Will Reliance disrupt the wireless industry in India once again?

The big news from the Indian telecom industry is that the two scions of country’s biggest business empire, the Reliance Group, are joining forces. This is no small development. Their complimentary assets and loads of cash have led industry experts to believe that Reliance Jio Infocomm and Reliance Communications together will disrupt India’s telecom market. To briefly summarize the history of both organizations, foundation for Reliance Jio Infocomm was laid in 2010 when Mukesh Ambani owned Reliance Industries bought Infotel Broadband. Infotel was the only firm to win a pan-India license in the 2.3 GHz Broadband Wireless Access (BWA) spectrum auction. The operator is putting that spectrum to use. Later this year, the company plans to launch a TD-LTE network using 20 MHz spectrum. Reliance Communications (RCom) was originally founded by Mukesh Ambani too in 2002. At a time, when normal call rates were around INR 2, incoming calls were not free and most handsets were priced above INR 5000, RCom introduced subsidized phones for INR 501 and call rates as low as 40 paisa/min. (For reference purposes, 1 USD was about INR 46 at that time and is equivalent to INR 55 at current exchange rates). Although these call rates came with their own terms and contracts, it changed the whole telecom business in India. Call tariffs and phone prices, both headed south. Reliance was also the first telecom provider to launch CDMA services in the country. Due to feud between Mukesh and his younger sibling Anil, the Reliance Group companies were divided and the telecom business went to Anil Ambani. Currently, RCom is the third largest operator in India with a wireless subscriber base of about 120 million.

Reliance Infocomm is owned by the richest man in the country, Mukesh Ambani. It is on a solid footing with BWA spectrum in every part of the country.  The next closest player is Bharti Airtel with 2.3 GHz airwaves in 8 of the 22 telecom circles (after Airtel bought rights to Qualcomm’s spectrum). Earlier this year, the Department of Telecommunications of India permitted the BWA spectrum holders to provide voice services over their 4G network. This is a clear boost to Reliance’s plans. It has been exploring the option of Voice over LTE services to solve the voice problem. Reliance’s investment will bring economies of scale to any technology or equipment that it chooses. Russia based Spirit DSP’s software will power the IP routed voice and video calls over Reliance’s LTE network. Samsung has been signed up as the equipment partner while IBM and Microsoft have been hired to provide other software services. A recent news report stated that AT&T is interested to pick up 25% stake in Reliance Infocomm, although there hasn’t been any official confirmation. Reliance has been conducting field trials in various parts of the country since last year. The actual commercial launch of its LTE services is expected to happen around mid-2013.

Reliance Infocomm was never very vocal about its plans until recently. There had been a lot of speculation in the industry on how it will setup the infrastructure. Finally, the company officially announced that it is signing an INR 12 billion deal with Reliance Communications which allows them to utilize RCom’s fiber backbone infrastructure. RCom would similarly have access to the infrastructure built by Infocomm in the future. While the deal is surely a shot in the arm for debt-ridden Reliance Communications, it puts Jio Infocomm in an even stronger position. A readymade backbone removes a major obstacle to their deployment plans. Not only this, their joint press release said, “This agreement is the first in an intended comprehensive framework of business co-operation between Reliance Jio Infocomm and Reliance Communications to provide for optimal utilization of the existing and future infrastructure of both companies on reciprocal basis, including inter alia, inter-city fiber, intra-city fiber, towers and related assets.” This is a clear indication of future partnerships between the two companies unless sibling rivalry gets in the way again. There is also high possibility that the collaboration will move beyond backbone sharing. Jio Infocomm could strike a deal to use RCom’s already deployed base stations across the nation. Apart from saving billions of rupees, it will put Jio’s LTE plans on fast track. The two operators can further share their software and hardware services. The ultimate evolutionary outcome of all these events could be the possible merger of Reliance Jio Infocomm and Reliance Communications. Such a combination would create a formidable player in the wireless business in India. It will have 2G, 3G and LTE spectrum as well as infrastructure. The platform to offer voice services would now be obvious. But any such merger will be fraught with challenges. The government of India still does not have clear policies on many telecom issues such as mergers and acquisitions. This has led to slew of imposed fines, judicial procedures and investor unease in the country. The National Telecom Policy of 2012 was intended to clear some air on M&A policies, but nothing is official yet. Hopefully the regulatory authority, TRAI and department of telecommunications will work in tandem to resolve such bottlenecks and put the telecom sector back on the growth path.

Looking at these developments from another perspective, till the time Reliance Jio Infocomm actually launches its services and successfully penetrates the market, it is too early to say whether they will be a disruptive force. The incumbents fear Mukesh Ambani because he has changed the rules of the game once before and he has deep pockets. But let us be clear that a new entrant in the market would have to fight on multiple fronts. Reliance’s entry would undoubtedly unleash tariff war. Jio Infocomm is expected to enter as a low cost data player. The initial target market would be the home wireless broadband subscribers who desire better data speeds at an affordable cost with no data caps. This segment holds vast promise and a huge untapped customer base. The only real competitor here would be Airtel which has already launched TD-LTE services for mobile broadband in 4 cities namely Kolkata, Bengaluru, Pune and Chandigarh. Unconfirmed reports put Airtel LTE subscriber base at 20,000. The growth is slow but the Average Revenue per User (ARPU) from such broadband service is much higher as compared to voice and churn rate is negligible. The quality of service and perception are also equally important factors for the urban tech savvy customer segment. There is still potential for growth in voice especially in the rural areas. But this would depend on the operator’s policy. Either they will use RCom’s existing network to offer voice or deploy it over their LTE network. The former step will be easier for grabbing market share and unless they merge, it would be interesting to see how Reliance Jio Infocomm and Reliance Communications come up with non-compete agreements. Device availability is another problem. Although wireless devices for accessing Internet are available in the 2.3 GHz band, there are no TD-LTE supporting phones in that band yet. Samsung is expected to launch smartphones which will fit the requirements of Reliance’s network. The collaboration between these two behemoths could lead to introduction of low cost locked phones, but again it is unknown that such a strategy will be effective with the customers. Remember, in order to capture market, the bigger challenge is to get the subscriber of another network to shift to your service. There is also a lot of talk about the competition between Bharti Airtel and Reliance’s new telecom venture. Airtel should definitely be concerned about Reliance’s grand entry. But Airtel also knows that it is a well-established telco with infrastructure and retails operations in every corner of India. It also has a better overall reputation as compared to most other service providers. The company has reorganized the organization structure and seems set for the Reliance challenge this time.

