Analyst Angle (Special Edition): BWA spectrum auction leaves a changed telecom landscape in India: Mukesh Ambani re-enters sector, WiMAX sees its signal begin to fade

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Those who think in terms of history are likely to remember last Friday, the day India concluded its BWA spectrum auction, as the day the telecom landscape in the country changed – perhaps, forever.
For, it was the day that Mukesh Ambani re-entered the telecom sector, Qualcomm emerged as a bonafide power player in Indian telecom and, perhaps, the day that WiMAX saw its signal begin to fade in the country.
The distribution of spectrum assets – with respect to both 3G and BWA – is likely, I believe, to result in a significantly altered telecom landscape that will be dominated by a new set of market leaders.
But before we discuss the implications of the BWA auction and the changed Indian telecom landscape, perhaps, a recap of the auction results may be in order. The results were surprising, to say the least.
Recap of BWA auction results
Eleven players were in the race for two nationwide 20 megahertz BWA spectrum slots in the 2.3 GHz band. The pack included six of the country’s key mobile operators who had earlier acquired a patchwork of 3G spectrum, Qualcomm, and a few privately-held regional ISPs.
Yet, when the auction results were declared, a regional ISP named Infotel Broadband Services was the only player to win all 22 circles (that comprise a pan-India slot) for $2.7billion. The other BWA spectrum slot was fragmented across five players.
Qualcomm had won four circles, including high-profile metros Delhi and Mumbai, for slightly more than $1 billion. Bharti-Airtel had acquired another four circles for $706 million; Aircel, eight circles for $733 million; the ISP Tikona, five circles for $225 million; and Augere of Mauritius, one circle for about $27 million. The variance in price reflects the fact that not all circles, or operating areas, are equal.
Four of the country’s leading mobile operators – Reliance Communications, Vodafone, Tata and Idea – had backed out of the auction midway on grounds that the intensity of bids had driven the price of the BWA spectrum “beyond rational levels.”
Government wins big
The Indian government is likely to earn $8.2 billion from the BWA auction, if one includes the fees that state-owned incumbents BSNL and MTNL must pay for the nationwide BWA spectrum slot they had been awarded in advance, with the stipulation that they, together, would match the highest bid. MTNL has the charter for Delhi and Mumbai; BSNL, for the rest of the country.
Earlier, the 3G spectrum auction had enriched the public exchequer by $14.6 billion. In all, the 3G and BWA spectrum auctions will have earned the government nearly $23 billion, roughly three times its initial estimates.
[According to news reports, BSNL is seeking a refund on 3G spectrum on grounds that, unlike other commercial players, it had no choice in the matter of spectrum – that, in fact, the spectrum was forced upon it. BSNL is arguing that it is being forced to pay for 3G spectrum even in circles where it sees little business case and where, if it had been given the choice, it would not have sought spectrum.]
Mukesh Ambani re-enters sector
The mystery of a relatively-minor regional ISP winning a nationwide spectrum slot was quickly resolved when, literally, within hours of the conclusion of the BWA auction, Mukesh Ambani-owned Reliance Industries announced that it was acquiring a 95% stake in Infotel for just over $1 billion. Reliance Industries said it would also pony up the price of the spectrum.
For those who do not remember, Mukesh, the older of the two Ambani brothers, ran Reliance Communications before the Ambani empire was split up in 2005 following a family feud. In the split, his younger brother, Anil, had gained control of the telecom business, colloquially known as RCOM.
Earlier last month, on May 23, the two brothers scrapped most of their non-competes, paving the way for Mukesh Ambani’s return to the telecom sector.
Mukesh’s plans
Telecom, particularly broadband, according to many observers of the India telecom scene, represents an “unfinished agenda” for Mukesh Ambani. His cash-rich Reliance Industries, or RIL, hopes to usher in a broadband revolution in India with more than 100 million broadband subscribers in five years.
Last Saturday, in a meeting with analysts, RIL executives said they planned to build a world-class network to provide broadband services across both urban and rural areas using an “asset light” strategy – that is, by leveraging infrastructure elements of strategic partners.
Even with such a strategy, Mukesh Ambani and his RIL are likely to spend more than $5 billion dollars for the pleasure of re-entering the telecom sector, if one adds up the price of the spectrum, the investment in Infotel and a billion or so dollars in capex needed to roll out the network.
RIL has not overtly stated its technology choice for its broadband operations. However, it seems to favor TD-LTE over WIMAX, if the company’s press release and analyst (Powerpoint) presentation following its acquisition of the Infotel stake are any indication.
