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January 10th, 2012, Vol:1

Editor's Words

By Sridhar Pai, ceo, Tonse Telecom

January 10, 2012

A cellular industry that constantly took refuge in a growing subscriber base over the last several years has crumbled under a lethal combination of its own misgivings, regulatory pressure, political bickering and weak economic outlook. The overall sector health is beginning to fade and its appeal to the financial industry is weakening. There are not enough funds to fuel innovation and this could be impacting VAS industry largely. Technology choices made in mobile broadband could potentially put off MBB for over 15-18 months as LTE technology still needs to deliver on its promise of reduced cost chipsets and infrastructure gear to fit Indian consumers. An unclear NTP and missing M&A policy has shut exit options and status-quo is hurting more than helping.

What do you expect this industry to deliver in 2012?

  1. Telcos have failed to package and position 3G attractively with almost no single unique 3G app to write home from any operator. The DoT spat about 3G Roaming needs to be resolved this year else 3G will limp along as an expensive proposition that nobody wants to own.
  2. Data services for now have a convenient niche with CDMA Rev A/B versions under the USB dongles for data users. This window will continue to stretch through the year and will spill into next year unless 3G enabled low cost tablets arrive. MTS / Tata DoCoMo and RCOM are not complaining.
  3. Voice revenues continue to trail but with roaming revenues out this will be under further pressure [as recommended in NTP draft]. Alongside with full opening of Internet Telephony a new set of E.164 numbers should go live. This will have a strong bearing to how RIL will introduce VoLTE. In any case, this year could see a steep fall in ILD voice tariff.
  4. 2012 will be the year that Smart phone penetration in India could touch about 9-10% of the overall handset volumes [which will cross 225mil this year]. Tablet penetration will sky rocket as Aakash will breach record levels. Most Indians who never hoped to own a computing device will now have access to some form of a low cost tablet. Thus the tablet will trigger a massive captive data-enabled subscriber base who will now seek content / applications for use.
  5. Government of India's need to score political points may trigger a revival in GEPON [as is evident now] and together with National Fibre Optic network create a platform and a budget [of about USD 5bil] to keep BSNL alive for the next decade. While this may not be the best option, it will eventually wire each of the 600,000 villages with fibre termination and an overlay of fibre across the length and breadth of the nation.
  6. BSNL's immediate financial woes will be taken care by the mother ship [called DoT] and swapping of BWA spectrum for cash may set a precedent for 'spectrum buy-back' and re-auction – a cool financial jugglery to sell same assets multiple times. While there is little hope of corporatization of BSNL, some level of restructuring via golden handshake [of about 100,000 staff] could put BSNL into the path of resurrection: a painful transition that should have been initiated years ago.
  7. Regulatory and policy machinery will loosen its grip on the sector in 2012 – withdrawing recommended Revenue sharing of IP1 licensees, introducing the full NTP, M&A norms and resolving 3G Roaming crises in a bid to revive the sector. But this will likely happen toward year end. Domestic manufacturing is a good thing for the economy but may take a while to kick-in and contribute to deployable gear. In the meantime, imports will suffer and TEMS may end up chasing deals which will either be extremely difficult to finance or will slip into 2013, thus extending frustration generated in 2011.
  8. Not to expect any major network expansion from any operator through most of 2012. Exactly as Tonse predicted, RIL is putting its broadband eco-system in place – starting with investment in Notion Ink, followed by investment in education content play, a possible arrangement with RCOM to share tower and fibre and now with TV18 for entertainment content. Expect alliances to grow in areas of healthcare, logistics, and retail throughout the year. 2012 should also see a soft launch in select locations in a fashion that will hugely emphasise App and content delivery and downplaying the xG that is delivering it!
  9. VAS companies will have to rapidly find new niches to deliver value in the data-centric world or will become redundant. SME business sector will be targeted heavily as the segment is perceived as under-addressed. Basic services such as web-site builder applications will proliferate as primary building blocks in the creation of a digital economy. This sector is massive, multi-tiered, complex and spread out – understand the tier you are targeting before jumping in.
  10. Cloud will become more than a buzz word as it gets intrinsic into Telco / enterprise fabric. Telcos however will be slower to deploy Cloud based services although we do see activity beginning to pick up in this area. Government cloud projects will throw up opportunities for Telcos and they should go for it.
  11. Digitization of cable will quietly go underway but will be a massive and sustained activity that will go beyond 2012. DTH will continue to grow through 2012 at its current rate of growth. Although Wi-Fi usage will go up across the board, Wi-Fi ISPs will remain fragmented [and some will exit the play] and large off-load opportunities may remain muted. Expect some large regional Wi-Fi zones to come up but will not get loaded to capacity in 2012.

Telcos will stay cautious, spend less, consolidate resources and try to get more out of their current assets till policy clarity appears on the horizon. In this wait and watch game, cash will remain king and client retention, up-sell, incremental revenue generation and value creation will become paramount. Tread carefully!!

Sridhar Pai runs Tonse Telecom, a Bengaluru-based telecom research and consulting house that is a research partner to Light Reading India.

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About Tonse Telecom

Tonse Telecom is a research, consulting and advisory services organization focusing on the India telecom sector. Tonse Telecom enables telecom equipment vendors, ISVs, infrastructure developers and investors for success in the Indian telecom marketplace.

Tonse Telecom has onboard, a team of reputed senior industry executives and consultants who provide advisory services on specific projects. Tonse covers a broad spectrum of telecom technologies that include Wi-Fi /BWA / WiMAX, IMS, FMC and Triple Play, VoIP, Mobile VAS, End-device Applications and Mobile Content.

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