Reliance Jio may currently hold the only national set of 4G licences in India, but it also faces the challenge of being a new entrant going up against large cellcos with established networks and brands, in the country with the lowest ARPUs on the planet. The company, part of the Reliance Industries conglomerate run by Mukesh Ambani, sees infrastructure sharing as the solution, and has netted the largest Indian MNO, Bharti Airtel, to support it.
This is a significant example of the increasingly popular approach of what Jio calls an ‘asset-light’ LTE deployment strategy. Regulators round the world are becoming more open to carriers sharing passive infrastructure such as towers, and even the active RAN itself, as the seek to boost competition, while recognizing the massive cost and risk of deploying a new network from scratch against incumbent rivals. Some players want greater control and ownership than a straightforward MVNO deal brings, but cannot justify going it alone on infrastructure costs. And of course, network owners urgently want to offset some of their own investments in mobile broadband capacity, as data volumes rise and ARPUs stagnate.
Several variations on sharing are gaining popularity, depending on market and regulatory situations. There are full RAN sharing joint ventures like EE, the JV between Orange and Deutsche Telekom in the UK; network hosting agreements of the kind Sprint plans to offer partners; wholesale initiatives in which a single network ‘ funded by government (Kenya), the cellcos themselves (Russia) or a third party (LightSquared reborn) ‘ is built to support a number of service providers.
The most rapidly growing approach, because it is relatively simple and the respective benefits are quantifiable, is to share the costs of passive infrastructure, often as a first step towards full RAN sharing. One of the most important examples is Reliance Jio, which now has deals to share towers and other assets with two established large cellcos, Bharti Airtel and Reliance Communications.
In its new deal, with Airtel, the partners will share intercity and intracity fiber assets, as well as submarine cable networks, cell towers and internet broadband services. In future, depending on commercial and regulatory conditions, the pact could be expanded to cover joint roll-out of new fiber and other infrastructure, as well as mobile roaming services.
The infrastructure elements are vital to Jio to reduce its cost of entry to the mobile market, especially as its headstart may be a short one. The established mobile majors are busily expanding their 3G+ coverage and capacity to support mobile broadband and hope to acquire their own LTE spectrum ‘ in the FDD mode, which has a larger ecosystem than TDD ‘ as early as next year. Some of them, including Airtel, also acquired unpaired BWA licences, but only on a regional basis.
Roaming will be critical to make the economics of Indian mobile broadband add up. No cellco has full national coverage with 3G spectrum, nor with BWA apart from Jio, so customers will need to be able to roam in order to access services countrywide. However, initial deals between several major 3G operators were deemed illegal by Indian regulators. It is unclear how the rules will be changed, but Jio and others will be lobbying hard ‘ although Jio has the spectrum to build a national LTE network, this may not be economical in all areas, so it needs its customers to be able to fall back to partners’ 2G, 3G or LTE systems.
Another area of uncertainty is how the FDD LTE frequencies will be allocated, but the 700MHz digital dividend coverage band should be on offer first. If Jio does not acquire spectrum in that band, its headstart advantage may be neutralized by its rivals’ ability to deploy LTE in low frequency spectrum, which will offer lower upfront costs, more affordable coverage and a wider device ecosystem than Jio’s unpaired 2.3GHz.
The Airtel deal follows an agreement between the two companies, signed in April, giving Jio access to capacity on its partner’s i2i subsea cable system. It will augment an existing agreement for cell tower and fiber sharing with Reliance Communications, India’s fourth cellco, which is run by Ambani’s brother Anil (the original Reliance split in two acrimoniously, with RCom taking the mobile business with it. Reliance Jio only re-entered the telecoms field when relations thawed and a non-compete pact expired, buying Infotel, which had acquired a national licence in India’s BWA auction of unpaired 2.3GHz spectrum).
Reliance Jio is the only operator in India with rights to operate 4G services in all 22 of the nation’s telecom circles and in October it was awarded a unified access licence, allowing it to offer voice and full mobile services as well as data. This, and the sharing deals, indicate that Jio will soon go ahead with a full-blown launch, though it has been much criticized for long delays and uncertainty about timescales ‘ with the risk that it will waste its time-to-market advantage. Airtel has already gone live with TD-LTE services in some of the circles where it has licences.
‘It is too early to conclude the benefits to either partner as the announcement is very broad, and there is still a lack of clarity on Reliance Jio’s launch date as well as strategy, Urmil Shah, analyst at Kim Eng Securities, told Bloomberg.
Also in India, the government is set to proceed with its plan to auction spectrum in the 900MHz and 1.8GHz bands on January 21. Though operators will have to wait for virgin FD-LTE spectrum in the digital dividend band, these former GSM frequencies could enable a first step into mainstream 4G, via refarming. The Department of Telecom (DoT) has approved auction prices, which have been green lighted by the country’s Cabinet Committee on Economic Affairs (CCEA).
The base price-per-MHz for the pan-Indian 1.8GHz licence stands at INR17.63bn ($289.36m), while prices for the 900MHz allocations in the top three cities,. Delhi, Mumbai and Kolkata, are set at INR3.59bn, INR3.27bn and INR1.25bn respectively. The aim was to strike a balance between the proposals of regulator TRAI and the DoT. The former was judged to have undervalued the spectrum, and the latter to have overpriced it.
The CCEA has approved changes to the laws surrounding mergers and acquisitions, which will raise the maximum combined market share of a merged entity from 35% to 50%. They have also changed the law allowing a newly merged company to hold more than 4.4MHz, or 2.5MHz for CDMA operators. Currently, a one-time governmental levy applies to operators who hold more than a certain amount of spectrum. Now, if the spectrum is now won at auction, then there is no requirement to pay. The levy is claimed to be discriminatory towards new entrants to the market.
These changes pave the way for existing operators to expand within the Indian market via M&A and to improve their lamentable margins by chasing greater economies of scale and market share, and potentially slowing the downward curve for prices. However, competition is heating up in mobile broadband, which could limit the ability of carriers with 3G and 4G spectrum to charge good premiums.
The auction comes as Bharti Airtel is expanding is regional TD-LTE services to maximize its 4G headstart before Jio and others, notably Aircel, enter. However, Airtel has struggled with signal quality issues. Aircel intends to enter the LTE market in the next 3-6 months, initially in major cities in the southern region where it holds BWA frequencies ‘ notable Chennai, where it currently enjoys 20% market share.
The 4G roll-out may have welcome effects for consumers, as tariffs for CDMA, 2G and 3G could fall still further. Due to the patchy coverage available in India, many users have multiple SIM cards, and often multi-SIM compatible phones to compensate for the problems with connection. It is unlikely that 4G handsets will support such usage, and operators may well work on increasing coverage to nudge users towards the more lucrative 4G market of audio and video streaming on-demand.
Of India’s half a billion mobile users, there are 100m mobile internet subscribers, of which around 25m are in rural areas where there are few fixed line connections. Many of the cheapest and most basic handsets available in India are internet-ready, and perhaps the biggest barrier to rural usage is the language barrier when most content is in English ‘ though players like Nokia have worked hard to build up local language services and content.