As this point, it is hard to say whether Mukesh Ambani’s re-entry into the wireless telecom sector will rewrite the rules of the games once more. With so much regulatory uncertainty, legal battles and a not so friendly telecom investor environment, it would be imprudent to predict the state of this industry a year or even six months from now. What we do know is that India’s wireless industry is closely watching Reliance Jio Infocomm’s every move. However, only time will show the magnitude of impact that this new telco will have on its competitors, partners and on top of all, the average customer.

Machine to Machine (M2M) Wireless Communications

All of us need wireless communications to connect with fellow humans or with the Internet. Yes, the machines talk to each other but usually a human is involved on least one side of the machine. The concept of M2M extends that idea through which the devices directly connect with each other with or without human intervention. It is not necessary that an individual initiates such a communication. To make this sound more convincing, here are a couple of examples. Smoke alarms are a common feature of every house in US. Their function is to make a loud unpleasant noise on detecting smoke. What if the smoke alarm can also send a text message or make an emergency call to the owner’s smartphone or to the nearest fire station? Think about a coffee machine which can be controlled remotely from a tablet or phone to brew coffee and notify the owner when the coffee is done. Sounds cool but somewhat unnecessary, correct? We will get to the negative implications of M2M in the later part of this article, but first let us see its positive aspects and related industry developments.

Machine to machine systems consist of intelligent, cognitive and semi-robotic devices that understand and perform their tasks with high efficiency. Once programmed, they do not depend on a human being to set the communication in motion. Such systems use sensors and transceivers to generate data from a device. The data is then transmitted across a communication network to another machine where employed personnel analyze the data. Now let us be clear that M2M networks are nothing new. They have been working in different forms around us for years. Apart from those quoted above, here are a few more M2M network examples which have been either deployed recently or could see the light of day in the near term –

• General Motors’ OnStar is an in-vehicle communication system which provides infotainment, safety and diagnostics services to the occupants of the car. It features an Advanced Automatic Collision Notification that helps emergency response operations in a collision incident. OnStar makes it simpler to recover a stolen vehicle, helps in sending relevant information to insurance companies and regularly notifies owners of their vehicle’s diagnostics. All these services are optional and subscription based. AT&T recently announced that it would be providing all network services including LTE on OnStar equipped cars. Similar initiatives are gaining ground in Europe too.
• Car and truck fleet management systems provide the transport companies the ability to track their automobiles in real time. Ocado, an online grocery store in Britain is in business to deliver fresh refrigerated goods to their customers. A microchip transmitter inside their delivery trucks sends real time air temperature updates to the company’s headquarters thus preventing incidents of food spoilage.
• Smart electricity and utility meters have already been deployed in many countries. Apart from providing insights into power outages and demand spikes, they can assist the customer in regulating their power usage. Turning on a washing machine during off-peak hours and slowing down the air-conditioner when electricity gets expensive are some of the benefits of smart power monitoring.
• In the healthcare sector too, M2M is making inroads. A patient wearing a smart device can have his condition monitored in real-time by a remote hospital or a doctor. M2M equipped exercising equipment can directly send vital data about a person’s body to his healthcare provider.
• The concept of M2M is behind the development of many other customer centric applications. Consider these scenarios – a smart camera that suggests scenic surroundings, refrigerator which can connect to your phone or directly with the grocery store to send notification about low running groceries, trash can alert devices that contact the collector when full and a car sharing your driving habits with the insurance company.

