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The Fourth Gambit

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Lightning Fast’! ‘Reliable and High Speed’! These are some of the epithets mobile service providers use to describe themselves. Self-praise is no praise, as most of us have learnt the hard way. Mumbaikars on Vodafone, despite thousands of complaints flooding the company, lose contact with the world on the famous J.J. Flyover. Who has not felt like smashing his or her cell phone on the head of the marketing chief of these companies when they have experienced call drops dozens of times in a week, sometimes at a crucial point in the conversation? Or, the frustration of your email page vanishing just before you touched the screen to send an important message? 
It’s the fourth attempt. It’s taken over 20 years, but 4G (fourth generation) broadband is finally poised to take off on telecom networks in India later this year. 3G (third generation) networks have been an abject disappointment, both in coverage and speed.  
The much-anticipated and oft-delayed launch of Reliance’s 4G offering, Jio, is now slated to happen over the next two months. A statement in April this year by Reliance Jio Infocomm (RJIL) said it “plans to provide seamless 4G services using LTE (long-term evolution) in 800 MHz, 1,800 MHz and 2,300 MHz bands through an integrated ecosystem”. The company holds the pan-India Unified Licence and is the only private player with broadband wireless access (BWA) spectrum in all 22 telecom circles of India. Reliance Jio, like the others, in its statement promises “reliable (fourth generation) high-speed Internet connectivity, rich communication services and various digital services in key domains such as education, healthcare, security, financial services, government-citizen interfaces and entertainment”. 
Credit Suisse, which closely tracks large listed companies, predicted a soft launch by mid-July this year, earlier than market expectations, and said retailing agreements would only be signed a couple of weeks in advance. The initial launch is expected to cover five cities. Reliance Industries’ annual report for 2014-15, however, puts Jio’s sights on ramping up to more than 800 cities over time.
India’s dominant telecom player, Bharti Airtel, has been quieter but quicker. It has been in the game longer. Airtel kicked off 4G in Chennai, Hyderabad and Mumbai. According to an Airtel press release, existing Airtel customers with 4G-ready mobile devices can walk into any of Airtel’s retail touch-points and upgrade to a 4G SIM and experience mobile Internet speeds like never before. Airtel has also announced go-to-market partnerships with Samsung and Flipkart to proliferate 4G devices and transition more and more customers to experience the fastest browsing experience.  
With 20 more cities on Airtel’s agenda, a price war is in the offing. Services like wi-fi, IP-TV and new digital content that call for high speed, will become a reality. The industry that has just emerged scathed from a gruelling round of spectrum auctions is waiting with mixed feelings for the slugfest. What does the immediate future of 4G look like? Airtel shared some details, but attempts to speak to Reliance on Jio hit a wall. Other telecom operators were also tight-lipped.  However, such a massive rollout is difficult to keep under wraps, and conversations with equipment vendors and service providers in other countries provide a window to an interesting scenario. 
Disruptive Pricing 
It was the second attempt at ‘Karlo Duniya Mutthi Mein’ — the clarion call with which the Ambanis entered telecommunications in 2003 and promised to revolutionise voice, data and Internet communication by providing services to the nook and corner of the country at affordable prices. The result was a mixed bag and Reliance Communications under Anil Ambani was limping along. But by June 2010, Mukesh Ambani, within months of negotiating the end to the non-compete agreement with his brother Anil, bought through Reliance Industries (RIL) a 95 per cent controlling share in Himachal Futuristic’s Infotel Broadband Services for Rs 4,800 crore. 
Infotel Broadband was the only player to win the broadband spectrum auction for all 22 zones in India, and within hours after the auction ended, RIL agreed to pick up the tab of Rs 12,848 crore ($2.7 billion) for the spectrum. On the bandwidth side, RIL, therefore, acquired 20 MHz of contiguous spectrum across the country, twice that of the 10 MHz that its rivals, the other 3G telecom auction winners, had.
It has been an excruciating wait for things to happen since. Five years have elapsed. Reliance Jio as a first-time entrant has struggled with setting up its wireless connectivity, erecting standalone towers, and fighting right-of-way issues. Along the way RJIL picked up additional spectrum in 1,800 MHz in 14 circles across India, and in March 2015 further acquired 800 MHz and 1,800 MHz in 13 key circles in another spectrum auction. This gave RJIL spectrum in either 800 MHz or 1,800 MHz or both in 20 out of the total of 22 circles in the country.
