The Reliance Juggernaut On The Move. Again!
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Image: Tim Chong/ Reuters
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Sunil Mittal, CEO, Bharti Enterprises
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Laying a data cable to every Indian home is prohibitively expensive and time-consuming. Prakash Bajpai, founder and CEO of Tikona Digital Networks, a wireless broadband company that bought BWA spectrum in five geographies, says it costs between $1,200 and $1,500 to lay a dedicated optic fibre cable to a household. “The consumer isn’t going to pay more than $12 per month. Assuming you make 20 percent as the margin, think how much time it will take to recover the investment,” he says.
Offering wireless broadband wasn’t feasible up till now because most Indian mobile operators were busy selling voice telephony. Even when they tried to offer data, the speeds were woeful because almost all their wireless spectrum was clogged with voice traffic.
That is set to change as the BWA winners have got a healthy chunk of 20MHz of spectrum. In comparison, the 3G winners got 10MHz each.
Airtel’s Game to Lose
In the game of telecom, there are two trump cards that are very tough to outplay: A first mover advantage and a strong incumbent advantage. Combine the two and you’re as good as invincible.
That, ideally, was the situation Airtel should have been in. The undisputed leader in mobile voice telephony with impeccable credentials in enterprise data services and wired broadband, it was best placed to lead the 4G evolution. By combining its own BWA geographies — Maharashtra, Karnataka, Kolkata and Punjab — with Qualcomm’s, and a speedy rollout, Sunil Mittal would’ve assured Airtel of a nearly-undefeatable position.
Key to those plans were Delhi and Mumbai, together representing 35 percent of all India 4G bids and 38 percent of 3G bids. Analysys Mason’s Bajaj says, by 2015-16, more than one in every four of the 25 million to 26 million long-term evolution (LTE) subscribers would come from these two cities.
But if Qualcomm is unable to sort out its license mess, it would be as if Reliance got a heaven-sent monopoly in these two markets. And the longer the mess lasts, the easier it is for Reliance to convert its advantage from first mover to strong incumbent, in the process inverting the existing pecking order of telecom.
For Mittal, this is doubly dangerous. His management is already stretched between handling cut-throat competition in Airtel’s 16 African country operations, and getting 3G to work in India. That’s very different from selling voice.
Airtel has always adopted mature technologies and innovated around operational aspects. But with LTE that is not an option because it is an emerging technology, with very few handsets or devices that support it. This of course plays to Reliance’s traditional approach of taking a long view on technology, like it did with CDMA a year ago, and using a dangling-carrot approach to get vendors to assume the risk of creating an ecosystem around it.
Then of course there is regulation. “When it comes to regulation, Airtel has been more successful at tactics than strategy, but tactics only go so far. In terms of regulatory vision, Reliance is perhaps the shrewdest,” says Mahesh Uppal, a telecom policy expert and director of consulting firm Com First.
Airtel’s 3G launch did not turn out as planned, says a telecom expert. First, it was unable to create compelling and easy-to-understand offers due to which adoption and usage was poor. Second, it had severe bandwidth issues.
In response to a query from Forbes India, Airtel said, “We do not comment on market speculation. However broadband and data remain an integral part of Airtel’s strategy.”
Over time, the entire data business has moved to USB dongles where Reliance Communications (RCOM), Tata Teleservices and MTS now have significant advantage. Even Vodafone is reselling MTS dongles.
Spending another billion dollars on Qualcomm’s licences, plus at least an equal amount to roll out services, is therefore not an easy call for Airtel. Its board is learnt to be questioning the wisdom of spending another $2 billion-odd on 4G when it was still unable to justify the nearly $3 billion it spent on acquiring 3G spectrum.
This was partly the trigger for a restructuring exercise within Airtel around June 2011. Airtel will need to do some serious resource and strategy balancing between improving its 3G services, which experts say will take 12-18 months, and moving ahead with 4G. Judging by its serious network trials in Chandigarh, Airtel seems to realise it too.
What has Ambani seen that Mittal hasn’t? The short answer: Video.
Single Page View
1 - Coverage or Service penetration. From what I understand the frequency for BWA is in the 2.6 GHz band which is 3 times the freq predominantly used for mobile voice services. Higher the freq lower the penetration. Overlaying a BWA network using the same set of cell-sites will just not work. Will leave large gaps in areas covered. This is especially critical when most of services offered - browsing & video are expected to be consumed indoors. Airtel & Vodafone (and also some other GSM operators) have a small advantage here. They have been continually expanding their inbuilding solutions infrastructure over the last 7-8 years, primarily to prepare for 3G. Don't think Reliance & Tata have done that.
2 - Video services over mobile have never really taken off anywhere, even in bandwidth surplus networks. Especially peer-to-peer services such as video conferencing. Though, would love to see Reliance crack this.