The M2M phenomenon is essentially driving us towards a global network often referred to as Internet of Things. Such a network will not only bridge computers, phones and tablet, but it shall also connect household appliances and all sorts of automated machinery. M2M communications have generated much interest in the past year or so, given that the technology is reaching the threshold required to deploy these systems in a fast, economic and proficient manner. Another motivation behind the recent M2M push is the network operator’s desire to diversify into new fields of wireless communications. Although a huge population in the world still does not have a wireless connection, many markets are approaching a saturation level as far as the voice subscriptions are concerned. Data services have an immense potential for growth and will continue to attract new customers. But still, bigger players like Verizon Wireless, AT&T, Vodafone, Telefonica and Deutsche Telekom are looking for fresh sources of revenue. This is where M2M comes into play. Bundling machine to machine service along with mobile phone and wireless broadband services could open a new door for these providers. Multiple telecom and technology corporations have tied up to promote the machine to machine ecosystem. Ericsson and SAP have joined forces to develop and sell cloud based enterprise level M2M solutions. Vodafone has partnered with Accenture, SAP, Intel and Digi. Their M2M products focus on smart cities, energy, health and automotive sector and were demonstrated at the Mobile World Congress in Barcelona last month. Eight major mobile operators namely Telefonica, SingTel, Rogers Communications, NTT DoCoMo, KPN, Telstra, Vimpelcom and Etilasat are part of an alliance to develop a single global M2M platform for multinational and multi-network businesses which enables management of connected devices in different countries. Jasper Wireless’ Control Center powers the M2M solutions of all these telecom providers. Verizon Wireless had been an early provider of M2M products ranging from the field of telematics and healthcare to mobile payment technology and connected cars. Not to be left behind, AT&T has developed M2M applications for enterprises. It has partnered with Cisco and Qualcomm to promote device platforms for that Internet of Things. Sprint Nextel too offers a wide range of M2M products in retail, smart grids, telematics, public safety, healthcare and insurance. Many other major telcos are involved in M2M in one way or the other. The diagram below represents different M2M networks in an area. Note how similarly colored lines connected to the tower depict a single M2M network.

The number predictions for globally connected machines are humungous. Ericsson forecasts that 50 billion intelligent devices will contest for bandwidth by 2020. That would be around 6 devices per person on the planet. Sweden based telecom analysis firm Berg Insight predicts 187 million M2M connections by 2014. Machina Research, a UK based M2M consulting organization believes that there will be 12.5 billion smart connected devices by 2020 excluding PCs, phones and tablets.

But what about the non-technical and social aspects of machines communicating with each other? Some have rightly called it creepy. Many would not want their household appliances to connect to the outside world. Why does the healthcare provider need to get regular updates about one’s exercising routine? Location tracking, which is an integral part of various M2M products, is not acceptable to most of us. Perhaps machines talking to each other would make us lazy and careless. If I cannot wait for a coffee after getting home or am reluctant to get up from the couch to make it and would rather order the same through my tablet, I surely need help. Already phones and online networking are affecting our social habits. M2M could lead to more disruption. On the other hand, M2M does have multiple cool applications as discussed above. It could lead to financial savings and more efficient lifestyles. Ultimately, it is the customers’ choice. He could opt to subscribe to only certain M2M services that he is comfortable with. Like all other industries, in this industry too, consumer would be the king and he will decide what he wants. But again technology has often created new markets rather than just filling up existing gaps.

Should wireless operators be concerned about Over-the-top (OTT) services?

Skype, Facetime, Google Voice, Facebook Messenger, Rebtel. WhatsApp, iMessage, BlackBerry Messenger. While the former set of services is generally used for voice or video calling and the latter for messaging, the common factor among all these services is that they have been designed to bypass the cellular network. Instead they rely on a home or local Wi-Fi connection. Let us also be clear that they work well on the wireless operator’s network too, but it is preferable to utilize the Wi-Fi network for bandwidth heavy services like Skype and Facetime. Over the top or OTT services are the ones which transport and deliver content in the form of IP packets directly to the user device. As long as the calls are made or the messages are exchanged using these OTT applications between two devices connected to the Internet, the customers do not pay anything on a per call or per message basis. Of course, a broadband Internet connection or a smartphone data plan is required. Thus the concept that the OTT services are free is a partial myth. But general assumption is that the user already has one of these connections and as a result can take advantage of over the top content.

Eventually, OTT could become a source of anxiety for the wireless operator since it implies that customers would no longer pay for voice minutes or messaging. However, at present any such concerns are overblown. In a recent telecom conference at the University of Colorado Boulder, I had a small interaction with AT&T’s CEO, Randall Stephenson. While emphasizing that AT&T will soon deploy Voice over LTE, he said that OTT services were not causing any unease in the company and there is no threat to the revenue stream. He was also of the opinion that there is not much that the company can do about it since that is the way technology is progressing. This is understandable. The best a wireless service provider can do is to steer the customers towards a smartphone with data plan. It can not exercise much control over the content. Unless the device itself does not support or blocks certain apps, the operator will support them, especially if the competitors are doing the same. Also the bigger operators in US like Verizon Wireless and AT&T now offer unlimited voice and messaging plans bundled along with a specific amount of monthly data usage. As a result, operators have a steady but mostly saturated stream of revenue coming from voice and text messaging. And although voice revenues still exceed the data revenue, the future is definitely data. From an operator’s perspective, unlimited data plans are only good to attract new customers since it is well-known that these plans cause a huge strain on the wireless network. As long as the telcos can charge the consumer on tiered data basis, their revenue is secure. Over the top services can also serve as a source of income through data roaming. With global boundaries shrinking, more people are traveling every year. Looking to connect with their friends and family while on the road, they will rely on the high speed data networks if WiFi is not available. In such a scenario, irrespective of whether the phone’s voice roaming plan or an OTT app is used, the customer will be paying the service provider. On the other hand, operators who make most of their revenue from pre-paid or pay as you go services could be adversely affected by the proliferation of over the top apps. Wireless service providers in India fall in that category. But over the top services are mainly limited to messaging in such regions. Video calling is still done using a laptop or PC. When users start making bulk of their calls using Skype or Facetime on their phones, the operators whose business model is based on pre-paid could see a decline in revenue. Again, this is not an immediate concern, since pre-paid customers are usually not very data-hogging.

