The adoption of 3G/4G in India has lagged behind that in some of the other developing countries in the world. As of 2014, there were around 81 million active 3G SIMs in the country, out of the total 833 million. This 3G penetration is largely concentrated in the metro cities. Against a pan-Indian 3G penetration of around 6 per cent, Delhi has a 3G penetration of 21 per cent, Mumbai 26 per cent and Kolkata 19 per cent. There is a lot of latent demand for 3G in the metros, which is largely driven by the fact that there are networks in these regions. Thus, 2G still holds a dominant position in most circles and the 2G switch-off is at least a decade away. Meanwhile, operators are still looking to monetise their 2G investments and the share of 2G voice revenue is still very high. At the same time, data penetration within the 2G subscriber base is still increasing. In contrast, the pan-Indian 3G penetration is low. Even with penetration ranging from 19 per cent to 26 per cent in the metros, operators are already facing capacity issues on their 3G networks. Further, leapfrogging from 2G to 4G has not been witnessed anywhere in the world, which leaves a limited market opportunity for long-term evolution (LTE).
Operator 3G/4G spectrum strategies
In terms of incumbent strategies for spectrum, on the 3G side, incumbent operators are looking to complete their pan-Indian coverage. This was witnessed at the recently concluded auctions wherein operators bought a significant amount of 2100 MHz spectrum. Meanwhile, operators have strategically acquired spectrum in the 1800 MHz band, targeting those circles in which they have a high revenue market share. Thus, in circles where there is a high 2G and 3G market share, they are expecting subscribers to move to 4G. However, the quantum of 3G/4G spectrum held by operators in India is still not enough to meet future traffic demand and provide the necessary quality of service.
In the 2100 MHz band, operators hold 5 MHz of spectrum in each circle. However, this will be insufficient to meet capacity requirements going forward. In the 1800 MHz band, there is a use-case for 4G as operators have acquired spectrum in this band to deliver LTE services. However, 1800 MHz cannot be used for 4G offerings if it continues to be used for 2G services by operators. Further, a 5 MHz block in the 1800 MHz band will not suffice to capture the full potential of 4G services. Lastly, a large part of the spectrum in the 800/850 MHz band has been used traditionally to offer CDMA operations, including voice and EVDO. In the present scenario, how much of the 850 MHz band is contiguous for 4G expansion in India is still unclear, as contiguous spectrum is only available in limited circles. Overall, the 700 MHz band remains the game changer as far as the launch and adoption of 4G services is concerned, owing to several reasons. Based on international benchmarks, in the future, operators in India are likely to continue to invest in more 4G spectrum rather than in 3G.
Implications of 3G/4G for the telecom infrastructure space
Given the increasing data-driven traffic on networks and the limited spectrum availability, operators will face capacity-related issues on their networks as the data usage per subscriber per month on both 3G and 4G is only set to increase in the coming years. At present, three options are available to telecom operators to manage the data traffic:
The need of the hour is a concerted effort on the part of all stakeholders in the value chain to address the bottlenecks in the system. The regulator has the largest part to play in spectrum management. It can provide clear and timely guidelines on mergers and acquisitions, spectrum trading and active sharing. It can release more 2100 MHz spectrum as operators may look to acquire additional spectrum in this band, at least in the metros. It can also ensure that 700 MHz spectrum is made available at the right time and the right price. Contiguity of existing spectrum is also a major issue across the 2100 MHz, 1800 MHz and 850 MHz bands.
In terms of capacity and backhaul investment, vendors and tower companies have an important role to play. These stakeholders can be proactively involved with operators’ network planning, provide build-to-suit in-fill sites and deploy rooftop pole sites. Tower companies can look to provide small cell/in-building solutions to resolve capacity constraints.
Finally, in terms of tower optimisation, operators and tower companies need to consider some innovative techniques for better cost optimisation. These include re-designing of towers to reduce the tonnage, foundation and footprint of sites; deployment of energy optimisation solutions and active infrastructure sharing, which can reduce network costs and optimise utilisation. However, for active sharing, favourable regulatory and competitive market factors need to be present.
Based on a presentation by Kunal Walia, Principal, Analysys Mason