The Tech Trendsetters

Having shown stupendous growth in the last two decades, the Indian telecom industry now needs to innovate and strategize its offerings and invest in newer technology trends

In the last 2 decades, telecom has taken massive strides on the back of fast evolving technological advancements and an all-encompassing need for communication services among the consumers. From 0.67 mn subscribers in India in Dec 1997 to close to 900 mn today, the stupendous growth in the past 14 years is a testimony to the above. The telecom industry in India has played a major role in the economy as well. The Indian government has also been enforcing some effective telecom policies and regulations for the infrastructural growth of this industry. The industry is expected to reach a size of $70 bn by 2012, growing at 26% and generate employment for about 10 mn people, directly or indirectly. However the future growth and health of this industry will also depend on how the players innovate on their strategies and their offerings to stay relevant in an ever changing market, and also on how the government nurtures and supports this industry through economically viable policy decisions.

Looking into the near future, how will telecom operators respond to the everchanging horizon of technology trends? We have identified 8 such trends which we think will be most impactful:

Trend #1: LTE is Not Far Away

While Indian operators had to satisfy themselves with 2x5 MHZ spectrum allocation in the last 3G auction, most European operators got 2x15 MHZ for roughly 1/5 the customer base at the beginning of this century. Given the shortage of 3G spectrum available with the operators here, it is likely that the industry will start to feel the pinch sooner than expected.

Moreover the average consumption of bandwidth per user is going to be up 5-10 times in the future, buoyed by increased awareness and reach of internet services. The Indian operators will face challenges in carrying that additional burden on their voice-centric networks and will increasingly start looking at the innovative technologies to prevent technological obsolescence and prolonging their returns on investments made on the existing networks.

Players are already contemplating LTE or Wimax as a viable alternative. With higher speeds on offer, this will lead to a boost in uptake of voice and data convergence services. This will also result in a spurt of services around GPS, social networking, and mobile commerce. Though India doesn’t have an affordable LTE standard for an extensive roll-out at present, a lot of operators are realizing the long term benefits of TD-LTE and might only use Wimax as a stop-gap measure before a viable standard for LTE is implemented.

Trend #2: Operators Plan to Float in Cloud 9

In India, every operator today is either seriously contemplating or has already ventured into the business of cloud computing. Cloud computing presently is the fastest growing component of data center services, accounting for more than 11% of the business and touted to contribute more than 33% by 2015. The activity in the market is growing hot, with Huawei launching 2 new generation cloud handsets, Mcafee and ZTE coming up with its cloud security solutions, Tata introducing cloud services for the SMB market, Mahindra Satyam and Autodesk launching a dozen web based capabilities on cloud, products, and services that enable customers to enhance their desktops with mobility, new viewing and sharing capabilities, and more computing power. This is only the tip of the iceberg, as more and more players are about to enter the arena.

Cloud computing is likely to create 350,000 jobs in India in the next 5-6 years, as India will prepare itself to play a key role in the global cloud based IT applications. Cisco has estimated in its global cloud index (2010-15) that the global cloud computing traffic will grow 12 times from the existing 130 exabytes, to reach a total of 1.6 zettabytes by the year 2015, with a 66% compound annual growth rate (CAGR).

Trend #3: The Convergence Story is Far from Over, as Wireless Technologies Fuel Fresh Growth

The market has only started to take steps towards convergence between voice and data services. Reaching the ideal state scenario is still some way into the future. The most recent initiative aims at the convergence of voice and data received from multiple sources, both web based and real-time video streams, on a convenient mobile wireless platform (either a phone, or a handheld media device like a tablet). We see a gradual move from the fixed broadband technologies, of the likes of DSL or cable, to fixed wireless and mobile wireless broadband technologies. This phenomenon is specially pronounced in the emerging markets and India is no exception. As it becomes economically unviable to reach the next frontier of growth on the back of fixed broadband technologies, we will see a distinct shift on wireless broadband uptake in the new markets based in tier-2 and -3 cities in India.

Trend #4: Increasing Use of Green Technology in Powering Telecom

The explosive growth in the Indian telecom market has also resulted in an equally fast growing telecom infrastructure market. With increasing revenues, keeping costs low was not on high priority

for the telecom operators. Now as the industry stabilizes there are increasing cost pressures on the operators.

Energy expenses form a large chunk of the site level opex. Additionally, the current variance in diesel prices (the main fuel used today to power telecom sites) also impacts operator’s ability to forecast costs, adding uncertainty to their business.

Availability and increasing affordability of solar, wind, fuel cells, and other such alternatives is now providing the telecom operators with options to choose. Improvement in technology is making these alternatives more cost-efficient, combined with their ease of maintenance; green power will be the preferred mode of expansion in the future.

