The telecom vendor community had a fairly good year in 2016, on account of the increased momentum of government initiatives such as Digital India and Smart Cities. Business also received a fillip with operators modernising and upgrading their networks. Leading vendors share their views on the industry’s performance during 2016, the key challenges faced by the industry, and the expectations for the coming year…
How did the industry perform during 2016? What are the key technology trends?
The telecom industry is at a very interesting juncture in India. On the one hand, industry players are focusing on transforming their networks to cater to future experiences for their customers. On the other, they are looking at retaining customers and market share – both of which have been influenced by market forces that have triggered a phase of consolidation and mergers and acquisitions in the industry. The entry of a greenfield operator triggered a price war in the industry and led to other operators pushing new data products, with pricing as an important element. We feel that 2016 has been a watershed year, triggering a shift from voice-driven usage to data-driven usage by Indian consumers, a phenomenon that will create new challenges for key players in this market.
With the government making major policy changes, with digitisation as the key pillar, we believe that the telecom sector has huge potential to contribute to the development of the country. However, its realisation will depend largely on how the government creates a further momentum through suitable policies and involves key sector players to be able to move to the next stage. With the recent focus on enabling broadband access for the masses (especially outside major cities), the creation of smart cities and enabling a digitised lifestyle, there is a huge opportunity for the telecom sector to contribute. New technologies like 4G, 5G, cloud and machine-to-machine communication are fast emerging and will change the way we consume technology in our daily lives. Other important aspects are enterprise transformation and device penetration, which are critical factors for the next wave of telecom growth. India is already one of the largest smartphone markets in the world in terms of volumes. With smartphones becoming more affordable, the country must focus on deeper proliferation of devices. As an industry, we must concentrate on developing localised content, which will trigger and enhance the usability of telecom infrastructure and create a better business case for future investments in this sector.
Currently, we have over 225 million smartphone users in the country and the number is steadily rising. The question is of providing adequate data and quality through network upgradation. While voice and internet connectivity has been steadily improving in urban areas, the launch of Reliance Jio’s 4G services has also played a key role in the rapid penetration of high speed internet and 4G/long term evolution (LTE)-enabled smartphones. Interestingly, sales of mid-segment smartphones have witnessed sharp growth in the last few quarters. The next phase should carry this positive shift to the semi-urban and rural parts of the country.
We saw the widespread roll-out of 4G/LTE services by several operators, an increase in data usage and a softening of data tariffs. This year also saw a lot of first-time broadband users get on to mobile internet.
The roll-out of 4G/LTE services has led to significant investments in backhaul/core networks in order to scale them up for the higher speeds needed by 4G. We are seeing operators putting special emphasis on fiberising their cell towers and building optical networks for backhaul to the extent possible, rather than rely on low speed microwave radio backhaul. For instance, 2016 saw the lighting of several 100 Gbps links by service providers in order to scale up their capacity.
We also saw a huge push to digital wallets and electronic transactions. This was enabled by 3G/4G connectivity and, in turn, helped push up demand for mobile internet. 4G data tariffs have dropped enough to make voice calls over 4G connections cheaper than traditional voice calls. This is causing subscribers to increasingly use VoIP in the form of WhatsApp or Skype to make calls to one another.
There were three-four key trends evident in the industry during the past one year. First, 4G roll-outs got accelerated. Although 4G is still at a nascent stage, operators have started investing a significant amount of their capex in 4G. This has been due to a positive momentum in the spectrum reforms and spectrum management space that includes spectrum harmonisation and new bands being made available. In 2016, with spectrum scarcity somewhat abated, operators looked at rolling out 4G with the spectrum that was auctioned in 2015 and in 2016. Nokia has been winning deals in this area of investment by operators, notching 4G deployment deals with Bharti Airtel and Idea Cellular in 2016. We are also witnessing rapid adoption of new technology in India, which is at par with the world and, as operators strategise their next level of 4G roll-outs, we will see 4G expansion happening at a much faster pace. At the same time, investment in 2G and 3G roll-outs is expected to continue for some more time. Another area where investments have been focused in 2016 is the modernisation of technology. There is a lot of legacy equipment in the network because of the large 2G and 3G installed base. This infrastructure needs to be modernised to roll out new-generation technologies. We are also seeing an increasing trend in indoor data consumption, which is going to fuel growth for new technologies such as small-cells and Wi-Fi.
Moreover, voice is set to become an integral part of LTE, as it is today with 2G and 3G. As this evolution continues, LTE and voice over LTE (VoLTE) are becoming the mainstream technology in India too. Nokia is enabling this with its VoLTE solution that allows operators to take full advantage of the LTE network, according to industry standards coexisting fully with the existing voice core. Outside the mobile industry, a lot of traction was witnessed around the internet of things (IoT). IoT is being seen as a transformational area, which will have an impact across sectors. The implementation of IoT has already started and is expected to gain pace in the coming years.
