Ronnie05's Blog

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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Profiling Cognitive Radio: The 5G driver

Posted in New Technologies by Manas Ganguly on May 27, 2010


The technology evolution from GSM/CDMA to LTE/WiMAX and the Cognitive Radio (which would enable 5G)!

Cognitive radio technologies includes the ability of devices to determine their location, sense spectrum use by neighboring devices, change frequency, adjust output power, and even alter transmission parameters and characteristics.A cognitive radio is a transceiver that is able to understand and react to its operating environment. Thus cognitive radio concerns devices and networks which are computationally intelligent about radio resources and related communications to detect user communication needs as a function of use context and provide radio resources and wireless services appropriate to those needs. Thus the Radio is aware/cognitive about changes in its environment and responds to these changes by adapting operating characteristics in some way to improve its performance or minimize loss in performance.

• At one extreme, is an intelligent device that can reconfigure itself to interact with any radio network in the vicinity, depending on the requirements of the user
• At the other extreme, there is a intelligent device that detects interference and change their operating frequency to avoid it.

Spectral occupancy measurements consistently show that some bands are under utilized in some areas at some times. Recent measurements by the FCC in the US show 70% of the allocated spectrum is not utilized. Time scale of the spectrum occupancy varies from milli-secs to hours. Cognitive Radio increases the utilization of the Radio Spectrum and decreases spectrum holes and white spaces. Thus Spectrum holders are able to use their spectrum more efficiently and sub license it further and supports new models not directly tied to spectrum availability. In short it could facilitate spectrum trading.

The potential benefits include expansion of critical communication networks, higher date rate services to users, enhanced coverage, more extensive device roaming and cost management.Cognitive radio is a promising technology that can significantly enhance utilization of radio spectrum and has the potential to facilitate new spectrum trading approaches and business models.

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Indian Telecom Story (Part XXXb): The case for Telco viabilities

Posted in Industry updates by Manas Ganguly on May 21, 2010

Continued from earlier post: Indian Telecom Story (Part XXXa): 3G a near Reality

The 3G spectrum winning bids are under the microscope because of the huge drains on the Telco P&Ls and there is a lot of debate about how and why the costs that the Telcos have brown to get a 20 year stake in 3G Spectrum are unjustifed. This post tries looking at the costs and the accruals from a long horizon perspective.

High Tariffs and Low Returns
Doubts exist whether 3G services will prove to be a big money-spinner and ease the pressure on the sector, and some experts cite the experience of developed western markets where 3G services are only now starting to gain traction despite being around for at least five years.
The fear of higher prices is misplaced. The higher spectrum charges are sunk costs. Economists remind us that in a competitive market, such costs cannot be passed on to customers. A mobile company cannot attract customers if its tariff is not competitive. In India’s telecom market, raising prices will require a level of concerted action difficult even in simpler markets with fewer players.

Accrual of Benefits
The benefits of 3G spectrum will become even more pronounced once mobile number portability (MNP) is implemented. The presence of 3G offerings will allow operators to retain their premium subscribers and attract subscribers from competing networks; ARPUs for these subscribers are nearly four times the industry ARPUs, resulting in significantly higher profitability.

The Road ahead
The winners will be awarded spectrum in September, which means rollout of 3G services will be possible only by the end of 2010 or early 2011.For at least the first year, the main focus is expected to be on improving call quality. 3G uptake in India is expected to be slow in the initial stages as 3G handsets are costlier than 2G handsets.
Initially, the 3G spectrum to be primarily used for voice services, enabling operators to address the spectrum shortage that characterises the sector today. 3G technology, which is at least twice as spectrally efficient as 2G, will enable operators to service more subscribers with the available spectrum, without compromising on quality of service. This is critical given the lack of clarity on further allocation and pricing of 2G spectrum. However, the commoditised nature of voice services provides little scope for operators to differentiate in this arena. Therefore, to gain an edge, players will gradually leverage 3G technology and provide differentiated value-added services such mobile TV, videoconferencing and high-speed internet browsing. This will enable them not only to improve their ARPUs, but also to ease the pricing pressure that they face on account of intense competition in 2G services. 3G will also help operators reduce network congestion, and thereby cater to more 2G subscribers as well.