Both US-based investment research firm Alliance Bernstein and a report in the newspaper, Mint, dated 12 May 2015 claim that Reliance Jio has invested $13 billion in five years. In comparison, Bharti Airtel has invested $15.78 billion over the past 23 years. Reliance Communications has invested $11.4 billion in its lifetime. These investments include payment for spectrum and infrastructure. These figures have not been refuted by these companies, though none are willing to confirm them. Obviously, the cost of building a network has risen. Optical fibre for 4G networks is costly. The investment of other operators like Idea, Aircel, MTS and Vodafone is unknown. 
It is obvious these heavy investments have been made to reap a rich harvest. Reliance Jio is clear. It wants to be a game changer; and it wants to be No. 1. Besides the technology and super offering of services, the strategy is to get there by a hugely disruptive pricing strategy. The first step will be to enter two-SIM handsets of existing subscribers. The scare going around among rival operators is that Jio will launch data packs at throwaway prices as an entry strategy. As it has to woo away existing subscribers it may go as low as Rs 10 for a 100 MB or even Rs 1 for a 1 GB pack. Such low rates would shake up the market. Data revenue is the fastest growing piece in the overall revenue segment, and a digital generation that is wallet sensitive as well as data conscious will love this pricing. Young subscribers, who watch movies and spend time on social media uploading and downloading stuff, will be the first movers for any service that offers cheap data. Packaging of data with handsets, wi-fi and access to a set-top box will also be a game changer for the sheer spectrum of digital services being provided. The writing is clear on the wall: Jio has applied for a nation-wide multi-system operator (MS) licence to provide cable services. Most of the cable and DTH services cannot provide proper broadband connectivity, except Bharti Airtel.
High stakes are involved and competitive telecom operators view the coming 4G wave with fear and caution. Data delivery on 3G is just taking off. Its potential has nowhere near been realised, so those who have opted for it cannot debunk it. Over the past few years, capital investment has drained these players both for the acquisition of new spectrum as well as for converting to 3G. Investment in network infrastructure has not kept pace with growth in subscribers. In a hyper-competitive market, operators are spending big on customer retention. These costs are draining their balance sheets. Analysts are revising profit estimates downward due to the coming price war on data and higher payments for spectrum. In such an environment, will the quality of telecom service improve or deteriorate?  
Call Drops Spur 4G
A report by industry regulator Telecom Regulatory Authority of India (Trai) shows quality of service deteriorating dramatically. The plague of dropped calls from key service providers is so rampant that Union telecom minister Ravi Shankar Prasad went public on 3 April with this warning to operators: “As a minister, I am equally accountable to consumers. If the consumers of India are complaining there are a lot of call drops in case of private operators, they must take this as a caveat for consideration.” 
On 23 April, Prasad told Hindu Business Line newspaper: “I have got a lot of letters from MPs and customers about call drops in the last few days, and to address such grievances, I have asked my secretary to call all telecom players to discuss the issue.” In a written note to the Rajya Sabha, the minister noted that several private operators including Vodafone and Aircel were not meeting the benchmarks set by the government on quality of service. 
Quality of service is poor for any operator, which has not invested adequately in infrastructure. Setting up new towers in cities is becoming costlier and residents oppose them for fear of radio wave emissions. A minefield of corrupt local authorities makes it virtually impossible to lay fibre in cities. There is civil resistance as well, as seen in Mumbai and several other cities, where activists have protested against Reliance Jio erecting towers in precious open spaces and gardens. It is against this backdrop that Jio is setting up its network with a delay of four years stemming from difficulties in building and setting up the infrastructure required.
Laying The Ground
A 4G network requires a backhaul infrastructure of fibre optics so that every base station is connected to the backbone. Ashwani Khillan, former chief technology officer at Shyam Sistema Teleservices and now with American Towers, says: “Every network is difficult. The 4G network is much more complex than existing networks as it takes time to configure and roll out.” In India, telecom operators, don’t have fibre optic backbones connecting all their towers, but they do not need to as a majority of the towers are still on second generation networks. Jio officials claim that they have laid more than 1 lakh kilometres of fibre.
