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Mobile Subscribers Yearwise comparision

Flashback 2016: A high voltage year

February 17, 2017

The year 2016 was marked with interesting twists and turns for the telecom sector, bringing both hope and challenges for stakeholders. While the first three quarters witnessed steady progress on 4G roll-outs, a handful of spectrum trading/sharing deals and active regulatory interventions on several key topics, the last quarter saw the dramatic entry of Reliance Jio Infocomm Limited (RJIL). In an unprecedented move, the operator offered its services free of cost to customers for a specific period, promising to charge for only data services thereafter. This unleashed a price war in the market and, not surprisingly, the incumbents’ profitability took a major hit, even as data uptake on networks grew.

Consolidation gained momentum as Reliance Communications (RCOM), Aircel and Sistema Shyam TeleServices Limited (SSTL) decided to join hands in the biggest merger deal ever witnessed by the sector. Meanwhile, 4G network expansion remained a key focus area, even as the much publicised spectrum auction failed to make a mark. Operators continued to struggle with slow revenue growth and stretched balance sheets, impacting their capex plans. In fact, the quarter ended September 2016 was reported as one of the toughest with mobile revenues shrinking 4.5 per cent on a sequential basis.

The telecom infrastructure space saw keen private equity (PE) interest. RCOM signed a definitive agreement with Brookfield Infrastructure, while other players are reported to be in talks with PE companies.

On the downside, the sector did not see any major broadband growth despite the government’s big push to digital transformation. The demonetisation move, however, gave a fillip to the mobile wallet space.

For telecom subscribers, meanwhile, 2016 served up several benefits. Improved quality of service (QoS), reduced call drops, growing 4G coverage and major tariff cuts were some highlights that set their expectations for 2017 high.

tele.net takes a look at the sector’s key developments that took place in 2016, and the trends to watch in 2017...

Data becomes the new voice

The year witnessed an explosion in data uptake on the back of 4G service expansion. In fact, the year turned out to be a milestone for 4G in India as the mass launch and uptake of services took place across the majority of cities and towns. RJIL’s launch, in particular, proved to be a key factor in accelerating the shift towards a data-driven economy.

Brokerage firm Credit Lyonnais Securities Asia (CLSA) has predicted an upsurge in data network capacities and rapid network roll-outs by operators including Bharti Airtel, Vodafone India, Idea Cellular and RJIL in 2017, using airwaves won in the auction held in October 2016. Moreover, driven by RJIL, Ovum expects long term evolution (LTE) penetration to have reached 7.5 per cent of the total mobile subscribers by end-2016, increasing from 0.2 per cent in end-2015.

Enabling regulations

It was a busy year from a regulatory standpoint too with consultation papers being released on several key issues. Some of the issues taken up by the Telecom Regulatory Authority of India (TRAI) during 2016 were free data, net neutrality, improvement of service quality norms for mobile services, internet telephony, proliferation of broadband through public Wi-Fi networks, machine-to-machine communication, issues related to the closure of access services, captive VSAT policy issues, and review of the regulatory framework for interconnection, among others.

The year 2017 has started off on a good note with the regulator’s decision to revisit tariff orders, the regulatory framework and licensing conditions.

Consolidation moves

During 2016, the sector finally witnessed some key consolidation movements, driven by policy clarity around spectrum trading and sharing, and mergers and acquisitions. Bharti Airtel acquired airwaves from Videocon and Aircel, while RCOM, Aircel and SSTL teamed up for a three-way merger. The consolidation activity may lead to a short-term subscriber churn, but will eventually result in the creation of an entity that is much stronger operationally and financially. The move was inevitable as the players, with a pile of debt, are now finding it extremely difficult to survive competition.

The market consolidation trend will only grow stronger in 2017. The year commenced with Bharti Airtel reportedly being in talks with Norway-based Telenor for buying its India business for $350 million. It is expected that by the end of the year, any given circle will be served by at most four to five players. These could be regional players or pan-Indian incumbents.

Improved call drop situation, but still a long way to go

The issue of call drops led to much acrimony across the sector, with operators being at loggerheads with the government. However, with due regulatory intervention, customers got some respite from call drops. Following a meeting with the Department of Telecommunications (DoT) earlier in the year, operators installed more than 130,000 additional base transceiver stations (BTSs) across the country during June-October 2016. They have committed to install more than 150,000 additional BTSs by March 2017.

The situation, however, is still not satisfactory. DoT will meet telecom operators again during the January-March 2017 quarter for a status check on call drops.

Spectrum auction a damp squib, but hopes remain high

The much-awaited spectrum auction conducted in October 2016 lasted only five days, with limited industry participation. Only about 40 per cent of the bandwidth on offer was sold and the bids yielded less than 12 per cent of the total base price of Rs 5.6 trillion. There were no bids in the 700 MHz and 900 MHz bands owing to apparent mispricing. However, the government’s support in making large amounts of spectrum available was lauded, as also its move to harmonise spectrum in the 1800 MHz band for efficient utilisation.

In 2017, the industry expects a reauctioning of the 700 MHz band at lower reserve prices, which may prove to be a veritable game changer for the country’s underdeveloped broadband ecosystem.

Monetising data continues to be a challenge

While the average data consumption per user is increasing, it is not translating into overall revenue growth for operators. Over-the-top (OTT) content companies are increasing their presence in this market, posing a major threat to operator earnings. Strained revenue growth is holding back operators from earmarking significant capex for technology upgradation and spectrum acquisition.

