Telecom 3.0: The Next Big Opportunity

FY 2017-18 witnessed a lot of action in the Indian telecom landscape. While entry of Jio pushed operators to rejig technology as well as business plans and processes, the biggest impact was in the form of fast forwarding the overdue consolidation. For over 2-3 years, it was being felt that there is a need to have fewer but stronger operators who could exhibit the wherewithal of the magnitude required for the next leap in the telecom sector in India. However, as the sector was going in an ‘autopilot’ mode, the need was falling short of becoming a necessity, which only qualified to be after Jio entered into the market.

The biggest fundamental change that occurred after Jio surfaced was of data taking precedence over voice. As a result, operators, including the incumbents were pushed to strategise about monetising the data services. The conventional segmentation of services into voice, data and VAS also became irrelevant. With VoLTE into the picture, voice also technically became a data service. At the same time, VAS got a new definition, where the legacy VAS services like MMS, SMS, Caller Tunes, etc., started fading out and a new set of services like OTT, Payment Banks, etc., became the new services that operators started to offer as a value add to maximise the offerings to consumers. However, the challenge due to hyper-competition essentially between the incumbent operators and the challenger operator, isn’t letting monetise these services currently. But, it is these services that have become critical to customer stickiness as plain voice and data provisioning no longer suffices to retain a subscriber.

Some of the fundamental changes that occurred during the period are summarised below: -

• Voice becomes free: The bread and butter of telecom operators for over two decades in India, voice, ceased to be monetisable. As Jio started offering voice through VoLTE, its voice calling became an extension to the data services. It launched plans where voice was no longer charged. The incumbents had also to align their subscription plans – prepaid as well as postpaid, in which they offered unlimited calling making voice effectively free.
• Jumbo plans: A couple of years ago, even the highest paying user would not consume more than 5GB of data a month on their Smartphones and around 10GB on a fixed broadband. In fact, for many plans, 10GB used to be the FUP limit for fixed broadband. Jio after launching its 4G services, changed the data appetite of Indian subscribers. Initially, it launched unlimited 4G data consumption, which was later converted into plans offering mega data plans. As a result, users subscribed to plans offering over 1GB of data per day, which quickly doubled to 2GB a day for Smartphones. Today, Smartphone users in India consume anywhere between 20-50GB a month. Similarly, on the fixed broadband side, the plans got fattened offering 100-150GB a month.
• Dirt Cheap plans: Between 2013-15, 1GB of 3G data would cost anywhere between Rs 100-150. In FY 2017-18, 4G data was offered in the range of Rs 10-15 per 1GB. As a result, subscribers started getting more of data by spending less. This pushed consumption of 4G data services and data heavy applications like Video – Live TV, Catch-up TV, On Demand Entertainment, etc., started to gain traction. As an example, in the recently concluded IPL 2018, Hotstar, which had the exclusive rights of IPL telecast, reached 10 million users watching match using their app. This was not only an eureka moment for the Indian data services, but, also a high number to achieve on global parameters for any OTT application, especially video app.
• Smartphones become 4G Smartphones: Although 4G Smartphone was first showcased by Huawei-Airtel-Qualcomm in 2012 in India, the device started picking sales only after the entry of Chinese competition brands like Xiaomi, Oppo, Vivo, etc., towards the end of year 2014. In a matter of 2 years, over 90% of the Smartphones being shipped in India were 4G Smartphones, which further propelled to near 100% towards the end of 2017. At the same time, Mobile-WiFi convergence through devices like JioFi, became very popular in Tier 2 cities and towns, where users could enjoy 4G data speeds without replacing their existing 3G Smartphones, through WiFi. At the same time, MiFi devices, became as the preferred alternative to scarcely available fixed broadband services throughout the country, essentially Tier 2 and 3 cities and towns across India.
• Rise of OTT: Smartphones have become the default infotainment device offering personalised experience. As a result, content has swapped the screens and converged into 5-6 inches display powered by high performance compute aided by jumbo power packs and supporting specifications. Though OTTs or now OTAs (Over-the-App), are not new, but we saw them growing in number as well as consumption during FY 2017-18. All telecom operators launched their OTT app enabling users to watch live as well as On Demand content over a Smartphone. This gave subscribers a quick hook to data services taking the consumption to the levels where it stands today. The trend was also identified in Nokia’s Mbit 2018 index, which stated over 65% of data was consumed as video through such apps and Youtube.

