The article highlights the changing market dynamics post the entry of a large Indian conglomerate into the Indian Telecom sector. It analyses the present state and performance of the telecom sector and the paradigm shift from hithertoi voice to data-centric business model. It puts into perspective the future trends and tries to find the ultimate winner of this "Game of Thrones".

1. The Game of Thrones – And the Winner Is by Sohag
Sarkar
November 2016
Sohag Sarkar, Associate Director-Strategy & Operations, KPMG Advisory Services
Story So Far – The Race to a Billion
The limit has been stretched to the fullest when it comes to telecom subscriber base in India. The
race to a billion subscribers (in a country with a population of 1.3 billion) is attributed to the mega-
competition that has been witnessed so far in the mobile services arena.
Table: 2016 Telecom Performance Dashboard
Particulars March 2015 July 2016 %age Change
Total Subscribers 997 1,059 6%
Wireless 970 1,034 7%
Wire line 27 25 -7%
Tele-density 77 83 8%
Urban 143 153 7%
Rural 48 51 8%
Source: TRAI
The Market Leaders
Indian telecom is witnessing a mixed bag of experiences and market moves: post 2008, the market
witnessed more than 10 competing players within a telecom geography (or Circle). The 2G scam
resulted in the exit or marginalization of some of the new entry players. Renewed interest has been
shown in this CapEx intensive industry with the entry of a new cash-rich conglomerate. Ongoing
merger of two pan-India players and speculative exit (or buy-out) of a regional player is next in
line.

2. Broadly, three incumbent players have been successful in consolidating their leadership year-on-
year (combined revenue market share 60 percent in 2011 to 71 percent in 2016). Therefore, it
would be an interesting wait and watch to see if the new entry and/or the merged pan-India players
are able to shift this leadership pattern in the near future.
War of the Spectrum
The spectrum auction of 2016 was no different from the one witnessed last year.
The top three incumbent players reiterated their long-term interests with a combined investment
of 72 percent of total 65,789 crore spent on spectrum auctions. The new entry player (Reliance
Jio) contributed a modest 21 percent. The bidding intensity was low with a pre-planned strategy
to close 3G/4G coverage gaps in key markets (including capacity building for future). This was
the first spectrum sale for 700 and 2500 MHz bands respectively. Bulk of the spectrum sales
happened in 2500 MHz band followed by 2100 MHz (3G) and 1800 MHz respectively.

3. There were no buyers for the premium bands, viz., 700 and 900 MHz, and only 41percent of the
overall radio waves put on auction were bought by the participating players. The marginal players
continued to stay away from this expensive spectrum shopping.
Free Calling – End of Voice Era?
The incumbents have reached thus far by riding on the subscriber growth and voice-centric
revenue. The voice usage per subscriber (minutes of usage) has been steady post the 2G license
cancellation in 2012, though the average revenue per user (ARPU) has increased by 28 and 42
percent for GSM and CDMA players, respectively.
The revenue growth has been driven primarily by the introduction of 3G (high-speed data)
services. In 2011, the rental, voice, and messaging, which used to cumulatively contribute close to

4. 80 percent of the overall revenue, has today dropped to 67.5 percent. Data alone contributes 21.6
percent to the overall revenue figures. Needless to mention, voice still remains as the greatest
contributor (viz., 48 percent).
With TRAI approving the free calling offer put by the new entry player, it can potentially impact
50 percent of the operators' revenues; would this be the beginning of the end of voice era? There
are several factors which would come into play to influence this, namely:
Subscriber shift to 4G devices (or services): Majority of the data subscribers do not have Voice-
over-LTE (VoLTE)-enabled 4G devices.
Device specifications and affordability: 4G will be offered across different spectrum bands or
technologies (FDD or TDD). The device ecosystem is still maturing to suit the Indian spectrum
configurations. The 2.5-GHz introduced in the recently concluded spectrum auction is the latest
one that adds to this complexity.
Copy-cat offerings: The incumbents would go to replicate similar market offers to hold back (or
win back) their existing subscribers. They may choose to offer this at higher rentals to offset the
voice revenue loss.
Quality of voice service: The voice quality experienced by the subscribers would unleash a greater
word-of-mouth publicity (or obscurity). Subscribers have already been feeling the brunt of
increased call drops over 3G networks. The indoor coverage would be a key concern, especially
when services are being provided on higher frequencies. Therefore, network experience in terms
of seamless hand-over, better call-connects, coverage, and voice clarity would be critical elements
of customer perception and/or retention.
Pure IP-fication: The move toward a pure IP network would naturally subsume voice within the
data revenue. Most of the incumbents use circuit-switched fall back (CSFB) technology over
VoLTE.

5. Future Trends
The market dynamics are changing with the foray of a new player. Does it mean that the
unchallenged leaders have found their right competitor? If so, then taking cues from the past, this
competition would make only one winner, i.e., the customer. In this race to get the leadership, one
needs to be alert and prepared for the turn of events within the industry, namely:
Mobile virtual network operators (MVNOs): It is speculated that close to 80 companies have
applied for MVNO license, which will enable them to offer telecom services by buying airtime
and bandwidth from existing operators.
Digital acquisition: With the regulator allowing Aadhar-card based KYC, operators can now
immediately on-board the customer and in the process substantially cut down the subscriber
acquisition cost (direct sales and no customer verification process). Customer servicing over digital
channels would take preference with increased digital adoption and promotion of digital economy
and commerce.
Customer experience is the king: Experience would be the be-all and end-all of everything when
it comes to competition within the data services world.
The way operators would manage their spectrum portfolio (800, 900, 1800, 2100, 2300 and 2500
MHz) and intelligently plan and deploy their network would determine their market leadership.
They would require technology prowess (beyond customer service) to manage the experience of
data subscribers by deploying CEM or analytical tools.
Regulatory way forward: The reduction of spectrum usage charge to 3 percent would help the
operators, while the decision on interconnect usage charge (IUC) may favor one over others (or
vice versa).
Next wave of second SIM: The industry witnessed the outcome of heightened competition
between 2008 and 2012. Attractive acquisition offers accelerated the second SIM phenomenon
across geographies and market segments. With promotions around high-speed 4G/LTE data and
lucrative "welcome offers with data content," the customers will be lured toward another wave of
dual SIM/data SIM along with their primary SIM.
New business models: The fundamentals of business are constantly changing. Messaging and
VAS revenue (now merely 2.4 and 3.8 percent of the overall revenue) has been cannibalized by
data services. Domestic roaming would soon be a thing of the past. Voice revenue would
eventually merge within the rental and data. In such a scenario, how would the share of wallet be
increased? The operators have to continuously transform their business and invest in new business
models (or alliances). Closed and open network digital offerings need to be expanded to trigger
another VAS story.
URL: http://communicationstoday.co.in/index.php/perspective/5924-the-game-of-thrones-and-the-
winner-is