Telcos have responded to the OTT situation in different ways. Protectionism and blocking services is a near-sighted and consumer unfriendly move, so must be avoided. A better solution for the telcos is to offer attractive pricing in order to directly compete with such services. Some operators are jumping on to the OTT bandwagon themselves, although the jury is still out on the effectiveness of this strategy. A couple of years ago, Sprint joined hands with Google voice and consequently Sprint customers had the opportunity to enjoy all benefits of Google voice. Telefonica’s Tu Me is a smartphone app which offers free calls, messaging and location based services through WiFi or the cellular network. T-Mobile’s Bobsled and Clever Connect are the carriers’ attempt to fend off the OTT challenge. However, all such services or apps launched by operators have met with only limited success. Rich Communication Services (RCS) is another proposed solution. RCS is being marketed by the GSM Association as ‘Joyn’ and will be built into the phones. It will allow voice calling, video calling, instant messaging etc. along with simultaneous capability to transfer files and share videos across multiple networks and devices with anyone in the device contact list. Unfortunately, RCS has not generated much interest so far. The reason for absence of a widely effective response to the OTT conundrum is obvious. Currently the service providers are not intimidated by over the top applications. Telcos have realized that there is benefit in partnering with OTT services rather than competing with them. The business models are being adapted to capitalize on the OTT phenomenon to generate incremental revenue so that operators do not become just dumb pipes and utilities in the future. This revenue may come at the cost of voice and messaging revenue, but it is futuristic and exhibits long term vision. The service provider also must acknowledge that from a users’ perspective, the mechanism of carrying the content does not matter. The quality and the overall experience take the top priority followed by the price of getting the content delivered.

From a long term mindset, OTT cannot always be ignored. The countries which are witnessing a faster penetration of smartphones will have a majority of subscribers on data plans within the next few years. Those circumstances would be different. It is then that the operators should get worried about over the top issue since growth from their native voice, message and data services would become stagnant. But who knows, may be there will be another ‘big’ thing in our wireless telecom industry 5-10 years from now, which would compensate well for any declining bottom lines because of OTT. Twenty years ago, not many foresaw the boom in mobile phone voice business. A decade ago, who would have thought that we would be so addicted to mobile Internet that gazing into our smartphones or tablets would become a daily time consuming habit? So let us wait and watch. As for now, OTT is a secondary concern and not a primary threat.

Analysis of the Indian smartphone market

Mobile phone penetration has peaked out in many countries, although India still has untapped growth potential in that area. The number of active mobile subscribers in the country is about 700 million which represents less than 60% of the total population. Considering the fact that many subscribers have more than one phone, there is no denying that a vast population still doesn’t own a phone. Smartphone penetration is even lower in the country. Various recent estimates have put the number of smartphone users in the country at 44 million. This is 6.3% of the active subscriber population and 3.5% of India’s total population. According to the market research firm IDC, India had 2.5% share of the smartphone world in 2012. The same is predicted to reach 8.5% in 2016 and by that year, India would be the 3^rd largest smartphone market. With a fast growing younger demographic and rapidly expanding economy, the country’s smartphone numbers are poised to expand at a much faster pace as compared to rest of the world.

Undoubtedly, all global smartphone manufacturers want a piece of the fiercely competitive Indian market. A 2012 report by CyberMedia Research on Indian smartphone business shows the following in terms of the respective market share of big brands.

Brand	Market Share (%)
Samsung	41.6
Nokia	19.2
Research in Motion	12.1
Apple	3.0

HTC, LG and domestic manufacturers like Karbonn, Micromax and Spice are rest of the major players not shown in the table. Now here is how it looks from the mobile ecosystem perspective.

Mobile OS	Market Share (%)
Android	56.4
Symbian	17.4
Research in Motion	12.1
Bada	8.5
iOS	3.0
Windows Mobile	2.6

Source: CyberMedia Research, India (2012)

We have to understand that statistics show only a limited aspect of the smartphone market. Some trends are global and not just India specific. Android has been the leading smartphone software for a while and it seems set to retain that crown for a few years. Symbian is on a terminal decline path globally and Windows Mobile OS is gaining users slowly but steadily. Unless RIM can break some new ground with their upcoming Blackberry 10, the company and its OS may be history in the next couple of years. In terms of handset makers, Samsung has a global lead primarily because of its wide device portfolio. Nokia’s smartphone business has steadily fallen, although recent press releases by the company have claimed a rebound in sales. Migration from Symbian to Windows will help Nokia, but it is still a tough road ahead for the erstwhile largest phone manufacturer of the world. Apple is the only company whose Indian market trends are not a reflection of its worldwide standing. Their iPhone was the unchallenged king of smartphones till about a year ago when Samsung came up with their blockbuster phones. Despite that, Apple has been gaining market share in many countries at the cost of RIM and Nokia. But their story is different in India where the company’s performance has not been able to match up to its big name. Primary reason is the lofty price tag. The 16GB variant of the iPhone 5 costs Rs. 45,000, which comes to over $800 at current currency conversion rates. There are no carrier subsidies or contracts. Most people in this world will not pay that much money for a phone. It is simple, will iPhone be this popular in US if it was sold for $800? The distribution channel is another concern for Apple in India. Till last year, operators like Bharti Airtel were directly selling the phone, but with the latest iPhone, the company has switched to third party distributors. This apparently has assisted Apple in simplifying the logistics of their iPhone brand in India. Although Apple recently launched the iTunes store in India, it is still not permitted by the government to open its own brick and mortar stores in the country. The company has been focusing its energies on China, but currently it does not see similar opportunities in the Indian market. Of course, this is the near term analysis and all this may change in the long term.

