The Indian telecom market, home to over 900 million mobile subscribers, has witnessed staggering and relentless growth over the past decade. The growth till now has been largely driven by voice, but the next wave of growth will be data-centric. Focus on customer experience, network quality, growing demand for wireless data services, 4G, and broadband wireless access networks along with roll-out to newer circles and rural expansion will result in increased opportunities going forward.
But as the market saturates gradually, the Indian telecom industry will witness consolidation. Smaller telcos have been struggling and will eventually trade their spectrum or merge with an existing telco and the number of telecom operators would eventually come down to five or six. The recent deals in the telecom space hint toward smaller companies planning to exit the industry. Reliance Communications acquiring MTS, Bharti Airtel acquiring spectrum in the 1800 MHz band from Videocon, and Reliance Communications in active discussions with Aircel for a possible merger are major steps toward industry consolidation.
The incumbent telcos, meanwhile, also have a 4G strategy while acquiring spectrum or getting into any M&A activity. They are strategizing to become market leaders with 4G services and gradually increasing their footprint and coverage. The ongoing consolidation and spectrum acquisition could add to the debts of telcos, further stretching their already-stretched balance sheets. The entry of Reliance Jio is expected to intensify competition, making it difficult for the incumbents to increase tariff.
The telcos are also expected to invest in network expansion and modernization in order to tap into 3G and 4G markets. The consolidation will also impact their ability to invest in networks.
As consolidation picks up, the number of telecom operators would eventually come down to five or six, which will adversely impact the tower companies. Fewer operators and increasing spectrum sharing/trading deals will result in fewer tenants, hitting their margins hard and, in turn, resulting in higher rentals.
The year 2015-16 is of significance since we have had major telcos roll out 4G services in India. Vodafone and Idea Cellular have rolled out 4G services in a number of circles and are targeting the data market aggressively. Reliance Jio is expected to launch its services in 2016 and the entry of this new player will further intensify the competition and keep any increase in tariff at bay. These developments are significant if mobile broadband has to contribute to the industry's rapid development. Making the services available and keeping them affordable will result in mass adoption of these services.
Frost & Sullivan expects the total broadband subscriber base to cross the 550-million mark by 2020, of which only 10 percent will be wireline.
Growth of fixed broadband has been abysmal, to say the least, in India and mobile broadband is expected to drive the penetration in urban as well as rural areas going forward because of low CapEx, ease of installation, greater capacity, reduced time-to-market, availability of affordable mobility devices, and the increasing need for seamless broadband-on-the-go.
These factors make 4G/LTE ideal for high-speed, high-quality mobile broadband services. LTE is poised to boost the demand for data-intensive services like mobile TV and mobile video conferencing. This, in turn, will increase telecom operators' revenues, while also enriching the overall end-user experience. This will also result in the data revenue share increase significantly from the current 20 percent.
Deployment of next-generation technologies will result in increased adoption of data-intensive applications. To handle the unprecedented growth in traffic and to ensure enhanced user experience, the telcos will invest in network modernization and expansion.
Next-generation technologies will need IP networks for data transfer. However, currently, most of the backhaul can still carry only legacy TDM traffic. Deployment of all-IP networks will drive fiber deployment in the country.