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Indian Telecom: The next round of spectrum auction would have to be telecom’s path into the future

Posted in Industry updates by Manas Ganguly on February 23, 2012

Telecom, especially wireless, was supposed to be India’s ticket to economic development. Most operators contend that the government is trying to extract too much from them. The top four firms for instance must have paid close to $15 billion over the last four years itself as revenue share, licence fee, service tax and spectrum charges. Industry watchers contend that if they (the government) tries and extracts more, it will only be counter-productive.

One of the biggest obstacles faced by operators when it comes to breaking even is cost of spectrum (when you consider the rock bottom tariffs), especially when acquired through auctions. In India, spectrum is expensive, scarce and unpredictable. Those need to be changed for operators to be able to innovate around long-term investment plans.

Auctions must encourage competition between not just players but also technologies, say, 2G vs. 3G or GSM vs. CDMA. Technology neutrality is absolutely critical because just like you don’t want a player to have an undue advantage, you should also make sure a technology too doesn’t have one. When regulators pick a technology before the auctions, they’re essentially picking winners

Doing this allows savvy operators to marry the most efficient technology to the spectrum they purchase. Naturally, they’ll pick one that’ll have maximum consumer value.

A unified licence should mean an operator is free to offer whatever combination of technology [it] wants, even if that means a 2G plus LTE data card. The unified licence automatically takes care of revenue leakage.

There is also a case for offering slightly preferential treatment to those operators whose licences got scrapped and are re-bidding, versus those that are completely new. Globally, it’s a well-accepted strategy among regulators to reserve blocks of spectrum for new entrants and provide them certain handicaps. But that is now a political question in India. Incumbents believe that subjectivity and artificial restriction on the number of bidders will only lead to market distortion.

The long-term goal for the regulator must be to figure how to bring more spectrum for auction, more frequently. What is considered reasonable spectrum in most markets like the US and Russia for an operator is 15-20 MHz? That should actually be higher in India, given the size of our market. On the contrary Indian operators have to contend with 4X the number of consumers on networks working on fourth of the spectrum.

Unfortunately we have too much spectrum divided in narrow slices across too many operators, in itself leading to greater wastage. Every time spectrum is divided between two operators, guard bands are reserved around them to prevent accidental interference between them. The more the number of operators, the more the bands. About 15 percent of our spectrum is currently lost due to such guard bands, and in some cases I’ve even heard of 20 percent

After issues around the migration of Defence spectrum are sorted out, next up should be a comprehensive spectrum plan that includes more of lower bands that offer greater propagation at lower cost. Unnecessary secrecy and lack of transparency are three-fourths of the problem in telecom. If you reveal all relevant information in an auction, then players can decide for themselves

Indian Telecom’s New Deal too will need the “Three Rs”—Relief for serious operators and poorly served consumers, Recovery of the sector’s vast potential and Reform in order to bring lasting transparency and fairness.If we don’t get it right this time, the next 10 years of Indian telecom will be like the last 10 years.

This crisis really, never mind the cliché, is an opportunity.

Re-thinking Indian Telecom

Posted in Industry updates by Manas Ganguly on February 22, 2012

Continued from earlier post- Indian Telecom: Under seige

Focus in Indian Telecom now needs to shift from infrastructure creation and network rollout towards reuse of resources and innovation. The concept of tower sharing that began four to five years ago was a great milestone. It showed operators realising there is more value in sharing assets than in keeping them to one’s self. Therefore, Instead of penalising operators for sharing scarce resources, as the drive against “illegal 3G roaming” indicates, the regulator should encourage all forms of asset sharing, including spectrum, provided consumers aren’t being short-changed.

The legislators also need a MVNO policy to allow MVNOs(virtual operators who lease the infrastructure from other operators) into the market eco-system. This enables idle assets become economically productive platforms for consumer innovation. Once this freedom is established, the wholesale market will naturally begin to evolve. Players like Lightsquared, a company that is building a $7 billion wholesale-only 4G network across the USA, could make eminent sense in broadband-hungry India.

Wholesale should be very seriously encouraged. In fact, for BSNL it could be a brilliant option, given its huge strength in infrastructure but almost nothing on the retail side.

The government needs to Encourage mergers and acquistions, by doing away with all restrictions on spectrum held and increasing the combined market share level in consultation with the Competition Commission of India (CCI). Playing the regulator by imposing artificial constraints on mergers, prevents a free play of market forces. When it comes to mergers, fears of cartelisation or monopolisation are almost always overblown.