So what can be done for increasing the smartphone adoption in India? Here are some issues and their solutions –

• Pricing, Pricing, Pricing!!! – The importance of pricing for a consumer commodity in any part of the world can never be overemphasized. That is the main parameter which captures the mind of a consumer when he is exploring the market. The pricing factor is even more vital for an India consumer. The mobile phone and wireless services market in the country rose rapidly when both became more affordable for an average middle income user. A similar phenomenon has to happen in the smartphone arena too. Any phone manufacturer interested in India has to devise innovative measures to keep the costs low while building a user-friendly and feature packed phone. In some ways, this is already happening. Good smartphones from companies like Samsung and Nokia are available for less than Rs. 10,000. Apart from the phone pricing, affordable 3G and LTE data tariffs would also boost smartphones uptake.
• Internet connection source – The percentage of computer literate people in India is rising albeit slowly. For getting to the Internet, one requires both a computer and Internet connection. Compare this with a phone, with which the user can get on the Internet with substantially less investment. Obviously, the experience is not the same as compared to a tablet or a laptop, but for basic Internet tasks, smartphones are good enough and they cost substantially less. The average citizen has to recognize that buying a smartphone while is no replacement for a laptop, it can still be helpful as a standalone Internet connection at home. And one does not necessarily need to be computer literate to use a smartphone.
• Smartphone awareness – This aspect ties into the above factor about how exposure to Internet can help spread smartphone awareness. It is the responsibility of the handset manufacturer and the cellular operator to enlighten people about advantages of a smartphone. Emails, social networking (a.k.a Facebook), maps, weather, news reading, stock market updates, bill payments, travel bookings, gaming, playing music/videos, video chats and online shopping are some of the activities which can be performed on a smartphone with reasonable efficiency. In the end, apart from the cool factor for the younger generation, it will come down to the quality of life. Will smartphones make people more efficient? With all the social media, will it make social life better? Does the idea of video chatting with family and friends overseas sound good? Maps and GPS development in India still have a long way to go, but will getting directions save time and hassle while driving? How about buying a product online which is not available or is expensive in stores? Will smartphones help in making more money in the stock market? Can they help those involved in agriculture? Answers to these questions may vary depending on who you ask but those answers would influence the decision of buying a smartphone.
• Data Networks – For some mobile phone users, the rationale for not buying a smartphone is slow 3G or data network speeds. This is a chicken and egg situation. Operators ramp up speeds in their network when they see demand and subscribers switch to smartphones if their wireless network supports good bandwidth. However, once the data usage reaches a certain level, this problem automatically takes care of itself. For this, network operators have to ensure that providing a satisfactory quality of service to their existing subscribers will attract more data customers and thus more revenue.
• Application Ecosystem – Apple’s iOS and Google’s Android have enormous number of applications (apps) which work on their software. Many India specific apps have made their way to both operating systems, but a greater push is required. Bill payments for utilities, online shopping, reading restaurant reviews, checking news updates and sports scores are some of the tasks which can be carried out with phone apps.
• Growing Economy – India’s economic expansion has slowed down recently, but the nation is still expanding faster than most countries in the world. People have more dispensable income and better exposure to global products. This, along with numerous other benefits of swift economic growth will lead to a jump in smartphone adoption.

With all the advantages, smartphones have their own drawbacks. They always lead to an increase in phone bills. Like other technology gadgets, they get obsolete fast and need to be updated every few years. And on top of all this, smartphones can be social nuisance. Isn’t it annoying if a group of friends or family is having dinner and interesting conversation while some in that gathering are busy reading emails or checking in on Facebook with their phones? Smartphones can divert attention when one needs to be focused somewhere else.

In the end, the decision to buy a smartphone rests with the customer. In a developing country like India, the challenges faced by smartphones makers are intense. The only question is that can the smartphone manufacturers, wireless operators and government collaborate to put that increasing smartphone penetration on fast track? I think they can and they have to, it is just a matter of time. Smartphones are the inevitable future of mobile phones and that is the way it is going to happen in India too.

Are HetNets the solution for data hogging wireless networks?

In wireless communications, Heterogeneous Network or HetNet is a system comprising of wireless networks of different cell sizes with varying output power, various radio access technologies and multiple architectures. The primary objectives of a HetNet are achieving greater coverage and higher capacity while offering seamless handoff and connectivity. Data traffic has shown exponential growth and every operator is looking for a cost-effective, spectrally efficient solution to offer higher data rates. Poor coverage and blind spots have long challenged the wireless industry. The top approach to solve these issues is the upgradation of radio access technology at the macrocell sites. LTE is considered a very efficient radio technology and provides users with data access generally in the range of 5 to 25 Mbps (depending on the service provider and environment) while reducing the cost per bit for the service provider. More spectrum and multiple antennas are also popular options to increase the data rate. Increasing the number of cell sites in a given area is another proven method of augmenting network performance in high traffic urban areas. Imagine these scenarios and add low power picocells and femtocells. Finally append a WiFi network to this environment and the resulting system would be a multilayer large capacity heterogeneous network. The varying power levels and multiple cell sizes make this network heterogeneous. It effectively brings the network closer to the customer.

Let us discuss the various cell types in a HetNet. Macrocells are the common cells sites supporting technologies like HSPA+ and LTE. The normal range may vary from a few hundred meters to a few kilometers. Output power is of the order of tens of watts. A microcell typically covers a smaller area maybe up to a kilometer. They usually transmit within a range of milliwatts to a few watts. Microcells are deployed for providing temporary cellular coverage and capacity in sports stadiums, convention centers etc. Sometimes, microcells may use distributed antenna systems (DAS) to improve bandwidth and reliability. Picocells are generally deployed by the network operator within limited indoor areas such as office buildings and shopping malls. Femtocells cover an even smaller space like a house or small business. They are sold by the operator but self-installed by the customer. Some femtocells may be autonomous implying that they have the ability to determine the best frequency and power levels to operate.