Initially, Jio was supposed to adopt an asset-light model and lease towers from infrastructure providers and quickly roll out its services. But, now Jio has opted for a hybrid model in which, besides leasing towers, it has built its own network of towers (Maximum Network). To do this, it has developed a unique tower built for Indian conditions: a ground-based mast (GBM) tower design without back-up diesel generators. Incidentally, telecom is the third largest consumer of diesel in the country, thanks to a patchy power scenario. 
Jio’s GBM design integrates a lithium-ion battery as a back-up inside the towers itself. The design was presented at the Indian Institute of Technology, Bombay. It also takes much less space and offers better coverage. The tower can be set up on 4 square metres and connected by fibre. According to Jio officials, the competition did not make it easy for them to get access to towers, which had fibre connectivity. “Even in places that had towers with fibre connectivity, there were more than six operators on it. So we had to install our own towers in key high-density traffic areas,” says a Jio official.
Airtel is the only operator among the incumbents serious about 4G implementation. It has already started rolling out services to pre-empt the Jio launch. Airtel’s strategy is to upgrade its existing 3G network to 4G, and it has 47,000 out of 1,75,000 towers 3G-enabled. Srini Gopalan, head of consumer business at Airtel, says, “We will have 4G in 20 cities by 2016, and as we already have a 3G network we will use it as a fallback for voice for our 4G networks.”
The fallback for voice is another issue that has delayed the rollout of the Jio network. It’s really designed for data, not voice. 4G networks use a technology known as voice over LTE (VoLTE) for carrying voice. Sandeep Girotra, head of India, Nokia Networks, says LTE operators will have to deploy VoLTE as voice will remain ubiquitous and it will help save operating costs. Moreover, the voice and video experience is possible. So for voice, Jio has to add both infrastructure and data centres. 
4G Handsets At Hand
For many years, 4G handsets haven’t been available in India. It’s been a chicken-or-egg situation, with handset manufacturers waiting for some sign of life before launching them in the country and cellular operators waiting for enough users to warrant moving up to faster connectivity. 4G handsets need to be configured for VoLTE and the ecosystem for this is still evolving, but LTE-capable handsets are now being launched in almost every price segment, except the absolute bottom tier. Samsung and LG’s flagship phones, for example, are 4G-ready. These are, of course, expensive handsets. But down in the Rs 5,000 to Rs 10,000 segment, phones like the Redmi 2 are also similarly 4G-ready. All that is now needed is 4G networks, such as the one set in motion by Airtel. 
Airtel is able to roll out services faster as it has the advantage of working in the 1,800 MHz space, which is far more evolved for 4G, while Jio initially took on 2,300 MHz. Only later did Jio apply and secure1,800 MHz in the auction of February 2014 by paying Rs 11,100 crore as spectrum fees. In the auction this year in March, Jio secured spectrum in the 800 MHz band for another Rs 10,100 crore. The spectrum auction fees are not paid in one go, but is spread over the licence period. And yet, it is still a substantial cost to operators and the reason why their investment in infrastructure is low.
Jio employees say they have been able to integrate the 1,800 MHz and 2,300 MHz bands for rolling out their services. Industry sources say this integration is not easy and is a technology challenge. Industry observers say the company is still working on the integration of 800 MHz, while the 1,800 MHz and 2,300 MHz integration is complete. This means the rollout will not be a big one of both voice and data across the country. The first phase will be in those 13 circles in which Jio has both 1,800 MHz and 2,300 MHz. This will be followed later with a rollout in circles where Jio has just 800 MHz.
Data Is King 
Jio may roll out over the coming years and cover 800 cities, but it is not seen as a challenge for voice services. Its biggest advantage is that it is a data network and offers far superior speed than anything else (The Thrills of Speed)
Data revenues are growing fast for all the operators. In fact, the smaller operators with limited circles sell more data packages than voice. For instance, if you notice the advertising of Sistema Shyam Teleservices, which sells telecom services under the brand name MTS, you would think it is an Internet service provider, selling dongles. Similarly, Tata-DoCoMo also positioned itself as a data service provider. Airtel’s data revenue as a percentage of total mobile revenue is in the range of 16 per cent to 17 per cent and growing much faster than its voice revenues. Every operator is witnessing a similar growth in data volumes and revenues. This is the low hanging fruit that Jio is expected to capture by becoming the second SIM in existing handsets. Consumers may continue to use voice with their existing providers, but for heavy data usage they will shift to a Jio SIM.
