India’s Telecom Commission Sets 2,100 MHz Spectrum Prices Above Regulator’s Recommendation

India’s Telecom Commission—the highest decision-making body in the Department of Telecommunications—has set the price for bidding in the country’s upcoming 2,100 MHz band spectrum auction at INR 37.05 billion (US $604.2 million) per MHz. This price is 36 percent higher than the price of INR 27.2 billion (US $443.6 million) that was recommended by the Telecom Regulatory Authority of India (TRAI). In addition, the Telecom Commission has agreed to auction only 5 MHz of spectrum and not the additional 15 MHz that are also available due to spectrum that has been freed up by the defense ministry. Much larger blocks of spectrum in the 800 MHz, 900 MHz and 1,800 MHz bands will also be auctioned at prices that the government has also set to be higher than the regulator’s recommendation. India’s government wishes to raise between INR 80 billion (US $1.3 billion) and INR 1 trillion (US $16.3 billion) from this auction. The auction, which was originally scheduled to take place in February, has been pushed to 4 March. While India’s Department of Telecommunications did not specify the reason for the delay, it could be caused by the lack of agreement as to the price of spectrum, particularly in the 2,100 MHz band.

As we have previously written, India’s government wanted to raise INR 40 billion (US $652.3 million) in the country’s 2014 spectrum auction, but it actually garnered under INR 10 billion (US $163.1 million). It appears that with the present auction, as with the one in 2014, India’s government is only considering maximizing revenue as a factor to determine the base price for bidding. While the government has a deficit to reduce, it should have no reason to believe that taking this route of high reserve prices would have any more success than it did in the past. But keeping spectrum prices low might be more in the interest of the country’s telecom sector. India’s very large mobile market has a lot of potential to grow and to enable the country’s MNOs to expand their networks and increase services because lower spectrum prices will result in the MNOs having more money for infrastructure investment. It has become clear that in developing nations, the growth of the telecom sector adds to the growth of the country’s overall economic status, mainly because in these “mobile first” countries mobile broadband enables internet access as a means of conducting business in many industries. The Telecom Commission may also want to take note of TRAI’s warning against the higher prices because it may also result in the operators not presenting any bids.

“Developing nations in particular should consider many factors when setting reserve prices for spectrum auctions. As smartphones are becoming more affordable in these countries and users are seeing the value of data use, operators need to build out their networks to be able to provide more coverage and better service. The growing mobile sector in these countries will help to drive their economies upward, and governments should be mindful of affording operators ways to upgrade infrastructure.”

Jamie Davella,

Research Analyst at Tarifica

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues or to speak with the research team: http://www.tarifica.com/contactus.aspx

Mobile Data Price War Appears Imminent in India

Bharti Airtel, India’s largest mobile operator, has announced that it will begin offering its 10 GB high-volume 4G data plans for less than the comparable 3G plans. The 33 percent cost differential between 4G and 3G plans—INR 999.00 (US $16.14) versus INR 1,499.00 (US $24.21)—is substantial. For the operator’s lower-volume data plans—1 GB, 4 GB and 5 GB—the prices of both 3G and 4G service are nearly identical. Bharti Airtel was the first operator to launch 4G service in India and now offers these services in 12 cities including Kolkata and Bangalore. The operator says it plans to expand this offer to Delhi soon. The announcement about pricing has sparked a response from competitor Reliance Communications (RCom), which unveiled an INR 999.00 (unlimited data plan with speeds of up to 14.7 Mbps. With regard to the plan, RCom chief executive Gurdeep Singh stated that customers could download “hundreds of GBs for INR 999.00 without fear of bill shock at the end of the month.”

Both these moves appear aimed at locking in as many of the top tier data consumers as possible as a preemption of Reliance Jio’s 4G launch, which is expected in 2015. Reliance Jio’s introduction of the service should have a particularly large impact, since due to its purchase of Infotel in 2010, the operator is the only provider in India with the requisite spectrum to offer nationwide 4G service. That will be a strong value proposition for the country’s biggest spending consumers. As this launch grows closer, we expect Bharti Airtel, RCom and India’s many other operators to double down on this approach and include increasing volumes of 4G services at reduced prices.

The embrace of this strategy bodes ill for the long-term prospects of the Indian market. Operators there have consistently reported razor-thin margins and have struggled to build nationwide networks or even regional ones that can handle significant traffic. Further complicating matters is the fact that in the roughly four years since the launch of 3G services, none of the operators has been able to draw enough subscribers to make even their limited networks financially viable.

We at Tarifica appreciate the desire to move customers onto 4G plans and understand that in a country like India, which has significant economic inequality, locking the small group of high-spending consumers into service agreements is critical for an operator’s success. However, the course Indian operators are currently pursuing has the dual risks of leading to a total abandonment of 3G before it has gotten off the ground and permanently devaluing 4G by locking it into a cycle in which prices can only continue to go down. One need only look to the numerous European examples in which MNOs were pressured to encourage rapid 4G adoption and then found themselves in a position of ever-increasing infrastructure costs paired with constantly declining ARPU. Most industry observers, ourselves included, believe that operators in emerging markets have much better long-term prospects than their more-established peers in mature markets. These assumptions, however, could end up reversed if these operators insist on repeating the mistakes of the past—as appears to be the case in India.

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues or to speak with the research team: http://www.tarifica.com/contactus.aspx

Viettel Announces US $1 Billion 3G Investment in Tanzania

During a visit from Tanzanian president Jakaya Mrisho Kikwete to its Vietnamese headquarters, multinational operator Viettel committed to investing US $1 billion to build a 3G network in Tanzania. Viettel won a license to operate in Tanzania in early October, and one of the conditions was connecting the country’s expansive rural areas with mobile service. On awarding the license, Tanzanian deputy communication, science and technology minster January Makamba stated, “They will roll out broadband through fibre-optic cable to rural Tanzania.”  In announcing this sizable investment so soon after winning the license, Viettel appears to be preparing to make good on this commitment.

