Column: BroadBanned

Written by Sunil Jain | Updated: Feb 1 2013, 07:39am hrs
As the results of companies like Bharti Airtel and Idea make clear, Indias telecom sector continues to be in trouble, though there has been a small let up over the past couple of quarters. Problem is, a modest return to pricing power is quite irrelevantvoice revenues have been slowing for a long time, more so if you discount them, as you should, with inflation (see graph 1).

But its not just India, voice is a decreasing business globally, and data has increased dramatically to take up the slack (see graphs 2 and 3). Indeed, thats why Indias broadband internet targets are 75 million by 2012, 175 million by 2017 and 600 million by 2020. Right now, if you include 3G subscribers, which you should because mobile broadband is really the way forward (by 2011, smartphones outstripped both PCs and laptops), India has about 40 million broadband subscribers, or around half last years target.

Getting even near the targets requires two thingscheaper smartphones and enough spectrum. From R25,000 or so for smartphones in March 2010, we are now down to smartphones that cost around R5,000, but this probably needs to fall to R2,500 or so to get really mass market. Indias real problem, however, doesnt lie here.

It lies in the huge spectrum scarcity. Look at graph 4 to see how data guzzles spectrum. From 80 petabytes of spectrum in Q1 2007, major global voice networks used up around 190 petabytes in Q3FY12. In contrast, data networks, which barely consumed anything then, consume around 900 petabytes of data now (1 peta = 1,000 tera).

Where does India stand in all of this If you include BWA which you really shouldnt given that it will take 2-3 years before it really matters (3G auction took place in 2010 and there are 30 million subscribers today), India has 2x50 MHz of spectrum as compared to 2x197 in the US and 2x154 in Germany.

To put this in perspective, lets look at how many subscribers India can possibly host on its 3G networks which are up and runningwe can do the same for BWA after that. If each subscriber uses 300 MB of data per month at the moment, based on an assumption of network utilisation being 60-70% and only a tenth of users being online at any point in time (if this increases, the number of users who can be serviced falls), we can have a maximum of some 250 million. But 300 MB is not much, increase this to 1 GB which is the global norm, and youre talking of just 75 million subscribers. Which is why telcos cannot decrease tariffs for data services beyond a pointif they do, that will encourage more usage and choke the networks as happened in the US after iPhone sales zoomed! Talk about perverse incentives.

So how does one increase spectrum availability Indeed, thats why the government wants to do refarming of 900 MHz spectrum to free up spectrum for more data usage. In 2014, as per the plan, 700 MHz spectrum will also be auctioned, primarily for use of data. Its a good idea, in this context, to examine whether Indias spectrum policy helps achieve thisfortunately, in a presentation to Ficci, Qualcomms Parag Kar has done exactly this.

Its a good idea to begin with 3G since thats where broadband is being done today. Not one telco except BSNL/MTNL has pan-Indian spectrum, so theres a clear need to free up more spectrum (more on this later)on average, 3-4 more 5 MHz slots are required, and certainly consolidation is required so as to increase spectrum availability per playeras Trai points out, the average spectrum holding in India is less than half the global average.

Lets now take the 2300 MHz or BWA band. The problem is that it is India-specific, which means other countries like the US or those in Europe are not currently using this for data. That means data devices developed in either area are not being used in this bandin other words, the economies of scale that could have made phones cheaper in India arent possible at least in the medium term. Theoretically, India is a big enough market for India-specific devices to be built, but thats not quite the way the world worksif it did, you would have had enough CDMA phone models in the past to make CDMA mobiles a hit. Europe plans to use this band for data, but only after 2016. China will use it after 2015that will help lower handset costsbut thats not for a few years.

What of the 700 MHz band which, as per plan, India will be auctioning in 2014 The US uses this band for the 4G iPhone, but the problem here is the bands we use for uplinking and downlinking are very different from those in the US. Once again that means development work done on devices in the US doesnt work for India. Europe uses this band for broadcast services. China will use this band from 2020 (when broadcasters plan to free up), but it uses a different TDD technologyonce again, that means different handsets.

The 900 MHz band which India is trying to get vacated for data usage is clearly a good band, but the problem here is that not all of this will be available simultaneously as it will be 3-7 years before all the current licences expire, so it cant be used before that. Also, given the current pricing of $1 billion per 1 MHz of spectrum, there are few operators who can put $5-10 billion of cash down for 5-10 MHz of spectrum that is required. Also, given the fact that a very large number of voice subscribers are on the 900 MHz band, shifting them to the 1800 MHz band will also require very large capital costs.

An immediate solution is to free up around 15 MHz of spectrum (three slots of 2X5 MHz) in the 2100 MHz frequencies that have been reserved for CDMA usagethe 2100 MHz band has huge global economies of scale for 3G and, going by the recent spectrum auctions, few are interested in CDMA anyway. But in the medium term, there is no option but for the telecom ministry to go back to the defence ministry and renegotiate for more spectrumunder the agreement the two inked in 2001, the 300 MHz of spectrum in the 1700 to 2000 MHz blocks of spectrum was to be equally shared between the two. If this doesnt happen, India can forget about its broadband targets.