Indian Telecom Story (Part XXXa): 3G a near reality

Posted in Industry updates by Manas Ganguly on May 20, 2010

After 4 years of delay, 34 days and 183 rounds of frenetic the Great Indian 3G auction has been a Great Big Fat Success. The proceeds of Rs.67,719 crore raised by GoI on higher-than-expected 3G mobile spectrum sale inflows could lower the government’s borrowing by up to Rs35,000 crore ($7.6 billion) in the 2010-11 fiscal year from estimates of Rs4.57 lakh crore ($99.3 bn). The government is likely to garner an additional Rs 12,000 crore from BWA auction.The notional value of a pan-India slot amounted to Rs16,828 crore, almost five times the reserve price of Rs3,500 crore. GoI fiscal deficit is slated to slide down to 5% from the existing 5.5% from the proceeds of the spectrum auction.

This post examines the views in the industry and otherwise debating viabilities. In an earlier post, I had written about how and why 3G would not be a viable alternative for enterprises.

Disturbing Balance Sheets
The unexpectedly high bids mean that companies have to raise a huge amount of cash to pay for licences, after which they will have to find more funds to buy equipment and roll out services. Operators that have won spectrum will have to pay for it within the next 10 days. Companies will have get rid of some of their assets to pay for 3G.
Airtel’s debt to equity ratio after factoring the cossts of 3G Spectrum acquisition stands at 2.3X while the debt to equity for Idea and Rcom was 3.5X.

Ten years back, European 3G auctions led to a similar bidding frenzy that left telecom operators with broken balance sheets and battered share prices. Telcos are expected to make money on their 3G spectrum only after 4 or 5 years.
The net margins of operators that have acquired 3G spectrum will be strained over a longer period of three to four years. This will be because of increased capital charges (the interest outgo on account of debt raised for 3G network rollout, and the amortisation of 3G spectrum charges). This would place additional pressure on operators’ bottom lines. Estimates by CRISIL for 3G investments at this level by any operator to be value-accretive, the operator will need to garner a total of 2.5 crore 3G subscribers by the fifth year, and charge an ARPU (average revenue per user) premium of 35% over 2G services. By 2013-14, a 3G operator that would enjoy a 500-700 bps advantage in EBDITA margins over one that does not.

Dawn of Industry Consolidation
3G services would be margin-dilutive in the near term, but could eventually lead to a significantly higher margins. Over the longer term, the availability of 3G spectrum can be a game-changer by catalysing consolidation in the telecom industry. For Telcos already battling a savage price war@, the end of the process marks the start of possible consolidation activity or network sharing pacts between operators as losers look to plug service gaps to prevent customers from jumping ship. Given that no single player has acquired pan-India 3G spectrum, the process of industry consolidation would be hastened. The significant pressure on profitability, and the need to gain scale, could induce players without 3G spectrum and new entrants to actively look to merge

to be continued

Indian Telecom Story (Part XXV): A Rs.60,000 crore lost opportunity

Posted in Industry updates by Manas Ganguly on February 2, 2010

The delay in 3G spectrum auction translates into a Rs.60,000 crore loss

The war over vacating the spectrum between the defense and the telecom ministries has already taken 3G to the backseat. Indian bureaucracy and red tapism is virtually killing a big opportunity. The loss estaimation is about Rs.60,000 crores. This will be the damage to the Indian economy by deferring the 3G spectrum allocation for an year. Countries around the globe have stolen the march into 3G and 4G is increasingly kicking off as operators are preparing commercial launches in 2010-11.

