The way forward for Indian mobile communication, part four (out of five)

The following was presented at the session “Conceptual Issues in Spectrum Pricing and Market Competition” at the regional International Telecommunications Society’s conference in Delhi 22-24 February 2012

3G set to take off when smartphones reach EUR 50

India has during the last couple of years been a growth engine for the global mobile market, adding up to 20 million new subscribers per month, but from the second half of 2011 the growth rate has come down. But given that the share of active customers is 73% (source TRAI) of the reported 900 million mobile subscribers in India, there is still room for more growth to come. Bharti Airtel has not only the largest market share with 20%, it has also the highest share of active customers (93%) compared to Uninor (owned by Telenor) with a 4% market share and a lower share of active customers (58%). Besides an intense competition among the around 10 mobile operators’ low prices on GSM handsets (from EUR 15) has been instrumental for the mobile explosion in India. The extensive use of multiple SIM phones facilities the mobile subscribers in India to always call with the lowest tariffs and make on net-calls. The average revenue per minute for the Indian operators is 0.5 eurocent, representing 1/20 of the average revenue per minute for the Swedish operators.

Although 3G spectrum was auctioned in 2010 the 3G market is still in an early phase as prices for smartphones are still too high. It should come down below EUR 50 in order to convince Indian consumers to migrate from 2G to 3G. Neither could the Indian consumers expect any subsidize from the Indian operators in order to kick-start 3G as the Indian market is set to remain a prepaid market.

The so called 2G scam which culminated with the Supreme Court’s decision to cancel 122 2G licenses has thrown India into a stand-still situation. The authorities are currently considering various options for the re-allocation of the spectrum, likely to be open for all operators. But the Department of Telecommunications (DoT) has stated that it needs 400 days to make the preparations for the auction. The communication minister has signaled that 4G spectrum will be auctioned later in 2012, and the National Telecom Policy (NTP 2012) is aiming to release more spectrum for mobile communications and establishing a more flexible framework toward spectrum sharing, mergers and acquisitions. The regulatory uncertainty is negative for the telecom market in India, and given that telecom is a vehicle for economic growth, India should take action in order to capitalize on the potential of mobile broadband.

Firstly, spectrum policy has to be shaken up

India is maintaining ideas that were relevant in 1995 with spectrum holdings of 4.4 MHz as a base level and 6.2 MHz as the steady state level despite the fact that the steep growth of mobile communication has put the networks under severe capacity pressure. The environmental aspects of fragmented spectrum holdings is extensive as it has driven cell splitting which is filling urban areas with numerous base stations, and with the massive consumption of diesel to the run the base stations it is also a pressing environmental issue. The Indian operators have less than 2 x 10 MHz of 2G spectrum, and for example Bharti has 2 x 5 MHz of 3G spectrum in 13 circles while is depending upon roaming in 9 circles. Compared to other markets the Indian mobile operators has extremely limited amount of spectrum and in order to facilitate for a coming mobile broadband boom in India the authorities has to facilitate larger spectrum holdings for the operators.

Secondly, release additional spectrum

The 3G auction did only allocate 2 x 20 MHz as the remaining 2 x 60 MHz of the IMT-band is locked in with the military. Besides to reallocate spectrum in the 2G band the second digital dividend in the 700 MHz and 4G spectrum should be made available for the Indian market. A sign of a positive development is that the India’s telecom ministry expects talks with the defense forces will facilitate for DoT to soon vacate spectrum in the 1.7 and 1.9 GHz bands to take place. The NTP 2012 states that the Indian government is set to release 300 MHz to 2017, and another 200 MHz to 2020. The Indian Telecom Regulatory Authority of India (TRAI) would like to make even more spectrum available with 500 MHz by 2017 and another 300 MHz by 2020. All adding up to that the Indian authorities should release a substantial amount of spectrum in order to facilitate the Indian mobile broadband wagon to move.

Thirdly, let competition and dynamics work on the market

Although the NTP 2012 state a more positive stance toward spectrum sharing it should not be combined with a disincentive through additional license cost for shared spectrum as well as held spectrum. The regulatory framework should go through an overhaul in order to support the market development, and allow for a market consolidation, active network sharing and facilitate economy of scale. And the current regime with escalating license charges where more spectrum trigger a higher ratio for license cost should be replaced with a uniform level in order to facilitate necessary consolidation and fair competition. The aim should be to promote the market development and avoid overregulation and regulatory uncertainty. All with the ultimate goal to promote a sustainable level of competition with operators that has the financial capability to provide capacity for the coming mobile broadband expansion. This should ultimately result in a wide range of price worthy services for the Indian consumers.

Concluding, as the Indian telecom market is the second largest in the world it has an impact on the overall global market development. The Indian fixed broadband is limited, currently connecting 13 million subscribers representing a 1% penetration, but India is deploying a “National Optic Fibre Network” which will give a push for the fixed broadband market. Nevertheless, the Indian broadband market is going to be dominated by mobile as it is set to provide access to the Internet for the majority of the market making spectrum to a bottle neck resource. This makes the spectrum issue to the single most important question for determining the future development of the mobile broadband development in India, ultimately also having a significant impact on the socio-economic development in India.

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