What are your views on the progress made under government initiatives like Make in India, Digital India and the Smart Cities Mission? How are these benefiting the equipment industry?
We are excited about government initiatives like Digital India, the Smart Cities Mission and Make in India. Huawei has global experience and we would like to contribute towards enabling this vision. Technology is moving at a more rapid pace than ever before and India’s ICT marketplace has been witnessing significant shifts over the past few years. Social, mobile, analytics, cloud and increasingly, IoT have become the key driving forces for the rapid evolution of digital businesses.
Huawei’s joint innovation solution and demo centre in Bengaluru are testimony to our commitment to partner with the government in its Digital India vision. The centre, through its solution innovation programme, aims at enhancing customer experience by cooperating with Indian as well as global partners and providing localised solutions, services and training support. As a leading ICT solution provider, we have got a huge opportunity to contribute to the country’s advancement.
While Make in India policies such as preferential market access (PMA) for government procurement of telecom products already exist, there is significant scope for improving the implementation of these well-intended policies. We have to use our large domestic demand and government procurement to nurture domestic products and ensure that the local industry reaches economies of scale. Similarly, the Modified Special Incentive Package Scheme of the Ministry of Electronics and Information Technology should undertake timely disbursement of incentives for companies whose projects are already approved.
The Smart Cities Mission and the Digital India envisage connecting thousands of devices. Reliable communication infrastructure is the backbone for these projects. They require a lot of new telecom infrastructure to be built and we must use them to create a market opportunity for innovative domestic product companies. Indian companies can use this opportunity to build their base and then start exporting to other countries that are executing similar projects.
From the Digital India standpoint, the focus has been more on the digitisation of infrastructure, both public as well as private. In this regard, connectivity has a very important role to play. We are witnessing a transformation of networks as well as the information technology (IT) space.
There is a lot of traction on the cloud front, with telecom operators showing interest in shifting their legacy infrastructure to the cloud. Network function virtualistaion and software defined networks are also attracting attention as these reduce hardware requirements and focus on more flexible and scalable software-centric deployment. Moreover, “IP-fication” of the backhaul to meet the growing requirements of a digitised economy is on the anvil.
There are also huge opportunities in indigenous manufacturing, which Nokia is already tapping into. The Smart Cities Mission, too, presents multiple opportunities for the industry in terms of providing connectivity across all facets of the initiative. The year 2017 is going to be a trendsetter for realising these plans. These three initiatives – Smart Cities, Digital India and Make in India – have made good headway in 2016 and we expect them to move at a faster rate this year.
What are the key challenges faced by vendors? How can these be addressed?
End-user requirements are continuously changing. This phenomenon is also visible in the Indian telecom market, where users are continuously moving from voice to data and want to be online 24×7 across the range of end-devices they use. This complete change in user behaviour forces service providers to continuously invest in their infrastructure, resulting in severe ARPU pressures on customers. This further creates pressure on vendors to provide innovative solutions that are not only efficient, scalable and future-ready, but are also able to keep costs under control. Keeping customer needs and success goals in mind, we at Huawei invest more than 10 per cent of our annual revenues back into innovation, research and development. We firmly believe that, with a suitable policy framework and innovative business models around device penetration and investments in agile networks, both for carriers and enterprises, telecom growth in this market can be sustained and value can be added for investors and end-consumers as well as partners like us.
Rapid technology penetration and a strong entrepreneurial spirit among the youth have led technology-based start-ups in the fields of e-education and e-health to rise. Moreover, with the government’s demonetisation initiative and the upcoming GST norms, the national income is expected to increase. With the laying of information highways, it is also important to invest significantly in the logistics infrastructure of the country. With the opening of several key port hubs, connectivity to and from these ports needs a major revamp to promote exports. With many big companies planning to set up manufacturing hubs in India, the road infrastructure will be a vital selling point in terms of location.
Barring a few companies like Tejas Networks, whose products have been successfully deployed in all major networks in India (including those of private telcos) and are being exported, we need to find ways to nurture the domestic industry and give it an opportunity to reach global economies of scale.
The PMA policy has to be strictly enforced, at both the central and the state level, and should be monitored at the highest level. Security-sensitive projects (in defence and government) require the use of trusted domestic products. This is what other leading countries do. Government tenders often have restrictive conditions that eliminate domestic products in the bidding and favour MNCs. Such practices should be eliminated and non-compliance, if highlighted, should be addressed immediately.
Spectrum availability: While the government has committed to making more spectrum available to operators, it is essential to delve into various related aspects such as the quantum of spectrum to be made available and the bands in which the industry requires spectrum, to get support for the Digital India vision and prepare for 5G, IoT, etc.
Device penetration: We have a huge amount of dependence on mobile device penetration. Hence, one of the things that operators will have to continue to do is to retain a 2G, a 3G and a 4G layer for a long time because the device ecosystem is split and it will continue to remain split. For IoT to be successful, a lot of ecosystem development needs to take place. The penetration of smartphones in the country and other LTE-enabled devices is still limited. This could prove to be a deterrent for large-scale deployment of IoT.
