Link to A Thought-Provoking Article On India's Welfare Schemes

Till now I have restricted to writing only on telecom topics. But I think I should make an exception and point to an article that raises some interesting observations on India's landmark social welfare schemes. I may not fully subscribe to its views; but it is very important to hear pro and counter views and increase awareness. The following is a link to the article by Niranjan Rajadhyaksha of Mint (http://www.livemint.com/2010/06/15214825/Of-wine-and-women.html).

The India BWA Auction: the LTE vs WiMAX game and some observations

The BWA auctions in India have ended and have netted the government another 38500 crores.

The aim of this post is primarily twofold:

1. form a picture on how the BWA spectrum allocation affects the LTE vs WiMAX business.

2. observe some peculiar features among the winners of the BWA auction and use this to postulate on their business plans/strategy.

As we know, 2 blocks of BWA spectrum of 20Mhz each were available across all the 22 telecom service areas. In addition BSNL+MTNL had another block of 20Mhz. The following table lists the winners and the breakdown of bids over all the telecom circles. There are only 2 operators here, Bharti and Aircel, who also won spectrum in the 3G auction. For them, both 3G and BWA (4G) spectrum allocations are specified. There is also an operator, Augere, that won spectrum only in Madhya-Pradesh. I have left it out of the table for sake of compactness.

	Infotel	Qual comm	Bharti		Tikona	Aircel
			4G	3G		4G	3G
Delhi	2241	2241	N	3317			N
Mumbai	2292	2292	N	3247			N
Maharashtra	915		915	N			N
Gujarat	613		N	N	613		N
Andhra Pradesh	1059		N	1373		1059	1373
Karnataka	1543		1543	1580			1580
Tamil Nadu	2069		N	1465		2069	1465
Kolkata	523		523	N			545
Kerala	258	258	N	N			312
Punjab	332		332	N			322
Haryana	119	119		N			N
Uttar Pradesh (E)	142			N	142		365
Uttar Pradesh (W)	183			514	183		N
Rajasthan	97			321	97		N
Madhya Pradesh	124						N
West Bengal	70			124		70	124
Himachal Pradesh	20			37	20		N
Bihar	99			203		99	203
Orissa	63			N		63	97
Assam	33			41		33	41
North East	21			42		21	42
Jammu & Kashmir	21			30		21	30
Rs Crore	12847	4912	3314	12300	1058	3438	6499
US Dollar	2.74bn	1.05bn	706mn	2.62bn	225mn	732mn	1.39bn

Observations:

1. Infotel/RIL has obtained a pan-India spectrum.

2. Qualcomm has obtained the other slot of spectrum for the top circles of Delhi & Mumbai.

What does this mean for the choice of BWA technology?

**RIL has already indicated a preference for LTE in its press statement “A single 20 MHz TDD spectrum when used with LTE has the potential of providing greater capacity when compared to existing communication infrastructure in the country.”

**Qualcomm had entered the auctions solely to use the winning slots for LTE.

3. If RIL selects LTE, then given the fact that most other BWA operators (that only have scattered spectrum) may need roaming agreements with RIL, this sort of forces LTE on the other operators too. There is a possible tenuous workaround to this roaming strategy, which I will come to later.

4. RIL+Qualcomm blocking both the spectrum slots for Delhi & Mumbai for LTE removes the scope for WiMAX in the two lucrative circles.

5. Qualcomm emerged as a very strategic player by winning the spectrum in Delhi & Mumbai. It blocked access to WiMAX for these important circles.

**Strategically, it selected regions where the 3G spectrum is expected to hit capacity constraints the earliest and would have the earliest business need to move mobile data users to 4G.

6. One can argue that BSNL+MTNL also have a pan-India spectrum and have shown preference for WiMAX. These operators selecting WiMAX can be the best case scenario for the technology. However BSNL+MTNL do not seem to have the money or the inclination to roll-out BWA in a hurry. Given that they are losing money in their existing businesses and their 3G spectrum is significantly underutilized. They are already making noises that they were forced to buy pan-India 3G+BWA spectrum that they did not need in all circles and want back their share of the auction money.