Both documents indicate that RIL views TD-LTE as the more spectrally efficient technology. LTE finds clear mention in the press release: “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.” Comparing technology options during their analyst presentation, RIL noted in a slide that it found TD-LTE spectrally more efficient that WiMAX, even in its 802.16m variation.
Reliance and, well, Reliance
Interestingly, as Mukesh Ambani and his Reliance Industries look for infrastructure partners for their “asset light” strategy, younger brother Anil is seeking investors in his Reliance Communications’ telecom towers business, Reliance Infratel. The unit boasts 54,000 towers across the country, which it leases to other operators.
Beyond the towers, Reliance Infratel is also home to RCOM’s extensive pan-India fiber optic network as well as its nine data centers spread over 6.5 million square feet of space. The roughly 200,000 kilometer fiber optic network reportedly connects more than a million buildings across 45 top cities in the country.
While Mukesh and his RIL have indicated that they will seek to work with any infrastructure and application partner to further their “asset light” network deployment strategy, Anil and his RCOM have expressed a willingness to make available their infrastructure and content offerings to RIL. Anil Ambani’s group also has significant holdings in Bollywood films and music.
While the Ambani brothers have not indicated their intent to combine their telecom operations as yet, improved relations between the brothers could well result in such an outcome. Should that happen it would, given their combined spectrum assets and the synergies between their respective operations, create a virtually unbeatable telecom powerhouse in India.
Qualcomm as a power player
The focus on Mukesh Ambani’s dramatic re-entry into India’s telecom sector has all but overshadowed a meaningful analysis of the BWA spectrum auction results. A careful review of the BWA auction results, especially when seen in the context of 3G spectrum auction, leads to an inescapable conclusion: Qualcomm is the new power player in Indian telecom space.
Consider, for instance, the following: As I discussed in an earlier column, the 3G spectrum a
uction with three pan-India slots on offer did not throw up a clear winner with nationwide footprint. Aircel, Bharti-Airtel and Reliance Communications each won 3G spectrum in 13 circles, Idea Cellular won 11 circles, while Tata Teleservices and Vodafone each won 9 circles. Only Bharti-Airtel, Vodafone and Reliance garnered 3G spectrum in the prestigious and potentially lucrative metro markets of Delhi and Mumbai.
Consider now, the BWA spectrum auction results: Only Infotel/RIL and Qualcomm have garnered BWA spectrum in Delhi and Mumbai. RIL plans to deploy a nationwide network. Qualcomm, on the other hand, has no intent of becoming a mobile operator.
From the get go, the company had stated that it had entered the spectrum auction only to ensure that 3G operators would have a migration path to the future. Further, that it intended to secure Indian partners to build out a TD-LTE network that would, eventually, be spun off, preferably to a 3G player.
The fact that none of the major mobile operators managed to get access to BWA spectrum in the prime metro markets of Delhi and Mumbai, places Qualcomm in a powerful and coveted position. The company will surely be courted by virtually all operators seeking access to its spectrum. And that, as one may surmise, means Qualcomm will be in a position to influence not only the direction and pace of broadband deployment in India, but also pick winners and losers in the emerging telecom landscape.
Fading signals for WiMAX
In an earlier column, I had suggested that the BWA auction in India could finally put to rest the debate whether WiMAX or TD-LTE will triumph in the 2.3 GHz band unpaired TDD spectrum across the world. Unfortunately for WIMAX, this may well be the case. All data points suggest that WiMAX signals – hopes, if you prefer – may be beginning to fade in India.
Worse, this might be a precursor to a similar scenario unfolding across the world.
For sure, the state-owned BSNL/MTNL combine, which was awarded BWA spectrum a couple or so years ago, still seems committed to rolling out WiMAX. But, one must remember, the BWA spectrum assigned to the state-owned incumbents is in the 2.5 GHz band while the spectrum auctioned to commercial operators is in the 2.3 GHz band.
Irony, lobbying and mandates
In one of the ironies that often mark the histories of technologies, it was the WiMAX group that had lobbied hard to get the BWA spectrum base price to be set lower than the 3G spectrum base price and, perhaps, unsure of its market readiness, to have the deployment mandates pushed out to the right.
At the time, of course, the government was considering auctioning spectrum in the 2.5 GHz band, and WiMAX cheerleaders were sanguine that their technology would have an uncontested run in the BWA space. Things changed dramatically when the government decided to auction spectrum in the 2.3 GHz band, while accepting the suggestions on base price and deployment schedules.
The irony is that WiMAX cheerleaders are now complaining that the deployment mandates may be too lax and suggesting that country’s interest would be best served if the regulator were to tighten the deployment schedule.
