Mritunjay Kapur, Partner and Head, Technology, Media and Telecom, KPMG in India
For the Indian telecom industry, 2017 was a watershed year that saw 4G services hitting an inflection point. There was a sea change in competition, which triggered a bruising price war that significantly improved affordability.
Not surprisingly, data consumption went off the charts and operators with no or very limited 4G footprint were forced to exit amidst industry-wide losses. Consequently, the telecom industry landscape has realigned into what can be called a triopoly.
Despite speed issues, subscriber numbers have soared from 0.5 million in fiscal 2015 to 275 million in fiscal 2018, mainly on account of affordable 4G data rates. The uptake has been so fast that 4G subscribers overtook 3G subscribers in the first quarter of fiscal 2018 itself.
Triggering a data explosion
Even though the 4G service was launched in 2012, the recent explosive growth in subscriptions has been triggered by considerable improvement in data affordability owing to aggressive launches and increased availability of reasonably priced smartphones. Data consumption has grown fourfold in fiscal 2018.
Currently, 91 per cent of data usage in the country is streamed through the 4G pipe. Data usage per subscriber, which was 5.5 GB per month in fiscal 2018, is expected to nearly double to 10 GB by fiscal 2023. By then, around two-thirds of the subscribers are expected to be on 4G networks compared to a fifth at present. However, despite the sharp volume growth, data accounts for only 35 per cent of the total revenue of telecom operators, which underscores the lack of pricing power.
Customers set to benefit from evolving business models
Given the intense competition, and number portability making it easier for subscribers to jump ship comfortably, telecom operators have to keep enhancing the customer experience to gain market share. The operators expect to improve their ARPUs by promoting bundled plans and high-usage data packs, and offering simplified tariffs. Further, compelling local language content, proliferation of over-the-top (OTT) services, and rising smartphone penetration (currently at 30 per cent) should help. In addition, operators are opting for three types of partnerships: for budget handsets and handset-bundled services with handset player; for television, music and news feeds with content providers; and for digital payment solutions with e-commerce companies and app-based transportation service providers. Moreover, operators are offering free international and domestic roaming, as well as cashbacks on the purchase of products from partner firms.
Technology could improve cost efficiencies
As pricing pressure subsides over the next five years, growth will be driven by volume and data monetisation. This will be a function of value-added offerings, streamlining of infrastructure and systems integration. To this end, operators have been investing to upgrade technology, equipment and optic fibre cable (OFC) networks. Operators are also being pushed by more stringent regulatory oversight. For instance, the definition of network and call quality may change and this may result in penalty for call drops. All this is stretching the balance sheets of telecom companies. What would provide an offset, however, is rapid growth in data consumption and cost efficiencies of 4G technology.
VoLTE and OTT content to drive 4G adoption
While 4G penetration (as a percentage of total data subscribers) has increased from less than 1 per cent in fiscal 2015 to about 61 per cent in fiscal 2018, data speeds in India remain among the slowest globally due to network congestion, lack of OFC networks and insufficient tower infrastructure.
While Singapore and South Korea have average 4G speeds of 44.3 Mbps and 40.4 Mbps respectively, in India, it is mere 6.1 Mbps. The roll out of voice over long term evolution (VoLTE) services will help address the issues of high latency and voice clarity by ensuring interoperability. VoLTE’s packet-switched network technology allows voice and data to work simultaneously, enhancing speeds and easing network congestion. Affordable VoLTE-enabled devices and proliferation of OTT content will be additional growth drivers and lead to 4G adoption beyond metros and Tier I cities in India.
Outlook
The strategy of telecom companies to push subscribers to 4G would result in freeing-up spectrum – currently being used for 2G and 3G services – for internet of things (IoT) and machine-to-machine communications. Expanding OFC infrastructure will also support higher data speeds and prepare the network for 5G services. Although telecom players are yet to recover their 4G investments, they are already bracing for 5G.
The government, which has set 2020 as the 5G roll-out date, will unveil its 5G technology roadmap soon. If telecom companies are able to meet the deadline, India will become one of the early adopters of this cutting-edge technology. These companies are not expected to buy additional spectrum for 5G in the near term, given their stretched financials. However, if the gap between the purchase of spectrum and the launch of services was shortened, it would improve both, their chances of meeting the deadline and returns.
From a national perspective, and given greater bandwidth efficiencies, both 4G and 5G will have a big role to play in the digital economy of tomorrow, which would be based on government initiatives such as Digital India, Skill India, remote healthcare, IoT, machine learning, Smart Cities and e-governance.