Data monetisation: India is a very price-sensitive market, making it challenging for operators to monetise their data assets.
Consolidation: Consolidation among operators, vendors and ecosystem partners can have an impact on government programmes. However, it is both a challenge as well as an opportunity.
What are your growth expectations from 2017? What are the key demand drivers?
An intelligent world is on the horizon as technologies like cloud computing, IoT, video, big data and artificial intelligence (AI) are advancing at a blazing fast speed. Service providers around the world are gradually shifting their network construction models from an investment-driven approach to one that is more value driven. Moving forward, we will work to enable carriers’ networks to support more connections, help them position video as a basic service and achieve business success; lead the transformation of their IT systems towards cloud architecture; and assist them in building digital operations that deliver a real-time, on-demand, all-online, do-it-yourself and social user experience.
As digital transformation picks up speed in the enterprise space too, IT is evolving from a support system to a critical production system. Digitisation in verticals will open up opportunities for us to reshape the ecosystem. Meanwhile, smart devices will take on an infinite number of forms in tomorrow’s intelligent world. Keeping up with the rapidly evolving consumer demand for smart devices will require continuous investment in AI, human-machine interface, big data and other cutting-edge technologies.
In India, the thrust created through the creation of smart and safe cities and digital transactions will lead to greater use of technology by people in their daily lives and thus, generate greater demand for ICT solutions.
Digital India is an essential growth driver for the Indian market. With the BharatNet project alone over 59,945 gram panchayats have been connected through broadband, with a network spanning over 137,515 km as of November 2016, as per a report by the Department of Industrial Policy and Promotion. Further penetration into the rural areas and increased deployment of services over the network are going to further fuel the demand for optic fibre cable, which is a healthy sign for the industry. There is also significant interest from the private sector in launching FTTx services across the metros. Many smaller players have already launched their services in the market, which seem to be a big hit with urban consumers. High speed connectivity and significantly lower downtime are drawing urban consumers to invest in long-term solutions for their internet needs, which are more cost-effective than conventional broadband connections.
The year 2017 has started on a positive note, but of a different kind. Demonetisation has shaken the Indian economic system to its roots. It has changed the way we do business in our daily lives. It has changed the notion of money being physical object to its having a digital value. The government has continuously ramped up its efforts by investing in large-scale telecom and internet projects in the country, aiding the transition towards a digital economy.
The future seems to be sunny overall. However, we must not forget that strategic and sustained investments in infrastructure are required for maximising consumer benefits in order to unlock the whole potential of the Indian market.
We expect that 2017 will herald the start of a new capex investment cycle for telecom operators, driven by an exponential increase in data traffic due to a higher level of internet and broadband penetration, and the advent of LTE/4G. Given that less than 20 per cent of cell sites in the country are connected by optic fibre, we expect India to become one of the fastest growing markets for optical networking in the next three to five years. Globally, countries like China and the US have over 80 per cent of their cell towers on fibre and India will need to reach similar levels to deliver a high quality broadband experience. The recent changes in right-of-way rules should also accelerate this process.
With a digital/cashless economy gaining a foothold post demonetisation and millions of new users expected to come online, especially in Tier 2 cities and rural areas, there will be a need to expand the coverage of existing 3G/4G services and upgrade the older 2G networks in those areas to 4G.
We also expect that government projects like BharatNet and the Smart Cities Mission will get into fast-track execution mode and provide a growth opportunity for domestic product companies under the PMA policy.
We also hope that telecom project exports will become a focus area under the government-to-government trade with countries in the ASEAN, SAARC and African regions. High-tech exports are of long-term significance and have the potential to generate multi-billion-dollar export revenues for India.
The Indian market is seeing huge data growth and will require both coverage and capacity. And that is where a majority of telcos’ investments will take place. Besides 4G and building a seamless broadband experience, telcos will have to adopt IoT as well. As data consumption increases, the focus will be on analytics, automation and customer experience.
The key growth areas for the industry will continue to be:
- 4G: 4G roll-outs will continue. There is expansion expected from Tier 1 to Tier 2 cities and eventually to Tier 3 cities by end-2017. The year 2017 will be a defining one for 4G roll-outs and expansion.
- IoT: IoT is already happening and will continue to attract interest from the industry. But a lot of ecosystem development has to take place from the device, application and data monetisation standpoints. Whether it will happen on LTE, or 2G or 3G networks remains to be seen.
- Virtualisation and the cloud: These will help operators achieve greater efficiency in their infrastructure. We will see a lot of “cloud-ification” on the IT side as well as on the telco-grade network side.
- VoLTE: Post the recent spectrum auction, with all the major operators securing a larger LTE spectrum footprint across the nation, there will be faster adaptation of VoLTE in the market in 2017. Other than these, it will be business as usual on the 2G and 3G fronts.