TD-LTE and India
I have discussed the WiMAX/TD-LTE issues in earlier columns, and do not wish to rehash the arguments here. As an analyst and a political economist, I have always looked at the so-called “holy wars” relating to technology and standards with detached amusement.
Rather than being caught up in the usual arguements that seem to excite some folks, I have always found it more meaningful to analyze the viability of a technology’s eventual deployment and adoption in terms of economic interests of market players and in terms of migration paths, eco-systems and vendor support.
My current view of the case for TD-LTE in India is rooted in that framework. I believe the economic and political interest of actors is likely to drive them to choose TD-LTE for BWA in India.
Let’s consider the BWA spectrum winners – Infotel /Reliance Industries, Qualcomm, Bharti Airtel, Aircel, and the privately held ISPs Tikona and Augere – and look at both their interests and their wherewithal.
Qualcomm’s interest is publicly stated, and well understood: Situated in the cellular universe, it plans to push for the adoption of TD-LTE. Beyond serving its own economic interests, the technology choice has the merit of being codified into the 3GPP framework and of having earned the support of major network and device vendors. Given the growing chorus of support for the technology, it is surely to have a robust eco-system.
Interests and technology choices
RIL has the stated interest of providing affordable broadband services that ensure widespread adoption across urban and rural markets. It is likely to choose a technology that has a robust and thriving ecosystem of devices and applications within the next five years – the time line for widespread network deployment mandated by Indian regulators. A thriving ecosystem supported by the global community is likely to result in lower prices, making the technology affordable.
Further, Mukesh Ambani’s RIL might opt for TD-LTE since that would keep its option open with respect to the eventual consolidation with younger brother Anil’s RCOM. RCOM today boasts both CDMA and GSM networks in India that could eventually find common ground in LTE.
Aircel and Bharti-Airtel are both ambitious 2G players deploying 3G networks. Each of them, seeking a broadband future, is likely to look to Qualcomm for support. As a result, each is likely to choose TD-LTE over WiMAX. However, even if this were not the case, Bharti-Airtel and Aircel, firmly anchored in the 3GPP trajectory as they are, would still have possibly chosen TD-LTE over WiMAX because of migration issues.
Tikona is a relatively minor player in what is a global high-stakes technology game. Instead of going against the growing global enthusiasm for TD-LTE and deploying WiMAX, it might well find it more profitable to cash out its BWA stake – given appropriate incentives.
The quarter of a billion odd dollars that the company (along with Augere) has spent on BWA spectrum might not be a huge economic burden for a well-funded mobile operator seeking to grow its footprint.
Parting thoughts
The Indian telecom landscape has been fairly stable for most of its short history in that there have been clear market leaders with easy-to-understand market propositions. That stability was anchored in the fact that the Indian telecom market remained predominantly a voice-oriented market. Data will change all that.
The distribution of spectrum assets following the auctions is likely to invite a restructuring of the Indian telecom landscape. Alliances and acquisitions will determine the eventual winners in the emerging marketplace.
The current framework proposed by sector regulator Telecom Regulatory Authority of India is, however, unlikely to invite consolidation anytime soon. TRAI will be under pressure to revise the framework so that the telecom sector may be rationalized.
The re-entry of Mukesh Ambani and his RIL into India’s telecom sector is likely to redefine the Indian telecom landscape in its own way. More so should the Ambani brothers decide to bury the hatchet and merge their telecom assets and operations.
With prized spectrum under its belt, Qualcomm will be in a position to influence the eventual shape of the Indian telecom landscape. For the present, it would seem that
Reliance (in some combination or other), Bharti-Airtel, V
odafone and Aircel might be best positioned to dominate the emerging telecom landscape in India.
And, oh, there is unlikely to be any quick activity with respect to BWA. The BWA spectrum winners will need time even to put together a functioning organization not to mention determine network deployment strategy, select vendors, build a market presence and offer services.
Despite the pious comment of most market players, I would suspect that this would take them a year or more – just about the time it might take TD-LTE to be ready for mass deployment.
Finally, I must concede I was wrong: Despite the intense bidding, the nationwide BWA spectrum slot, starting from half the base price of a nationwide 3G spectrum slot, did not cost as much as a 3G slot. I am sure that the bidders, specially the winners, are happy about that.
Dr. Shiv Bakhshi is founder and principal analyst of Mobile Perspectives, a research and analysis firm serving the mobile industry. He can be reached at [email protected]. You can also follow him on Twitter @ShivBakhshi