Which is why one of the first apps that Jio launched is a WhatsApp clone called, uninspiringly, Jio Chat. The app allows users to video chat, besides a few other bells and whistles. It may not have caught popular attention but it did trigger an action from operators, who first began favouring some apps and choking bandwidth for others. While the issue was labelled as a Net Neutrality battle, it was really more of a peremptory strike by incumbents against Jio’s app-based strategy.
Jio’s strategy is not just about apps; it includes a combination of products and services. Jio Chat is an example of one such product, which can be downloaded on any phone and can work with any operator, though to realise its true potential you might need a second SIM card from Jio.
Breaking Out In Hotspots 
A similar product is offering broadband wi-fi services in select locations. Jio has been studying user behaviour patterns in Ahmedabad by offering broadband wi-fi services in six-eight locations. These services are in malls and open public spaces. The company may offer more such hotspots to let people experience Jio services.
Wi-fi is an important area for all telecom operators. Vodafone, Airtel and even Idea seem to be developing hotspots or working with wi-fi operators. Jio is using a blend of LTE and wi-fi networks to provide connectivity in select spots, but this will only proliferate. It is working with state governments and city authorities to provide wi-fi services, according to the Reliance Industries annual report for 2014-15.
Another product that Jio is planning to launch is My-fi, a small credit card-sized device that one can carry to create small wi-fi zones. This is a product for today’s digital connected-everywhere generation. Jio officials confirm the device exists and there are pictures of it floating online. The pricing for My-Fi is said to be Rs 1,800-2,000 but this is conjecture. Technically, people could use their existing phones combined with My-Fi to make voice or video calls, provided the data charges are low; so low that users won’t think about their consumption patterns while using it.
High-speed broadband connectivity over fibre and wireless-to-home is another product that the company is developing, according to its annual report and other sources. One of its breakthrough products uses a micro base station installed outside the home. This will provide a number of services. Technically, this base station can provide video content for IP-enabled TVs and of course, broadband into the house. This is expected to disrupt DTH service providers, who are the only HD quality TV services providers.
Jio has also developed a bigger version of its micro base station to service a whole colony. This unnamed station can also function as a wi-fi hub like the GBM towers. It is small enough to be placed on an electric pole and has been developed by Cisco under its small cell network. It covers a radius of 50-60 metres.
Within its content services, Jio is also planning to launch a set-top box that can replace existing DTH boxes. With these, one can watch the past seven days of programming from the cloud. It also allows people to buy and download movies and keep them in the cloud to watch later. To make this possible the company has invested in a data centre to host these services. While the size and capacity of the centres is not known, its existence gives Jio a big edge and pitches them against not just telecom operators, but also digital services providers like Google’s YouTube or even Facebook’s WhatsApp Messenger. Both these Internet companies are not able to offer high quality HD content as their data centres are outside the country.
The data centre is also important as Jio is offering VoLTE that perforce requires a telecom cloud. Sandeep Girotra of Nokia says, “For VoLTE to successfully take off in India, an underlying IMS (IP multimedia systems) network is a must. This also requires a gradual shift towards Telco Cloud, where many of the IMS infrastructure can be on a cloud platform, making it faster and easier for new applications like VoLTE to be deployed.”
As for Airtel’s plans to bundle content along with its 4G service, Srini Gopalan says: “Differentiating telecom services using content is old school. There are obvious limitation of both content and bandwidth here. There is a shortage of spectrum and till it is resolved it is not possible to realise the potential of mobile broadband.”
Airtel is not the only sceptic. Other companies like Vodafone and Idea are also not following a strategy to seed the market with both content and devices. Jio, as a pioneer, has to create the market and has no choice but to shoot the arrows and scare away competition. It is also hoping that the seeds it has been sowing for so long, will give it a rich harvest soon. 
The author K. Yatish Rajawat is a senior journalist based in Delhi

Illustration by Dinesh S. Banduni
(This story was published in BW | Businessworld Issue Dated 15-06-2015)