Telecom 3.0 – The Next Opportunity

Telecom has seen its own evolution. The Indian telecom sector had been lacking than its global counterparts only till mobile services were launched in 1995. Past 23 years have been exciting for the industry as well as comparable on global benchmarks. India has been among early adopters of various mobile technologies and services, if not the leader. As the mobile technology keeps on evolving, the gap between Indian and leading telecom markets is narrowing.

Looking at the evolution of Indian telecom industry, the first generation of development was about laying infrastructure and reaching as many markets as possible. The operators were remunerated mere for provisioning of services and the user expectations were only of connecting on to the network, with whatever services were offered. Back those days, when landline services were applied for and applicants had to wait for several months to years, before they could see a landline in their homes. Similarly, when mobile services were launched, applicants had very long wait periods.

Then came the second generation, where the focus was to provide as many as services possible. This is where APRU became a key measure and operators started offering triple and quad play services. The construct was enabling as many as potential communication services to a subscriber who was already connected. This also started the trend of convergence at several layers and levels. However, in several cases, the newer services cannibalised the legacy offerings. For instance, mobile services replaced the fixed line services. The initial premise was proven wrong and fixed line services witnessed their all time low across the globe. Though with FTTx, some damage control was achieved, but due to its inherent issues, especially in laying the network, mobile became the preferred and default channel of communications.

Now, the Indian telecommunications is ushering into a third generation, which can be referred to as Telecom 3.0. In this phase, a subscriber is not allured by the infrastructure or the service provisioning and, hence, doesn’t find much value in it. This translates in declining revenues as well as rising subscriber churn. The telecom in India shall be now use case driven and every individual or enterprise would want to see its particular use being addressed by the networks. Thanks to digital technologies, the same infrastructure can be used to customise the offerings to the last leg addressing a use case for the potential subscribers or subscriber groups. Operators shall have to align as per this changing requirement. They shall have to create applications specific to these use cases utilising their physical infrastructure and software solutioning capabilities.

Operators have already started realising this due to which they have done all the grounds work – be it realigning business plans, upgrading technologies, acquiring skills, collaborating with the extended as well as unlinked sectors, and, reworking future revenue streams from applications not core to the telecommunications so far.

With IoT now brewing beyond discussion point and interest area, as well as 5G being seen in near future, telecommunications is poised to become the backbone infrastructure of any service that could be thought of. Be it pure industrial application, like manufacturing, or real time health monitoring, all are going to use one common telecommunications infrastructure. The telecom sector, especially operators are going to see more of B2B2C engagements rather than the current predominant B2C interactions. In between the operator and the consumer, there is going to be a value add partner in the shape of someone offering a use case like in healthcare, automobiles, education, finance, energy, to name a few.

This also means telecommunications not only working closely with other sectors, but also acquiring knowledge and expertise in other sectors. To a considerable amount, this has already been seen in the financial sector, where the operators have already become digital banks. Now, can and will the operators become digital hospitals, digital transport companies, digital schools of future, is what would be an interesting evolution that we may see in the next decade or so, in context of India.

The short to medium range outlook for the sector is going to remain painful, and, operators have to be ready to face this situation and provision enough resources to replenish the unavoidable depletion that is going to occur in monetary as well as non-monetary assets of the operators. However, once this quiet period is over the long term outlook is only seeming to be very exciting and rewarding for the industry. The winners will be differentiated by characteristics rather than the money power. Operators which shall be very quick to adapt and in some cases lead the transition, shall be the winners and rule the industry for next couple of decades. At the same time, operators shall have to open up for collaborations and partnerships even with the insignificant and minuscule entities who could value add through their IP and knowledge at the core of a use case. There might not be a few use cases each of million dollars potential, but a million of use cases with substantial earnings potential coming from such insignificant associates. The telcos of the future have to become the nucleus of digital economies that will fertilise lots of ideas creating assuring revenue streams for the ecosystem benefiting operators the most. Investments in infrastructure and service provisioning is not going to assure revenues to the operators alone. They shall have to invest heavily in the applications and use cases over the next 3-5 years. That would be the key to success and making them future ready networks to take the big opportunities lying in future.