spots, with talks for a similar deal also on with Google.

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