The concept of regulators determining the number of operators is itself outdated. Regulating the telecom sector requires certain expertise which a government ministry cannot be expected to have. Today we have technological and economic solutions like spectrum and network sharing which should dictate the sectoral dynamics. In fact, the concept of an operator being an end-to-end entity needs to be rethought. They can be just a customer facing entity. Regulators should become innovative and forward looking, and behave like economists. Unfortunately, many dont think and cannot understand and comprehend their basic tasks and responsibilities. Regulators today are still stuck in the pre-91 Hindu-rate-of-growth babudom dominated decision taking authoritarian culture. The market and the economy has evolved multifold and should be treated as a play of multiple market forces where the rule of regulator is to set a level playing field and safeguard customer interest against cartelization.

An alternative model in Spectrum Licensing

Posted in Uncategorized by Manas Ganguly on February 18, 2012

Think of the spectrum like the village commons

In a shock ruling ten days ago, the Supreme Court cancelled 122 mobile phone licences that had been deceitfully awarded in 2008. The ruling sent the telecom industry into chaos, confirmed dreadful corruption in the government’s decision-making process, and damaged the reputation of our nation in the eyes of the world—especially foreign investors. There was much euphoria inside the country, however, for justice had seemingly been served.

The Supreme Court also instructed the telecom regulator (TRAI) to auction the illegally gained 2G spectrum, as it was done in the case of 3G spectrum. “While transferring or alienating natural resources, the state is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate,” said the court judgment. Auctions are certainly a better way to allocate a scare resource than first come first served, but what former telecom minister A Raja did was, of course, preposterous — he subverted the “first come first serve” policy by changing rules mid-way; he allocated spectrum out-of-turn in a non-transparent manner, and that too at 2001 prices, thus creating the biggest corruption scandal in India’s history.

But is auctioning the best way to allocate radio spectrum? Although it is scarce, should it be used as a money-making device by government? Since water is scarce, should it be auctioned? No. The risk in an auction is that “animal spirits” of entrepreneurs forces them to bid very high, which is then reflected in high tariffs, and this forces the poor out of the market. Thirty-one countries have used spectrum auctions and many have regretted it for this reason. India is, perhaps, the world’s most successful telecom market with the lowest tariffs in the world. Hence, it has the highest number of subscribers who are poor. The credit for this goes to the previous government which had the courage to change policy from high license fees to revenue sharing between the telephone company and the government. If the state had been “duty bound to hold an auction”, cell phones would not have reached the poor.

In the ideal world, radio spectrum would be like sunshine which is not owned by anyone or any government but everyone enjoys it without any cost. But unlike sunshine, spectrum is finite and hence it has been historically controlled by governments. It is widely accepted that government allocation is inefficient and leads to corruption. Ronald Coase, the Nobel Prize winner, exploded the myth long ago that governments should control spectrum to prevent airwave chaos. Today many experts think of spectrum as a common grazing ground around a village, which is open to everyone to use freely. They claim that new spectrum-sharing technologies allow a virtually unlimited number of persons to use it without causing each other interference-this eliminates the need for either property rights or government control. This is why the United States has gone ahead and designated a 50 MHz block of spectrum in the 3650 MHz band as a “commons”.

If the spectrum were a “commons” nobody would own it nor need to auction it. A telecom company would merely register with an authority, which would assign it a spectrum frequency for its use. When the company reached the limit of its spectrum, the authority would release it some more. Just as a villager pays a nominal tax for maintaining the commons, depending on how many cattle he grazes, each cell phone subscriber would pay a nominal fee, say a paisa per minute, towards upkeep of the spectrum. It would be form a part of the monthly bill, and transferred by the phone company to the authority. Just as a village needs rules to prevent over-grazing, there would be rules in maintaining spectrum to avoid a “tragedy of the commons”. The rules would be transparent, monitored in real time, and no one would be able to corner the spectrum.

Unfortunately, the Supreme Court judgment has come out so heavily prescriptive in favour of auctions that future governments in India will be shy to adopt a better alternative. Technology is developing very rapidly and soon the world will be ready for an “open spectrum” regime, but the court’s inflexible judgment will inhibit the Indian government in doing the right thing. A pity!

Reproduced from an article by Gurcharan Das in ToI

Indian Telecom: Under seige!