Green technologies also provide an excellent alternative for rural expansion. Since these sites are low powered and access to electricity supply is scare, these sites become the perfect ground for implementing alternate energy solutions. Vendors such as NSN, Huawei, Vanu, etc, are already present with such solutions in the market. Huawei’s EASYGSM BTS is an all IP based compact 2G BTS, and is specifically designed for rural areas, it provides quick and easy site deployment, easy maintenance, optimized transmission, and low power consumption.

Trend #5: Mobile Payments and NFC Services

Machine to Machine (M2M) technologies enable devices with same capabilities to communicate directly over wireless or wired networks. According to a Berg Insight report, the number of cellular network connections worldwide used for M2M communication was 47.7 mn in 2008. It is estimated to grow to 187 mn by 2014.

NFC is one of the most promising M2M technologies today. Even though the potential of NFC in applications such as mobile payment, data transfer, e-ticket, access control, etc, is immense, the adoption has been slow with only 5 mn estimated NFC pre-installments worldwide. This is forecasted to grow significantly by 2013, thanks to NFC becoming a standard component in upcoming smartphones (Samsung and Nokia have already introduced NFCenabled devices).

Mobile payments could become the flagship application for NFC usage. Purchases can be made by only touching your NFC mobile phone to the POS terminal. The mobile in turn can be linked to your credit card, bank account, or online payment services. Another promising application could be in mobile ticketing. With everyone, including Google, Apple, Ama- zon, etc, showing interest in this space, things will surely get heated up soon.

Trend #6: Tablets and Handhelds Will Accelerate Internet Uptake

Technological innovations are moving at such a breakneck speed that sometimes it becomes difficult for the unassuming consumer to keep up the pace. The latest trend in the device market is the advent of the tablet. And it has already carved a sizeable market for itself, worldwide as well as in India. Being a true convergence device, tablets have been able to cannibalize the markets for e-book readers, gaming devices, and other media entertainment devices including the ubiquitous desktops and laptops.

The introductory tablets came at a prohibitively high price of around 30,00040,000. Soon players especially operators realized that cheaper tablets can be one of the biggest drivers of wireless internet in India. Based on some recent strategic moves made by Reliance and Bharti, we expect tablet prices to go down below

10,000 by 2012-13. Though a rage currently, it is unlikely that they will be extensively used as an enterprise solution in the near future, and the entire growth is going to be in the retail space.

India has already seen total sales of 158,000 tablets during the nine months ended June 30, 2011, with 3G and Wi-fi tablets contributing in a ratio of 70:30, states a recent report by CyberMedia Research.

Currently, the options in the market are certainly better than what it was a year back and the price points cater to various pocket sizes, however to truly become a revolutionary product the operators need to drive sales through affordable service bundles and attractive financing schemes. Only then can tablets achieve their true potential.

Trend #7: Network Sharing Will be Key to Solving Explosive Demand

The operators have revived their interest in the network sharing. ICR agreements like the one between Aircel and Tata, has

led the industry to believe that network sharing can be made to work based on the depth of the sharing arrangements. The usual passive site sharing has now paved way to active radio access network sharing. In this market of continuously shrinking margins due to scraping of bottom of the pyramid customers and multiple SIM phenomenons, the operators have to reduce costs to stay alive. Network sharing helps them do just that.

Moreover with the regulatory body and the local municipalities cracking down on the operators for setting up towers in most localities, due to issues around carbon emission or radiation, etc, it has become imperative for the operators to share existing infrastructure for future expansion.

Just the economic benefit of network sharing is hard to ignore. The operators who jointly roll out a new-build LTE network of 2,500 sites in a developed economy will typically realize 30% in capex savings accumulated over 5 years and will also achieve a 15% reduction in opex year by year, according to a new Analysys Mason report.

We expect passive infrastructure to play a critical role in the light of the recent 3G auctions, to deliver a pan-india experience of service. The value proposition is compelling which will help operators reduce their costs and in turn pass on the benefit to the customers in the form of more affordable service.

3G services have had a slow start with its own initial hiccups and many regions of India still await services. With more of such network sharing agreements, we can hopefully see a brighter future for 3G.

Trend #8: Rise of Digital Media Exchange

Digital Media exchange (DMX) is a cloud based multi-tenant, digital media man-

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agement, and distribution platform. It links the entire media and entertainment ecosystem of content owners, content production facilities, and delivery platforms. It offers a secure digital distribution capability across multiple media platforms (Live Media, mobile, internet, etc). This ensures that content producers can have an integrated content delivery and aggregation platform that repackages content for all media formats. Using DMX, ecosystem partners can securely store, manage, process, and deliver multiple versions of produced content to multiple platforms. It enables media and entertainment companies to focus on the creation, aggregation, and distribution of their content without being restricted by in-house technology capabilities or geographic boundaries.

The author is partner, telecom practice, Ernst & Young

vadmail@cybermedia.co.in