Two arguments in favor of small cells are the reduced capital and operational expenditure (CAPEX and OPEX) as compared to techniques like cell splitting and ability of small cells to provide adequate coverage in extremely densely populated areas. The idea of merging small cells with the macrocell network has the advantage of offloading traffic from the bigger cell sites to the smaller cells. This permits the macrocells to operate at their normal capacity. Such consolidation is transparent to the customer. It involves seamless handoff between the multiple sized cells and facilitates uninterrupted data services for the user. A key component of HetNet which will help in meeting the above requirements is network intelligence. Macro, micro, pico and femtocells along with Wi-Fi have to be integrated into a single framework in a manner which avoids interference. As far as frequencies are concerned, all cells in heterogeneous network need not be using the same spectrum. Macrocells can operate at a lower frequency to boost penetration. Higher bandwidth (bits/Hz) is desired for smaller cells, so it would be best to allocate higher frequencies to such cells. The figure below shows an example of a HetNet in a LTE-Advanced Network. Note that femtocells are indoors, but are shown around the building in this diagram for depiction purposes.

HetNets, like all other wireless networks face some challenges. In order to raise the spectral efficiency, minimizing harmful interference between the neighboring cells is necessary. In the 3GPP Release 10 for LTE Advanced technology, a procedure called Enhanced Inter-Cell Interference Coordination (eICIC) has been defined to mitigate interference. EICIC uses time domain to avoid interference between the macrocell and small (micro, pico) cells in a heterogeneous network. In this technique, some subframes which are sent out by the macrocell are blanked out. These blank subframes do not contain any data. They are low power control channels. Once such blank frames are configured by the macrocell, the users connected to a small cell can send and receive data during such subframes, thus minimizing interference from the macrocell. Another fundamental requirement of a heterogeneous network is adequate backhaul link. A powerful backhaul enhances the data throughput and strengthens coordination between the nodes. Harmonization and optimization between asymmetrically sized cells would be an additional area of focus in a heterogeneous network.

HetNets are in very early stages of deployments in the wireless world. Vodafone, Telefonica, France Telecom and Telecom Italia in Europe have been running HetNet trials. NTT DoCoMo in Japan is expected to launch a HSPA/femtocell heterogeneous network by next year. SK Telecom is operating around 44,000 femtocells in South Korea in addition to their 3G and LTE network.  In the US, FCC has recently identified 3.5 GHz as the potential band for small cell expansion. AT&T has announced plans to rollout HetNets in the first quarter of 2013. Sprint Nextel terms HetNet as the second phase of their Network Vision project. Their small cell strategy is considered to be one of the motives behind the company’s recent bid for Clearwire. Clearwire’s rich spectrum holdings in 2.5 GHz fit well in the small cell strategy. With MetroPCS’s already deployed DAS nodes, T-Mobile also hopes to get into HetNet play. In India, Bharti Airtel, Tata Teleservices and Idea are conducting small cell trials.

Clearly, a number of issues need to be sorted out before heterogeneous networks become a reality. Many telecom industry experts are calling HetNets as important components of futuristic wireless networks, but their real potential can only be gauged once they are commercially launched and adopted.

Voice over LTE (VoLTE)

According to the latest ‘Evolution to LTE’ report released by Global mobile Suppliers Associations (GSA), 113 commercial LTE networks are in operation in 51 countries around the world. By the end of next year, 209 LTE networks are expected to be deployed in 75 countries. LTE has been designed as a data-only IP technology. There is no inherent support for circuit switched voice. Since eventually, most operators will transform to LTE networks, the technology must incorporate voice. There are three popular options for providing voice services over LTE networks –

1. Circuit-Switched Fallback (CSFB) – Presently, CSFB is the most widely used solution for carrying voice over LTE networks but it is not a true voice over LTE implementation. It involves switching to a 2G or 3G connection before initiating and receiving a circuit switched voice call. Although the technology requires certain hardware infrastructure modifications and utilizes multiple network elements to accomplish the transition from data to voice and vice-versa, it remains a relatively cost-effective solution to provide voice in LTE. It also has the ability to carry text messages. CSFB will be prevalent in the industry for at least next few years but it cannot be a long-term strategy. It has certain disadvantages. Sudden data session suspension and call setup delays can lead to poor user experience. Femtocells are not supported. CSFB can be extended to the reasoning behind lack of support of simultaneous data and voice sessions on Verizon, Sprint and other CDMA networks. Verizon has widespread LTE coverage in USA. But when it comes to voice, the phones on their network switch to the legacy 2G or 3G CDMA connection which is not designed to handle simultaneous voice and data. An extra radio in the phone solves this problem and most Verizon LTE phones incorporate the required hardware to carry two connections. But some smartphone manufacturers like Apple are reluctant to incorporate that extra radio to sustain battery life and lower costs. AT&T’s legacy GSM and UMTS networks have no such issues. Voice and data sessions can co-exist on phones subscribed to their network. This is also one of the factors contributing to better iPhone sales on AT&T as compared to Verizon despite Verizon having a better overall network than AT&T.