Posted in Industry updates by Manas Ganguly on February 17, 2012

Bad governance and regulation in India is an equal opportunity offender. UPA’s errors of omissions & alleged commissions beginning 2004, has all but ruined one of the best stories of the Indian economy—telecom.

While new entrants struggle for their very right to exist in India, older incumbents are currently staring at the prospect of being “retroactively” charged an estimated Rs. 37,000 crore each for 10 years-worth of “excess spectrum” held by them. State-owned Telcos are being progressively run to the ground, earnest private operators have been waiting for start-up spectrum in key markets for any number of years. When a foolhardy new entrant pops up, and when it bid $1 billion for 4G licenses in four lucrative markets, its application was rejected for thoroughly frivolous reasons.

A mish-mash of secretive and uninformed regulators—the ministry of Telecom, TRAI, Department of Telecom, TDSAT—work at cross-purposes with each other. Operators and other stakeholders come to know of regulations via frequent “leaks” to the media, in most cases traced back to unauthorised photocopies of official documents that are palmed off and sold by junior staffers. The phrase “regulation through photocopy” would not be out of place, most stakeholders agree in private.

With nearly 900 million subscribers across seven to 15 operators (depending on whether you include the ones whose licenses were cancelled), regulators ought to understand Indian Telecom is no longer in its infancy. The whole idea of prescribing how an eighth, ninth or tenth operator should roll out their networks doesn’t make sense today. Consumers need service competition, not multiplicity of infrastructure. There is a strong belief that this logic of introducing many more operators in each regional market may not be consistent with how wireless telecom has evolved across the world. According to the credit rating agency CARE’s research, on an average there were 15 players (both GSM and CDMA) in a telecom circle in India as compared to three in Singapore, three in China, four in Mexico and five in the US.

Out of the total 122 cancelled licences, 39 licence areas (about 32 percent) are under-utilised as these many operators did not even have 1,000 subscribers in many circles as of December 2011, implying the services were not fully rolled out. And here’s a telling comment on the state of the industry: After the cancellation of licences, average number of operators will come down to around nine to 10.

This indicates that further entry of operators beyond four or five does not significantly increase the competitiveness of the market. And what do the fringe guys have to show for their efforts? A $2 billion pan India network without any subscribers!

(to be continued)

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Summarizing 2011 for Indian telecom

Posted in Industry updates by Manas Ganguly on December 25, 2011

2011 is perhaps Indian telecom’s biggest year yet with launch of 3G services, mobile number portability implementation and 175 million new mobile phone subscribers in 10 months, taking the total subscriber base to 881 million.

However there have been challenges for the Indian telecom businesses-

1. 93 percent of users are low-spending pre-paid users
2. A low ARPU together with high energy costs for the diesel backup for a half-million towers, it’s a struggle for margins.
3. 3G licenses have come at a very heavy cost and the impact is in terms of cash strapped operations for many Telcos. The government made a lot of money and squandered off a little more, but that is a different story.
4. Inspite of huge investments on 3G, Poor user experience and a lack of content failed to draw users, killing all operator hopes of recovering that money.
5. Mobile number portability: 25 million users applied to switch operators while retaining their number, with 2.5 million requests pouring in each month. The churn is also taking its toll as Operators are responding with tariff cuts and deals.

A few future defining trends also shaped up in 2011 as markets evolved, matured and consolidated:

1. 2011 is possibly the year, when the Indian Telecom Industry moved up from a entry to a replacement market. The new sub adds plummeted to 6-7 million per month as against an average of 15-20 million activations in 2010.
2. Data emerges the hero as Telecom starts evolving from a some-what voice centric industry. 2011 should herald the decade of data for India with preliminary 3G and EVDO Rev. B launches. LTE is round the corner.
3. New classes of devices such as Smartphones and Tablets in the entry level with advanced OSs and application capabilities widen the consumer choice as well as the experience. Low cost Androidss are driving smartphone adoption rapidly across in ~$80 price segments
4. Tariffs bottoming out, Indian Telcos look for the next springwell of revenue and profits and new revenue models would start to emerge. Operators are looking at various VAS aided business models to augment their margins and profits.
5. The Aakash Tablet (and NotionInk’s Adam before that) established India’s status as a low cost innovator. Going forward with the markets in SE Asia and Africa being key to telecom growth, India will feature as a global innovation and R&D centre
6. The government has announced the NTP (National Telecom Policy) which is a proactive step in terms of defining telecom sector businesses going forward. The industry awaits greater clarity on a few issues such as mergers and acquisitions and we will see things get more clear and better as wel go along.