In conclusion, the India BWA spectrum, which until a few months back, seemed to have the potential to become the poster boy for WiMAX deployments, looks to have gone the TD-LTE way too. Personally I feel it is better to have competing technologies, so that vendors and operators have the advantage of making an informed choice based on their preferences...as in 2G (GSM or CDMA). However 4G seems to be fast becoming a 1 horse race. In this context, I encourage interested readers to go through a nice article by Dr. Shiv Bakshi (http://www.rcrwireless.com/ARTICLE/20100505/SPECTRUM_AUCTION/100509967/analyst-angle-bwa-in-india-wimax-td-lte-and-things-in-the-rearview).

Let us now look at a discerning pattern in how Bharti and Aircel have won their BWA spectrum. These are the only operators to have also won 3G spectrum.

1. If one observes the spectrum allocation table given above, Bharti has won BWA spectrum in 4 circles. It has not won the corresponding 3G spectrum in 3 out of these 4 circles: Maharashtra, West Bengal and Punjab. It is only in Karnataka, where Bharti has got both the BWA and 3G spectrum. Given that

a) Bharti could not win pan-India spectrum in either 3G or 4G

b) Future mobile devices would support both 3G and 4G (BWA)

**the bid pattern shows a defensive effort by Bharti to plug the "holes" in its 3G spectrum with 4G and stitch together a high-data-rate mobile coverage area comprising both 3G & 4G. Its plan would be even more productive if the government allows the operators to use 3G & 4G in the same manner with the same set of services. For example, if regulations permit, voice based services can be used over both technologies, via VoIP.

2. On the contrary, Aircel's bid pattern is driven less by pan-India ambitions and more by a consolidation strategy. It has won 4G spectrum only in circles where it also has 3G spectrum. It has concentrated and consolidated resources on circles where it is or aspires to be a market leader. For example it has won both 3G and 4G bids for Tamil Nadu at a total cost of Rs 3500 crores. It has also won 3G and 4G in Andhra Pradesh for Rs 2500 crores.

3. Given that the cost of 3G and 4G spectrum was so steep that getting pan-India slots was unaffordable, both Bharti and Aircel have been able to party secure their respective business strategies: one as a pan-India operator (Bharti) and one to consolidate its hold on its biggest and best circles (Aircel). Their part success contrasts to the forced withdrawal of the other major 3G players: Reliance, Vodafone, Idea and Tata.

4. Let us look at another interesting point regarding the "high cost" circles of Tamil Nadu, Karnataka, Kolkata and Andhra Pradesh.

**The cost of 4G spectrum in Tamil Nadu (2069 crores) exceeds the cost of 3G spectrum (1465 crores).

**For Karnataka, the cost of 4G spectrum (1543 crores) is almost the same as the cost of 3G spectrum (1580 crores). Same is the case for Kolkata, 4G: 523 crores, 3G: 545 crores.

**For Andhra Pradesh (4G: 1059 crores, 3G: 1373 crores) the 4G and 3G costs are in the same ballpark.

For other "high cost" circles, in general the 4G cost was significantly lower than 3G. So what happened for these 4 circles? An interesting observation is that in all of these 4 circles, both Bharti and Aircel won either the 3G or 4G spectrum. But neither could win both 3G and 4G in all 4 circles. Looking at this I can only speculate that Bharti and Aircel bid each other fiercely in all these 4 circles. While Bharti won the 4G in Karnataka and Kolkata, it lost out Tamil Nadu and Andhra to Aircel. The bid must have been especially challenging in Tamil Nadu, were both Bharti and Aircel have the 3G spectrum and where the 4G spectrum ultimately sold 40% higher than 3G. This is a telling example of what can happen when the government creates artificial scarcity by providing only 2 slots for auction among 11 bidders. If we further consider that one of the bidders (RIL) that has other major businesses and has a rich cash flow, was fully committed to winning a pan-India slot no matter what the cost, this really leaves out only 1 slot open among 10 bidders. Such demand-supply gap is not healthy for any industry.

