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Straight Talk Telecoms

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There’s a lot of excitement about 4G in India right now. Reliance Jio, a greenfield nationwide LTE operator, is expected to launch its service within the next few weeks, and a number of existing operators are reporting early LTE subscriber numbers, rollout plans, and launch dates. Even Tim Cook, the CEO of Apple, referenced India and its huge potential during the company’s Q1 results announcement in the last week of April.

The hope for the global mobile industry is that India compensates for the slowdown in China. China has been Apple’s growth engine for the past few years, and it has also been the savior of the world’s networks infrastructure vendors, which have seen their business stagnate in other parts of the world.

But is India ready to be the next China? Does it possess the same ingredients – a competitive economic structure that incentivizes investment, a favorable regulatory climate, and most importantly a captive market – to allow it to become the focal point for LTE globally?

China and India have been the two most dynamic mobile markets in the world over the past 10 years. But while China has successfully made the transition from mobile telephony to smartphone and mobile Internet, India remains 2G-centric. Only one in seven mobile subscriptions in India were 3G or 4G at the end of 2015, compared with more than one in two in China. Smartphone adoption is growing rapidly in India, but only a minority of smartphone owners use mobile broadband services. Idea Cellular, the country’s third-largest operator, said this week that of its 60 million subscribers only 22 million are connected to 3G or 4G networks.

The problem for Indian operators is that the best business case to support hefty investment in LTE is arguably the prospect of winning market share away from other operators (or in reality protecting existing market share) rather than capturing new revenues. In the past year ARPU levels have fallen from $2.56 per month to $2.38 per month (although subscriptions have grown by 8%). Furthermore, LTE services are being introduced in India just as 3G is gaining traction: 3G penetration was only 10% in early 2015 despite the fact that 3G services have been available for six years.

Network investment is on a different scale in China than in India. Mobile operators’ capex in China was $35 for every mobile subscriber in 2015 compared with just $6 per subscriber in India. Ovum expects that gap to narrow over the next five years but it will still be significant – $26 and $7 per subscriber in China and India respectively – in 2020.

If India is to accelerate its investment in LTE and the adoption of 4G services, new ideas and approaches are needed from regulators and policy-makers.

The ultra-competitive market structure has served India well until now. But is it an approach that encourages investment in high-capacity mobile broadband networks? Revenue growth at Indian mobile operators is slowing as a result of termination rate cuts and lower voice consumption. Data revenue growth is strong but is barely compensating for declines in revenues from traditional communications services.

Generating demand for LTE is also a challenge. India’s middle class population totals 250–300 million and is forecast to grow to more than 500 million by 2025. It is reasonable to assume that a large proportion of the 141 million mobile broadband subscribers in India at the end of 2015 were from the middle classes. But how easy will it be to upgrade the remaining users to 3G or 4G?

A number of mobile operators – operating either independently or through the internet.org initiative – have attempted to bring mobile data to life by offering specific services free of charge in order to start driving demand for data. But earlier this year, Indian regulatory authorities banned the practice as “discriminatory pricing.”

One of the most effective ways of attracting users to LTE (beyond 3G) has been to demonstrate its video capabilities. There is huge demand in India for viewing live cricket, or for watching Bollywood movies or stars. One option for Indian operators would be to use the sponsored data model rather than asking end users to pay for video and data. This would allow the operators to monetize LTE data via third parties. But would such a business model be acceptable to the regulator?

In the coming weeks and months, India’s mobile operators will experiment with a number of new, innovative approaches to drive LTE adoption. But India is very different from China in terms of mobile investment levels, competition, and governmental and regulatory priorities and approaches. Ovum expects LTE adoption in India to grow steadily over the next five years, but only towards the end of the period will it start to emerge as the country’s dominant mobile broadband technology.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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