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In the battle for 4G, who has an edge?

By Surajeet Das Gupta
January 23, 2015 09:58 IST
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Of the two big players, while Bharti Airtel can leverage its existing subscriber base, newcomer Reliance Jio will have to wean away subscribers from the incumbents

Image: The battle between Bharti Airtel, which already runs 4G services in select cities, and the new kid on the block, Mukesh Ambani's Reliance Jio, which is planning to launch in 800 cities sometime in June, will only intensify. Photograph: Reuters

By the middle of the year, people across the country will be able to sample the new world of fourth-generation, or 4G, LTE services that will offer data at a speed 10 times faster than the current average 3G speed. They can choose between Bharti Airtel, which already runs 4G services in select cities, and the new kid on the block, Mukesh Ambani's Reliance Jio, which is planning to launch in 800 cities sometime in June. Together, they will spend over Rs 100,000 crore (Rs 1,000 billion) on the rollout, which will make it the mother of all telecom battles.

As the stakes are so high, neither of the companies is prepared to divulge its strategies. Yet after talking to company insiders, vendors and experts, a broad idea on how the new battle will pan out is emerging.

Data users constitute not more than 7-8 per cent of the country's total subscriber base of 900 million but contribute 12-15 per cent of the revenue. Their share of the pie will only go up in the days to come. Telecom companies on the GSM platform say the data market is currently worth Rs 20,000 crore (Rs 200 billion) annually but is growing at a blistering pace of over 60 per cent per annum.

The CDMA players like MTS, Tata Teleservices and Reliance Communications, which offer data services mainly through dongles, generate an additional Rs 5,000 crore (Rs 50 billion) in revenues annually. The GSM data market is equally divided between users of second-gen, or 2G, and third-gen, or 3G, services. The early migrants to 4G could be the 3G and CDMA users who want higher speeds.

Image: Will Bharti Airtel be able to cope with the high price of devices required to work seamlessly? Photograph: Reuters

This is the turf where the two rivals are most likely to clash. In Bharti Airtel's case, based on the tariffs it has offered in certain cities, it is clear that the company will not sell 4G as a high-end service for which customers have to pay a premium - its current 4G packages are priced exactly the same as its 3G packages. Bharti Airtel's strategy is to increase data revenues not through premium pricing but by using high speed to get subscribers to scale up usage.

Bharti Airtel wants to leverage its spectrum advantage to offer subscribers a seamless data service in which they would move from 3G to 4G depending on the network. It clearly believes that 4G cannot be a standalone service for the subscriber - an attempt to do so in Indonesia by Bolt has not worked out.

Bharti Airtel has 2300 MHz spectrum in eight circles. In order to extend its reach to homes and offices where 80 per cent of data is consumed, it bought additional spectrum in the 1800 MHz band last February in over 15 circles (2300MHz has problems penetrating homes and offices). This spectrum has been the chosen band for 4G launches across the globe and has the ability to offer wide coverage.

The combination of the two bands, Bharti Airtel hopes, will ensure great connectivity. For backup, it also has spectrum in the 2100 MHz band in 13 circles. This will come handy in circles where 4G signals are weak. It also has the option of buying spectrum in the auctions slotted for next month or the one a year later. Of course, it has spectrum in 900 MHz and 1800 MHz to offer voice and therefore it need not introduce voice over LTE.

Its spectrum plan may be all sorted out, but how will Bharti Airtel cope with the high price of devices required to work seamlessly across the 1800 MHz, 2100 MHz and 2300 MHz bands? Such handsets should, to begin with, be available at the same price as 3G phones: Rs 6,000-Rs 6,500. The good news is that Chinese manufacturers have already brought down prices to below Rs 10,000. Lenovo has a phone for Rs 6,999 and the much touted Xiomi Redmi Note is on offer for Rs 9,999. Most of the telecom companies expect 4G handset prices to soften to 3G handset levels in 12 to 18 months.

Stepping up its game

Where does this leave Reliance Jio? Analysts say the biggest challenge for the company is that it cannot become a mass player by only offering 4G-data services. The company has pan-India spectrum in 2300 MHz and had bought 1800 MHz spectrum last February in 14 circles. It is possible for Reliance Jio to address the problem of limited penetration in homes and offices by putting up more towers but that is a huge exercise that will require the company to erect three times more towers than needed in 1800 MHz. Analysts say that with around 50,000 towers, Reliance Jio is still not there, but it is clear, based on the various leasing agreements that it has got into with tower companies, that this is precisely what it plans to do.

Image: Mukesh Ambani (R), chairman of Reliance Industries Ltd, poses with his wife Nita (2nd R), mother Kokilaben (2nd L) and son Akash. Photograph: Reuters

Unlike Bharti Airtel, Reliance cannot offer seamless data services. It does not have spectrum in the 2100 MHz or 900 MHz bands needed for 3G service. But it can always tie up with a 3G operator to plug this gap. Also, to woo customers, it cannot afford to not offer them voice service. And it can do so only in three ways: offer voice over LTE (analysts say it is not well developed and does not provide the same quality), tie up with an incumbent with surplus capacity, or use a part of its 1800 MHz spectrum.

Also, Reliance Jio does not have a subscriber base which can be leveraged to launch 4G services. It has to start from scratch and wean away subscribers from incumbents. Many say that while it might find it easier to woo CDMA data users by offering dongles at higher speeds, the challenge would be to woo high-value data subscribers from the existing GSM players. Some say it can tap subscribers from Idea Cellular, Vodafone or Reliance Communications which have no plans yet for a big 4G rollout. Reliance Jio is banking on myfi, a device that converts a Wi-Fi-enabled smartphone into a 4G LTE device. Rivals say it is a good interim measure but with prices ranging from Rs 2,000 to Rs 3,000, it might be seen as an expensive option unless it is subsidised heavily.

Given an empty network and its plan to become a mass data player, it is certain that Reliance Jio will be a price warrior initially. And with Bharti Airtel intent on raising data consumption, subscribers can expect lower tariffs, especially if they push usage higher. Whatever happens, the subscribers will be the gainers.

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Surajeet Das Gupta in New Delhi
Source: source