The pictures in Numbers: Indian Mobile Handset industry

Posted in Industry updates by Manas Ganguly on November 22, 2011

Gartner release on the size and growth projections of Indian Mobile handset numbers:

Mobile handset sales in India, expected to grow an annual 8.5 percent and reach 231 million units in 2012
Annual Mobile handset sales in India to top 322 million by 2015
Smartphone sales 6 percent of the total device sales in Q2, 2011. Gartner expects to go up to 8 percent in 2012
Average selling price ASP for a mobile device sold in India is about $45
75% of the Mobile devices sold costing below $75

These set of projections amongst other things emphasize the growth of the smartphone segment in the mobile phone markets. Smartphones are projected to grow by 45% as against a total market growth of 9% Y-o-Y 2011-12.

The report also speaks about the waning klout of the Tier A brands to the local and Chinese brands such as G’Five, Micromax, Spice, Karbonn.Going forward in 2012, the big global brands will continue to face competition from local and Chinese brands as some of these brands are building capabilities to compete at a larger level covering broader consumer segments.

VAS update: Indian Telecom (Part I)

Posted in Industry updates by Manas Ganguly on November 17, 2011

Contribution of VAS or non-voice revenue of Indian mobile operators is 13% of the total revenue or Rs.13,026 crore in FY11. Higher spectrum bamdwidth to push VAS in India have been around for about and year now and there are movements which if not scape changing and huge, are definitively moving towards a wiser set of Value Added Services with deeper reach.VAS in India contributes approximately 13% of operators’ revenues, whereas in other countries its contribution is around 25-30 percent. On another note, it is an observation that, VAS services come to full bloom ion an average 2 years after the implementation of 3G. That has been the case in European and American roll outs. India was late to the 3G technology club, and hence VAS services have not found the required network environment to push higher end services.

Despite getting huge recognition and prominence in the telecom industry, Indian VAS players need to shake away a few more crucial bottlenecks to reach a full bloom. The VAS industry also faces challenges like reconciliation issues with operators, delayed payouts from operators, and lack of a common body to offer unified short codes, which work across all operators at the pan-India level.

Even though the VAS players know their customer’s demands, majority of content producers are only producing VAS content that has low cost of production, eg, wall papers, ringtones, astro, or other plain vanilla text based content. Since the content producers get extremely low revenue shares from the mobile operators, hence they are doing so. And, since the mobile operators do not get any specialized content, therefore they give low shares.

The mobile VAS industry needs to work towards building up an ecosystem where in each and every stakeholder should benefit in the value chain process. The time has come to break away from this vicious cycle and convert this process into a value chain.

Today, a typical value chain in the MVAS industry encompasses content creators/providers, mobile advertisers, aggregators, technology enablers, telecom service providers, and end-users or subscribers. Also, it’s to be noted here that in the value chain of MVAS, telecom service providers are a very big entity in comparison to the content providers/content aggregators who are basically SMEs.

Since there is no standard format of agreement between the telecom service provider and VASPs for VAS, hence the telecom service providers being the core of the MVAS value chain, usually dominate in finalizing the terms and conditions of the agreement.

The VAS industry in India is at a nascent stage. In the present scenario, there are quite a large number of small and medium sized content aggregators and technology enablers.

Generally, such VAS providers depend on the facilities provided by the telecom operators. Effective cooperation and collaboration among various stakeholders is a key factor to form a healthy value chain of VAS. Looking at the potential of MVAS, there is a need to develop a suitable framework, which will enable consumers to access a variety of VAS, promote entrepreneurship, and at the same time create additional revenue streams for the service providers.

to be continued

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Indian Mobile markets: Looking ahead at Growth & Consumption

Posted in Industry updates by Manas Ganguly on November 4, 2011

According to a study by FICCI and E&Y, demand of mobile phones in India is expected to reach 350 million units per annum by 2020. The same source estimates the current size of the domestic Mobile market is close to 130 million p.a. My estimate from a few other sources roughly put the current size of the Indian mobile phone market at 170 million p.a. Given the variance in numbers by about 30%, the CAGR calculated for the 350 million p.a number is around 7-10% (Depending upon whether you choose 130 million or 170 million as the base).