2. Voice over LTE Generic Access (VoLGA) - VoLGA provides voice over LTE by taking advantage of the network operator’s incumbent 2G or 3G infrastructure. A Generic Access Network (GAN) adds WiFi as an access network to a 3G UMTS system. Through GAN, a dual mode device can access network services by using WiFi. VoLGA uses this idea of GAN and replaces WiFi with LTE. There are no modifications required to the 3G and LTE radio network or core. VoLGA Access Network Controller (VANC) acts as a gateway between the LTE and 3G circuit switched domain. Signalling and data packets are transported between the device and circuit-switched network by VANC in a transparent flow. VoLGA offers better call setup times as compared to CSFB and supports femtocells. VoLGA gained traction when Deutsche Telekom (DT) announced its support for the technology in 2010. But DT later dropped VoLGA in favor of CSFB and it will eventually migrate to voice over IMS in LTE networks. VoLGA is now considered dead despite being a less expensive means for providing voice services on LTE networks.

3. Voice over IMS – The IP Multimedia Subsystem (IMS) is the chosen long-term strategy for deploying VoLTE. CSFB and VoLGA are not actual VoLTE technologies, but they are considered as two technologies used to implement voice on LTE networks in the short-term. However, an IMS based LTE network is the real VoLTE. In 2010, the global association of mobile operators, GSMA, announced the ‘One Voice’ initiative which defined a minimum mandatory set of standards to achieve interoperable high quality IMS-based voice and SMS service over LTE networks. The goal of this initiative was to harmonize the implementation of voice and SMS services on LTE for leading operators and handset manufacturers. IMS is an IP-based network which is deployed by operators to provide a range of applications such as text, media and video on a single IP platform. IMS is based on the Session Initiation Protocol (SIP). The SIP server in IMS is also known as the Call Session Control Function (CSCF) server. It is used for voice call control and service delivery. In simple terms, the outcome of this VoLTE architecture is that the voice is transported as data flows inside the LTE data.  Thus IMS enables LTE to administer VoIP and high speed data service simultaneously. One important feature of VoLTE is implementation of Single Radio Voice Call Continuity (SRVCC). The concept of SRVCC requires that when a user moves outside the LTE coverage area, it should experience a smooth handover to another technology such as 3G/UMTS or 2G/GSM. IMS achieves this by switching the session to circuit-switched domain. Another vital aspect of VoLTE will be seamless roaming and interconnection with another providers’ network. Note that IMS is not a new technology. It was first developed around 2006 but lost momentum once the focus started shifting to LTE. Now LTE itself needs IMS’ support. Over the period of last year, IMS based VoLTE technology has emerged as the industry wide standard for providing voice services through LTE. Ericsson is the leader in VoLTE solutions closely followed by Alcatel-Lucent and Nokia Siemens Networks. But IMS based VoLTE is a complex system and large scale deployments are not expected anytime soon. However, early deployments have already commenced in some parts of the world. SK Telecom and LG U+ in South Korea launched VoLTE services earlier this year. MetroPCS, which was recently acquired by T-Mobile, is the first player in US to offer VoLTE services. Verizon and AT&T are expected to join the VoLTE bandwagon in the later half of 2013.

Financial instability and wide scale utilization of HSPA+ in different parts of the world has resulted in slow LTE deployment and adoption. VoLTE comes beyond that and for now CSFB seems sufficient. Over the top (OTT) services like Skype and Facetime (for Apple devices) have somewhat obviated the need to launch VoLTE urgently. If I can talk and see my family and friends in US and overseas by using the data plan or WiFi on my device, I would not care much about plain voice service. Having said that, we also understand that voice is still a major chunk of operators’ revenue. So with time, as most operators migrate to LTE, they will have to use IMS for voice unless some better alternative comes along. The IMS based architecture is broadly recognized as the permanent solution for carry voice over LTE networks.

Why growth of India’s telecom sector is falling and how can it be revived?

In my previous blog posts on India, I have mentioned that the wireless telecommunications industry in the country is very competitive and overcrowded. This has both positive and negative implications for the average consumer and has mostly negative consequences for the cellular operator. Theoretically, it should be possible to take a middle road which keeps both user and the service provider happy. But this has not been the case in the Indian telecom market except for a short period few years ago. Back in the 90s, mobile communications was considered to be a premium service. It was out of reach for the common man and the coverage was limited to urban areas. With the entry of Reliance Communications in the early 2000s, things changed drastically. Call rates decreased and incoming calls were made free. This brought a telecom revolution in India. Mobile penetration started increasing rapidly and the decrease in call tariffs was well compensated by the increase in volume of subscribers. Then in 2008, unified telecom licenses were granted at below market price without any auction. That corruption-ridden process of giving so-called ‘2G’ licenses to various companies erupted into a full-blown scandal. But before this telecom scam was unearthed, many service providers, some of whom had no experience in the telecom arena, launched mobile services in various parts of the country offering ultra-low tariffs. Some circles had 12-14 service providers in operation till recently. Intense competition among the incumbents and new operators resulted in rock bottom call rates. They went so low that India became the country with the lowest voice call rates in the world. GPRS/EDGE data rates headed downwards too. Service providers’ revenues were hit and profits declined. In 2010, 3G and BWA spectrum auctions granted valuable frequencies for high speed data service and simultaneously strained the operators’ balance sheet. As if this was not enough, the details of the 2G spectrum scam emerged which tarnished the image of the industry and the country, apart from causing billions of dollars in losses to the public exchequer. Earlier this year, India’s Supreme Court quashed 122 licenses issued in 2008 as a result of the 2G scam. (Time Magazine last year termed this scandal as the 2^nd worst abuse of power in the world). Government inefficiency and graft led to uncertain future for many telecom companies, some of whom were rightfully named as the co-accused in the whole scam. Consumers suffered in the form of discontinued mobile service and innocent employees lost their jobs. Regulatory uncertainty that followed made matters worse. High reserve price for the upcoming auction in November and the directive to refarm the existing spectrum are prime examples of hostile regulatory environment in the country. Foreign investors like Telenor of Norway and Sistema of Russia have been reconsidering their investments and others like Bahrain Telecommunications and Etisalat of UAE have already wrapped up their investments in India with no plans to enter back into the country in the foreseeable future. Industry followers wondered how the telecom industry, which was once hailed as an essential component of India’s rise, lost all its sheen within a matter of 2-3 years. The bare truth is that a corrupt government, regulatory uncertainty, over-ambitious overseas investors and their Indian partners and a maturing voice market conspired together to deliver a near fatal blow to the telecom industry.