I would end this post with another observation. The spectrum cost for the entire North-East (including Assam) came to about 50 crores. This is about 1/40 of the spectrum cost of Tamil-Nadu (which has about twice the population of North-East and the highest bid among states). It is also about 1/12 the cost in Gujarat which has a lower population. North-East, Tamil-Nadu and Gujarat have comparable land area. Similarly telecom service areas that have much larger population and area such as Bihar, Madhya-Pradesh (includes Chattisgarh) and West Bengal were sold at a fraction of the cost of Delhi, Mumbai, Tamil-Nadu, Karnataka, Maharashtra and Gujarat. The huge difference in spectrum costs is an evaluation by private industry on how it views business opportunities in these regions. It is also a stark reminder of the failure to ensure regional balances in India's economic growth. Had there been more granularity in the telecom service areas, we would have seen significant regional differences in the spectrum costs of even the most lucrative regions. Many of the separatist and militant movements that scar India today justify their stance in the denial of opportunities to the local populace and the imbalances in economic growth. The hands down to the North-East/East/Central-India in the BWA auction indicates/reinforces the notion of this failure.

So much for the business and governance issues in the BWA and 3G auctions in India. In the next article, I would detail the technical aspects of these technologies. What are the minimum/average/maximum performance benchmarks for 3G and 4G (for example in terms of data-rate and number of subscribers)? How are they distinguished from each other and from the presently available wireless technologies (2G/2.5G)? These are topics that I am more comfortable with and are my bread and butter. I also do not find these discussed widely, in either print or digital media. So I hope to cover this soon.

The FY-2010 Indian Telecom Industry survey by Voice&Data

Salient points from the Voice&Data 2010 Telecom Survey. Do refer to their link at http://voicendata.ciol.com/content/vnd100_2010vol-I/110060827.asp for the details from their end.

Observations for FY 2010:

1. Total telecom sales: 137 000 crores. It grew by about 19% YoY.

The revenue comprises of:

a) Carrier Equipment: 90 000 crores. This category includes wireless infrastructure hardware and software.

b) Phones: 27 300 crores. Note here that mobile handset sales are 27000 crores and fixed handset sales are only 300 crores! In other words, fixed handset sales are only 1% of total handset sales. I expected fixed sales to be much lower than mobiles, but a miniscule 1 % is a surprise to me.

c) Enterprise Equipment: 20 000 crores.

The top 10 companies by revenue are:

Rank	Company	Revenue in Rs crore		Growth %	Rank in 2008-09
		FY '08-09	FY '09-10
1	Nokia	16,567	14,100	-14.9	1
2	Huawei	6,240	11,000	76.3	5
3	Nokia Siemens Networks	9,848	10,824	9.9	3
4	Ericsson	10,310	10,820	4.9	2
5	Alcatel-Lucent	8,050	8,930	10.9	4
6	ZTE	4,800	7,200	50	7
7	Wipro	5,692	6,353	11.6	6
8	Cisco	4,693	5,400	15.1	8
9	ITI	1,741	4,732	171.8	New
10	Tech Mahindra	4,116	4,400	6.9	New

1. The Nokia companies: Nokia and Nokia-Siemens did a combined business of 26 500 crores in FY-10.

2. The top infrastructure vendors: Nokia-Siemens, Ericsson, Huawei, Alcatel-Lucent, ZTE all had solid sales between 11 000 crores and 7200 crores in India.

3. Cisco has 50% share in Switches (total market: 4500 crores) and Routers (total market: 3300 crores). It also has good share in WLan and Audio-Video-Conferencing solutions; but these are much smaller markets by value.

4. In mobile handsets, Nokia lost market-share from 64% in '09 to 52% in '10. I was surprised at this too. I had expected the market share to dip much further due to competition from Indian vendors (Micromax, Karbonn, Spice Mobile etc). This was based on information gleaned elsewhere. So I somewhat suspect this data-point.

5. The public sector ITI (which is incidentally India's 1st PSU) sold 4700 crores in '10. Who is it selling all this gear to? Need to find this out.