In telecom there is a general belief that wireless spectral efficiency will keep increasing, but nowadays it seems we are always on the verge of a train crash. In India, the average mobile operator in Mumbai runs on 1/7th the spectrum available to an operator in London. And coming to our metros soon will be a world of multi-device connectedness, with buildings, cars and air-conditioners requiring M2M connectivity to tracking devices, mobile phones and GPS systems. So, the question is, will 1/7th be enough?
As the much awaited spectrum auctions approach, the conundrum of “2G or not 2G” begs an answer. Look out for three groups of players who will participate: the “licences cancelled” group, the “needs more capacity in metros” players, and the “India telecom market entrants”.
Operators who had licences cancelled will have to weigh up which local service area to repurchase spectrum rights in. This will be principally a function of the subscriber base the operator has, and where it sees the growth opportunity. Decisions will be tempered by affordability of spectrum, itself a function of access to debt or shareholder funding.
Capacity shortages will practically only apply to metros and therefore the question for this group will specifically be about their needs in Mumbai, Kolkata, Chennai or Delhi NCR. Granted, operators run their city networks on a relatively very economic use of 2G spectrum, but the real question is how much growth might they expect in voice and data traffic? Voice penetration has arguably close to peaked, with average metro mobile subscriber penetration well over 100% already in India. On the other hand, alot of the future growth expected in metros is in data, where the volumes could rise very quickly. Decisions will be made on the basis of how much 1800 MHz spectrum can do to solve the shortage: if the demand growth is in data, then 3G or LTE will be more useful in future, not 1800 MHz which has traditionally been more efficient for carrying voice.
Perhaps the most interesting question is whether new entrants will make a mark on the auctions. This is interesting because it will serve as a litmus test for India’s sustained appeal as an investment destination into an industry that has promised value to investors over the last decade. Capturing new value appears to be more challenging now than before, but on the other hand, opportunities in many other markets appear inferior. So even though India may be less attractive than it was a few years ago, new players may still be evaluating the opportunity to come in. Therefore expect any activity to come from players who are well established in their home markets but seek new growth, and are experienced enough to take on the challenge of building a business in a market full of surprises. And don’t discount the possibility of spectrum acquisition blended with M&A activity also.
Welcome to No Wires Attached: informed and pointed opinion on the world of telecom, plus the odd digression into other subjects, from time to time.