Have a look below at 1 year stock price comparison for Bharti Airtel, Idea Cellular and Reliance Communications. It shows the declining fortunes of Indian telecom firms, although each firm also has its own individual factors which influence the stock price. Two other big operators, Vodafone India and Tata Teleservices are not listed on Indian stock markets.

Despite all the negative talk above, I will side with the optimists on the future of India’s telecom sector and say that it is definitely possible to restore the credibility and profitability of this industry. And yes, it can be accomplished in a way which keeps the consumers’ interests in mind. Raising a problem is easy and finding a solution is difficult.  There are no quick and easy answers for the telecom operators. However they should never forget that the two most important aspects of a mobile consumer experience are reliable service and affordable rates. Higher data speeds are also becoming increasingly significant part of wireless communications, but that can be regarded as a subset of reliable service. Keeping networks up and running with low congestion and providing satisfactory data rates should not be a very difficult task and will always be beneficial for the operator in long-term. Good customer service also goes a long way in keeping the subscribers happy. Riddance from pesky calls and messages would be appreciated too. On their part, consumers must understand that a cheaper service may not be a better service.

While the government itself does not directly provide wireless services, it will play the biggest role in telecom growth revival and protection of consumer interest. A consistent, fair and transparent policy is the first step in this direction. Any decision must be analyzed for its effects on both the consumer and service provider. A case in point is the 2G license grant in 2008 in which rules were violated and twisted to favor certain companies. Spectrum is a national asset and while I am not in favor of overcharging for these airwaves, they should not be given away at a fixed cost on a first come first service basis. Refarming of existing 900 MHz spectrum is another contentious issue. Earlier, the regulator, TRAI and the government’s department of telecommunications had recommended taking away existing 900 MHz spectrum from incumbents when their licenses come up for renewal in 2014 and 2015. The plan was to redistribute these airwaves via auction at a higher reserve price. To replace their 900 MHz holdings, the GSM incumbents like Airtel, Vodafone and Idea would be able to buy 1800 MHz spectrum at market price. In my opinion any such action has the potential to cripple the wireless industry permanently. If the incumbent fails to win spectrum in the re-auctioned 900 MHz band, the incumbents’ existing infrastructure will become redundant and services would be disrupted. Hundreds of billions of rupees will be spent on buying fresh mobile permits and deploying new towers operating on 1800 MHz band. Consequently, all this cost will be passed on to the customer in the form of higher tariffs. After much protest from the industry, that refarming idea is being reconsidered and there might be an option for incumbent operators to retain 2.5 or 5 MHz of spectrum. Final decision on refarming is expected from the government this week. The second aspect government must understand is that it cannot continue to milk the wireless service providers by setting high auction reserve price, especially in the current troubled times. The reserve price for the imminent 2G auction for 5 MHz airwaves in the 1800 MHz band is Rs. 14000 crores or 2.65 billion USD by current conversion rate. This is a huge sum of money even for bigger domestic and foreign operators. The regulator and service providers differ on the impact of this high price on mobile services and it is hard to arrive at a definitive figure. But beyond doubt, any financial stress on the service provider would again hit the consumers’ wallet in the form of higher tariffs. Troubles of investors compound when the government moots arbitrary policies like implementing taxes and spectrum fees retroactively. Depressed market values and ever-increasing debt cannot be a positive for any company. Falling profits could affect jobs and lower share prices wipe out investor wealth. Hopefully, the government won’t kill the golden goose. The third responsibility of the government towards restarting telecom growth is easing of M&A norms. Proliferation often results in consolidation. As I wrote here, consolidation in the Indian wireless industry is inevitable. The National Telecom Policy of 2012 enlists guidelines in this direction. I believe we would see some activity on that front after the upcoming auctions. There is no viable business case for more than 6 or 7 operators nationwide. That number is adequate to keep the mobile operators profitable while providing wide choice to the consumers. The government must ensure a smooth and conducive M&A environment.

The above outlined measures can play a pivotal role in reviving the growth of Indian telecom sector. If the government does not oblige, the industry watchers have predicted prolonged court battles. Sadly, while other countries are focusing on LTE and higher speed data services, Indian telecom arena is still not clear about 2G rules, something which should have been finalized a decade ago. Let us hope that the next 1 year or so will bring positive developments in the wireless industry so that it can move on further to concentrate on data services. High speed data on mobile phones has great potential to affect the daily lifestyles of millions in India, but that is a topic of a different post in the future. For now, let us look forward to the resolution of bigger issues.