The strategy stands in contrast to the path Viettel pursued when it expanded into Peru, where a significant amount of time elapsed between acquiring the license and rolling out the network infrastructure. Viettel’s urgency is likely driven by the crowding of the Tanzanian market—there are already four sizable players, all of which are owned in part by major international telecom players—Bharti Airtel, Tigo (part of Millicom), Vodacom Tanzania and Zantel (part of Etisalat), as well as three smaller operators. Even given this volume of competition, there are still significant opportunities in Tanzania; only 64 percent of the country’s 49.25 million citizens have mobile service. Given the rapid uptake of mobile service in developing economies, however, it is unlikely that the penetration rate will stay this low for long.

In the future, there will likely come a point where some market consolidation is needed—we have seen numerous examples of the unsustainability of markets with five operators—however, with many Tanzanians still unconnected and significant opportunities existing to upsell others to higher-cost service packages, this type of M&A activity does not appear imminent. While Viettel may be getting a late start compared to its competition, it would be foolish to count it out, since the company has significant experience building and marketing mobile service in emerging economies from its operations in eight other markets across Southeast Asia, Africa and Latin America.

“With telcos in Europe and North America appearing locked in a constant cycle of increasing infrastructure costs and declining ARPU, companies like Viettel and Millicom, which have significant and expanding operations that are exclusively in emerging markets, could be poised to become among the most important international mobile players in the near future. Not only do the countries they operate in have much more room for growth, their success in these rapidly shifting and diverse markets has required operational flexibility and institutional creativity. This cultural difference has enabled these companies to capitalize on new revenue streams—like mobile money—much faster than many of the established telecom heavyweights.”

Jamie Davella,

Research Analyst at Tarifica

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues:  http://www.tarifica.com/TarificaAlert.aspx

National Broadband Implementation in Zambia

According to Yamfwa Mukanga, Zambia’s Transport, Works, Supply and Communications Minister, the country’s government plans to implement a strategy to reduce broadband costs. Through investment in broadband infrastructure, it intends to increase access to information and communication technologies (ICT) in Zambia and promote across-the-board deployment of ICT. The national broadband strategy that is being developed is meant to offer affordable broadband services to all Zambians, which will help speed up social and economic development in the country. Mukanga said that it is evident that the country’s leaders are considering a new broadband implementation strategy because the government has reclassified ICT in the revised Sixth National Development Plan—sixth in a series of development plans that Zambia has instituted since 1964—as an economic sector rather than a support sector.

While many African nations have made great strides in terms of growth and advancement in the telecom industry, several countries still have a long way to go with broadband adoption rates. Poor internet access or extremely costly access has detrimental effects on individuals and businesses in terms of driving economic growth and improving the quality of life in these countries. According to a study by broadband statistics and analysis firm Point Topic, while the global average cost of broadband is US $75.00 per month, in Africa it can be up to US $200.00 per month. On that note, Amon Jere, Chief Sales and Distribution Officer of the MTN Group, said, “Mobile broadband services in Zambia are generally perceived to be a preserve for just a small elite, and this perception is wrong….Data, is a mass market product and not being treated as such by operators has resulted in Zambia’s generally low internet penetration.”

Zambia, a landlocked country, has recently gained access to international submarine fiber optic cables. This development has already produced some meaningful retail price reductions for broadband services. Zambia’s government has also said that satellite technology will be required to connect some of the remote areas in the country that will not be served by fiber optic technology. As these infrastructure changes begin to take shape, the country’s operators would be wise to continue to expand their broadband networks to help increase broadband penetration rates. This market sector has a good deal of potential for revenue generation.

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues:  http://www.tarifica.com/TarificaAlert.aspx

American Tower Corporation Explores M&A Options in India

American Tower Corporation (ATC), a U.S.-based global provider of mobile telecommunications infrastructure, is exploring the possibility of acquiring India’s largest tower operator, Viom Networks, which is controlled by Tata Teleservices and has over 40,000 towers. ATC currently owns more than 12,000 towers in India and wants to expand its presence there.

As of year-end 2013, ATC had almost 28,000 towers in the U.S. and over 39,000 in 12 international markets. Its desired expansion into the Indian market could more than double the number of ATC’s towers outside of the U.S. India has the world’s fastest growing smartphone market due in part to the size of the country’s population and also because of the country’s development potential, both in terms of devices and infrastructure. Year-over-year smartphone adoption in India increased by 84 percent in Q2 2014, and further adoption seems very likely, as 71 percent of the market still uses feature phones. Furthermore, rural India still lacks strong network infrastructure.

ATC is venturing that in addition to operators upgrading existing infrastructure—as Bharti Airtel and Aircel did when they launched 4G services in some areas in India—there will also be a need for new towers as several of the country’s telecom operators start to show signs of expansion. Reliance Jio, which will launch 4G service across India early in 2015 as a broadband wireless access license holder, will need to have a large number of new towers built as opposed to upgrading existing infrastructure. ATC hopes Reliance Jio’s 4G launch will induce India’s other MNOs to accelerate their 4G service rollouts, which up until now have been proceeding at a sluggish pace. As 4G adoption becomes more widespread in India, data demand will increase. To satisfy customers’ needs, all of the country’s operators will need to add more towers to their networks in addition to upgrading existing sites. While many pieces of the puzzle, including tower purchases by Indian operators, need to fall into place for ATC to recoup its investment in the country, it appears that the timing is good for the infrastructure provider and that India’s mobile operators will also benefit from ATC’s move.

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues:  http://www.tarifica.com/TarificaAlert.aspx