E&Y FICCI estimate 505 million handsets are estimated to be manufactured in India, during the same year (2020), which would thus establish India as a global exporter of entry level and feature phones. Towards this, the study establishes a need to set up handset manufacturing cluster parks that would enable a sustainable ecosystem for the manufacture of mobile handsets in the country. The study has found that average selling price (ASP) of handsets in the country is estimated to increase to Rs 2,950 by 2020 as compared to Rs 2,300 in 2010. Thats a healthy 40% increase in ASP of the phones.

Affordability of feature-rich handsets and consumption in rural markets is expected to be a key enabler of handset adoption.A favourable policy and regulatory initiative conducive for handset manufacturing in India is expected to drive sustainable growth in this segment.

The number of 3G subscribers expected to cross 300 million by 2020, fuelling the growth of 3G-enabled handsets.

Highlights of Draft National Telecom policy 2011

Posted in Industry updates by Manas Ganguly on October 10, 2011

Mission of NTP 2011:- To offer Broadband on Demand to all Indians and develop state of Art network special focus on rural broadband.

Vision of NTP 2011:- To provide secure, reliable and high speed broadband to all.

Rural Initiatives:-
1) To increase the rural density to 60% by 2017 from 35%. And ultimately to 100% by 2020.
2) Provide high speed Broadband to village panchayat through the high speed fibre by 2014.

One Country, one license regime:-
1) Intra Circle MNP to be allowed.
2) Review of the roaming charges, with the ultimate aim of removing them.

Spectrum initiatives:-
1) To provide 500Mhz by 2020, 300Mhz by 2017 and further 200Mhz by 2020.
2) To allow pooling, Sharing and Trading (later on) of Spectrum .
3) Separate spectrum Act to be enacted for the management of spectrum.
4) Spectrum to be de-linked from license. And the price to be determined through market driven process.
5) Periodic Audit of spectrum to make sure that it is utilised efficiently.
6) Roadmap for spectrum every 5 years to ensure the future availability.

Other highlights:-
1) Affordable broadband on demand to 175mn by 2017 and 600mn by 2020, with minimum speed of 2Mbps.
2) Will seek TRAI’s recommendation on new licenses, migration to new licenses and exit policy.
3) To regulate VAS, in order to provide the converged services.
4) Change in the definition of broadband from current speed of 256Kbps to 512Kbps and finally to 2Mbps.
5) Delinking license from the usage of service- network provider is not necessary the service provider.
6) Promote the domestic manufactured equipments upto 80% of total requirement.

Telecom success inspires Indian Policy Makers

Posted in Industry updates, Technology impact on economy and population by Manas Ganguly on October 6, 2011

Inspired by the success of Telecom sector and the advent of mobility, the Government of India is relentlessly pushing for better services, reach and depth of telecom services as a economy support, enabler and growth engine for India. The policy makers think of Telecom as a medium to reach out to the far and inaccessible corners of a rather large state.

A couple of new initiatives are worth mentioning in this regard.

1. The Ministry of Human Resource development (mHRD) along with a UK based device maker DataWind have produced the cheapest tablet/ computing device in the world. Called Aakash (meaning Sky In Hindi), the 7” tablet combines Android 2.2 Froyo, a 336 MHz processor, a 800*480 WVGA resistive screen, 256 MB RAM and 2GB flash memory along with 32GB expandable memory with a 2100 mAH battery in what could be best termed as Frugal Innovation targeting the bottom of the period. The product is priced at an unbelievable $38 and the government is subsiding a lot of it to make it available to colleges and universities.

Not only does this mark the entry of a computing devices to Sec C,D and below consumers, it also opens up a new avenue for internet penetration. It is also expected to spawn off a hundred apps and other value added services

2. To support services through wireless, the government has also at least five new frequency bands, including the 700 Mhz band, for telecom services (mobile broadband). The 700MHz digital dividend was earlier being used for analogue TV signals. The other major spectrum allocation is the use of S-band has been opened up for broadband services. This band, falling between 2.5 Ghz and 2.6 Ghz, is being currently used exclusively by INSAT systems for satellite based services including meteorological data dissemination. If the Plan is implemented then telecom companies could get access to about 200 Mhz spectrum more, which could boost broadband coverage. However, the NFAP is only a broad guideline outlining the future roadmap for spectrum usage in line with international standards. The actual implementation of this Plan depends upon inter-ministerial negotiations.

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