The market is likely to be flooded with more free voice and data offers, which indicates a further downward pressure on data ARPU growth during 2017. According to Ovum estimates, growth in non-voice revenues will decline to 15 per cent during 2017, compared to 26 per cent in 2016.

Tariff wars led to lower realisations

To counter the RJIL impact and hold on to customers, the incumbents have been slashing tariffs. This move will have a deleterious effect on their earnings and profitability, early signs of which were visible in the results of the quarter ended September 2016. The largest impact has been on the realisations in the data segment as the incumbents have been pushing volumes at the expense of per unit realisation. During the quarter ended September 2016, realisations declined by 10-12 per cent for Bharti Airtel, Vodafone India and Idea Cellular on a sequential basis. Further, the monthly ARPU for GSM services declined by 4 per cent during the June 2016 to September 2016 period. The service sector’s gross revenues and adjusted gross revenues declined by 2.68 per cent and 5.33 per cent respectively during the same period.

Going forward, the data realisation per MB will continue to fall in 2017 and, as per PricewaterhouseCoopers’ estimates, may decrease by 20–25 per cent. The tariff war for the 4G data business is expected to continue, and lead to innovative and customised offers for users.

Strong response to RJIL, but the sailing may not be so smooth

Within the first month of operations, RJIL became the number one LTE operator in terms of subscription numbers. At the end of September 2016, Ovum estimated over 27 million LTE subscriptions in India, of which close to 60 per cent belonged to RJIL. The operator claimed a customer base of over 72.4 million as of December 31, 2016. Now, with RJIL extending its free scheme up to March 2017, its target to hit the 100 million subscriber mark in the shortest possible time may become a reality.

However, the jury is still out on whether RJIL will be able to sustain the momentum once it withdraws the “freebies”. JP Morgan, in its analysis, noted that, given that most incumbent operators are comfortably positioned in terms of financial metrics, they would likely match any aggressive pricing strategy and hence, the effective market share gains for RJIL would be limited. Further, CLSA added that among all operators, Bharti Airtel was the best positioned to withstand competition from RJIL and would gain revenue share owing to its mix of incumbency, improved execution, bigger capacity spectrum holdings and a head start over competitors like Vodafone and Idea in terms of 4G capex investments and data network roll-outs.

Mobile manufacturing flourishes

Mobile manufacturing in India has grown exponentially since the duty differential regime was introduced in 2014, making imported devices more expensive than the locally assembled ones. According to the Indian Cellular Association, the country currently has an annual mobile phone production capacity of about 250 million units, up from 100 million in 2015 and 68 million in 2014. Further, as per a recent report by the Associated Chambers of Commerce and Industry of India and consulting firm KPMG, the handset manufacturing space saw a year-on-year growth of 83 per cent in volumes and 186 per cent in value between 2014-15 and 2015-16.

Riding on this manufacturing momentum, the government expects the country to reach a capacity of 500 million phones, mostly in the low-end category, by 2018. The government, in fact, aims to make India an export hub for the supply of low-end phones to several countries in Africa, Latin America and Asia.

Mobile wallets get a push; payments bank business set to pick up

Demonetisation, coupled with the government’s digital push, increased the adoption of mobile wallets. As per industry reports, the subscriber base of m-payment channels/mobile wallets has grown manyfold, post demonetisation. Paytm, for example, hit a record 5 million transactions per day within a week of the announcement. Similarly, MobiKwik app downloads doubled and the provider added 2,000 users every day during the initial week. Ola Money, the digital payment solution from the Ola mobile app, reported a 1,500 per cent increase in recharges across the 102 cities of its operation, a day after the demonetisation. Telecom operator-owned wallets have also seen some growth in business post demonetisation. For instance, Idea Cellular saw a significant rise in the usage of its wallet, along with a surge in money being loaded in the wallet by customers through debit cards and internet banking.

In November 2016, Airtel Payments Bank became the first payments bank to go live (on a pilot basis) in the country with the roll-out of banking services in Rajasthan. Since then, it has expanded services to Andhra Pradesh and Telangana as well.

The year 2017 started with Airtel Payments Bank rolling out commercial services across the country. The bank, a joint venture (JV) between Bharti Airtel (80.1 per cent) and Kotak Mahindra Bank (19.9 per cent), is offering an interest rate of 7.25 per cent on deposits in savings accounts, but would charge a fee of 0.65 per cent on all cash withdrawals from the account. Further, the bank will allow the transfer of money to any bank account in India at a transaction fee, but money transfers from an Airtel number to another Airtel number within the payments bank would be free. Moreover, Airtel is offering one minute of talktime for every rupee deposited at the time of opening an account, as well as free personal accident insurance with every savings account. In the same vein, Aditya Birla Idea Payments Bank is planning to launch its services in the first half of 2017. This is a JV between Aditya Birla Nuvo Limited and Idea Cellular, with the companies holding 51 per cent and 49 per cent stake respectively.

Conclusion

As evident, there was hardly a dull moment for the telecom sector during 2016 as service providers strived to harvest the Rs 9,270 billion worth of investments they made in the sector over the years. Going by industry trends, 2017 promises to be an equally exciting and vibrant year. It would be interesting to see how the year unfolds as data becomes the new voice and operators strive to get ahead of the competition.

 
 

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