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Indian MNOs cling on tight, predicting end of price wars within a year

The Indian operators remain in turmoil, urging regulator TRAI to postpone the country’s first 5G auction until they can get their 4G return on investment, their overall finances, and their competitive response to newcomer Reliance Jio, all sorted out.

In fact, TRAI last week extended the deadlines for responses to its consultation on the next auction by two weeks, making it unlikely the sale will be held this year. It will be a multiband auction including some spectrum which is likely to be used, by some MNOs at least, for early 5G. But the operators fear that RJio would seize the opportunity to strengthen its own spectrum hand and disrupt the mobile business further than it has already done with its low cost data offers and low cost base.

They also want to expand the networks and services they can deploy in their existing spectrum, before they are forced to invest heavily yet again in new airwaves (TRAI has been heavily criticized, in recent sales, for setting high reserve prices which hamper the MNOs’ ability to launch cost-effective services in a price-sensitive market).

The new deadline for comments to TRAI is October 16. The auction will include 700 MHz, 800 MHz, 900 MHz, 1.8 GHz, 2.1 GHz, 2.3 GHz, 2.5 GHz and 3.3 GHz-3.6 GHz spectrum. The last of these is being widely adopted as a candidate 5G band.

TRAI previously said the Department of Telecom expected to carry out the auction this year, even though the previous sale was only a year ago and 60% of the airwaves from that process were left unsold. Now, the operators look set to have a short reprieve at least. They are struggling with heavy debt burdens, partly because of the high spectrum prices they have paid in recent years. According to the DoT, they owe INR3.08 trillion (€40bn) over the next 11 years through deferred payment plans for spectrum acquired at recent auctions, in addition to the INR4.6 trillion they owe to various financial institutions.

Bharti Airtel, whose leadership position in the mobile market will be usurped by the impending merger of Vodafone and Idea Cellular, says it is open to buying 800 MHz spectrum in the next auction, at least once the pricing situation stabilizes and it gains more visibility of its own finances. It believes the price war, sparked off by RJio’s entry, will keep tariffs low for up to a year but then they will start to rise again, making it easier for operators to consider new investments.

The MNOs are in a vicious circle – investing in efficient networks, including sub-1 GHz and 5G, could help them add new revenue streams and make them less reliant on low budget consumers and the price wars with RJio. But their current market situation makes it difficult to fork out more money to support that expansion.

Bharti is resting its hopes on its prediction that RJio will raise prices when it unveils new plans in November. Currently, its INR399 rupees (€5.19) plan gives customers unlimited data for 84 days and free voice, which means a real world tariff of just INR130 (€1.69) a month. Other MNOs have been forced to follow suit and have seen even higher value subscribers downgrading to the new tariffs, according to the Economic Times.

The newspaper quoted an unnamed senior executive at Bharti Airtel saying that pricing “can’t go lower than this”, and will start to move upwards in 9-12 months from now, or even sooner if triggered by RJio’s November announcements.

Until the price correction happens, Bharti’s priorities will be to keep costs low, strengthen its balance sheet with the sale of stakes in its Bharti Infratel towers business, and increase its revenue market share to 38-39% by October 2018 (from 34% at present), by which point pricing should have stabilized, the newspaper reported.

The telco also aims to differentiate its quality of service and data rates by investing in the networks in its current spectrum. It has assigned capex of INR160bn-INR170bn (€2.1bn-€2.2bn) in the fiscal year to the end of March 2018 and expects similar levels of capex spending for “the next couple of years at least,” the executive said.

It will also hope to enhance its network performance and quality through a new alliance with SK Telecom of South Korea. Airtel said the companies will cooperate to develop “software to dramatically improve network experience, leveraging advanced digital tools including machine learning, big data and building customized tools to improve network planning based on every customer’s device experience”. They also
plan to collaborate on 5G standardization activities and in areas including NFV, SDN and the IoT.

In order to survive the current price wars, however short term they may prove to be, MNOs are also working with their device suppliers on cheap but attractive LTE handsets to lure users. Bharti Airtel is reported to be co-developing handsets which will cost around INR2,500 ($40), in time for a launch at October’s Diwali festival. Other operators are expected to make similar moves to respond to RJio’s launch of the JioPhone, which is provided for an initial payment of INR1,500, which can then be claimed back if the customer returns the handset within three years.

In fact, the operator had to discontinue the device when it could not meet all the demand from millions of users. Its latest move, later this month, will be to offer devices pre-loaded with applications and content including Jio Cinema, Jio Music and Jio Money.

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