The loss amount of Rs.60,000 crore has been arrived at by putting down the direct transactions that would have happened, had the spectrum gone under the hammer as scheduled. During the ongoing slowdown, Indian operators could have negotiated for a better rerate with foreign vendors for rolling services has the auction happened earlier. The UPA government could have benefitted by raking in money through spectrum and annual fee, generated additional employment opportunities for the jobless, banks could have found a golden chance and fund 3G, vendor benefits would have been huge and for the Indian subscribers data and video would have become their friend next door. Additional internet/broadband growth would have impacted out GDP growth.

Rs.40,000 crore would be government’s accruals from the sale of licences from 3G auctions.

Over a year’s time (duration of the delay), the interest cost would be Rs.4000 crore.

Additional revenue generated from 3G services from the government would be Rs.1440 crore.

A Report released by FICCI and BDA Connect early estimated the 3G subscriber base will represent 12% of the overall wireless subscriber base contributing $15.8 billion in service revenues in 2013. 3G ARPU was projected to reach $18.3 billion by 2013, with revenues totaling up to $12.8 billion in the same year. Data was expected to contribute 29% to 3G ARPU from handset users. The government stands to loose 10%, approximately Rs.144 crore as license fee from this revenue as initial deployment is expected to be in metros and category A circles.

Mobile revenue in FY 2008-09 was approximately Rs.95,000 crore, 1% of this amounts to Rs.950 crores.

On the Capex, operators who would have won the bids would have spent about $3billion~Rs.13,500 crore, which has now been pushed back. Greenfield operators are expected to spend more money compared to the established biggies who need to mainly upgrade their network to accommodate next generation services.

3G is being looked up-to as a technology that would improve internet penetration in the country and for every 10% increase in broadband penetration, there is a 1.4% increase in GDP of the country, so the loss can be worked out accordingly.

Digital Dividend: The future in Mobile Communications

Posted in The Technology Ecosystem by Manas Ganguly on October 18, 2009

The govt of India, Telecom  Regulatory Authority of India (TRAI), Cellular operators association of India (COAI), Association of Unified Services Providers of India (AUSPI), Broadband wireless consortium of India (BWCI) and may industry apex bodies are single minded persuing three point agendas in the Indian telecom ecosystem.

1. Mobile Penetration

2. Lowering the costs associated with mobility / Allowing population to go “mobile”

3. Bundling services for the masses through mobiles.

According to studies by Telecom researchers and consultants, Thrust in rural telecom sector can increase GDP by $520 billion in next 8 years. ALso, a 10% increase in broadband penetration can deliver a 1.4% growth in GDP. Currently it is the best available opportunity of bringing 70% of Indian Population who love in far scattered rural areas to the mainstream. Thus the necesssity of a communications model which will reach out to the remotest rurak citizen at lowest capital and operational costs.

As with many other countries, Spectrum limitation and exponentially growing telecom subscribers are putting a lot of pressure on the existing spectrum (900/1800 MHz). The 2.1 and 2.5/2.6 GHz spectrum will have utilities more in 3G and higher end technologies. It is here, that a parallel innovation promises a lot of help. Traditionally TV spectrums have been very wide because of the fact that most of it is analogue. With the coming of Digital age, a large amount of spectrum will be freed up in case of switch over from analogue to digital signals. Digital compression technologies and coding systems make it possible to squeeze much more information into a radio signal than in the case of analogue technology.

Digital DividendDigital broadcasting is roughly six times more efficient than analogue, allowing more channels to be carried across fewer airwaves.The surplus spectrum not required for the Digital transmission is called the Digital Dividend.

  1. It is approximately 70% cheaper to provide mobile broadband coverage in the 698-806MHz band than at 2100MHz.

DD 2

      2.     Lower the spectrum, more the coverage per BTS, in effect reducing the number of BTSs required for an area coverage, which reduces the capex costs.

DD3

Both the reasons considered, a 700 MHz is twice the coverage of 3500 MHz at roughly 20% the cost. Indian Government willing, the Digital dividend could be the next step in connecting the masses in India and reaching out to them with information, technologies that would empower them and allow them to become “mainstream”.

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