The Teleported Truth

The decade-old Reliance Communications will go off the market this month after mounting debt. Also almost all the morning dailies carry at least one report or a story on the ‘stressed’ Telecom sector and its grappling with various policy issues. Also lie in the stories are underlying hints of the sector shedding its monopolistic nature and taking the oligopoly route.  

Ever if you have been lucky enough to treat yourself to a binge-watching session of an "elite" show  (as one should adjectivize it) Silicon Valley, you couldn’t have helped but to notice Richard Hendricks often quoting himself- "my tech will speak for itself".

Funny guy- Richard, but this is a certain set of words which seldom goes wrong; at least in today's tech driven era, which will be earmarked in the history books of the coming century as the hour in which that generation was conceived.

For the start-up industry is a testament of the very theory that no amount of pushing, though done properly, camouflages a bad product (the "tech") and on the contrary the good product finds its way into the 1400gm heavy vicious body part and eventually into the 5" and 15" devices ruled by it.

But the prejudiced and the archetype lovers found it very indigestible and constipating when this theory found its home in the high profile Indian telecom industry.

With the entry of an IP (internet protocol) based network in the market, there was a much needed "disruption" in the relatively calm, but deep waters, with the tides now washing the fishes ashore, where the consumers stood, some with their buckets ready.

While the pundits (still constipated), saw all their calculations go awry, it was the incumbent telcos such as British daughter Vodafone, Birla group's son Idea, (who eventually married), crying along with Reliance Communications and Airtel, as their "loyal" base of customers were ditching them for Jio, the world's biggest "start-up"

It wasn't long before the crying took to paper and pen with the incumbents writing to the TRAI against the offers given by Jio, which, to a certain extent was justifiable.

Desperation went wild when they started floating out offers to retain mid and high ARPU connections with data and voice offers through very vague and superficial advertisements. This stands in the grey area of justification

However, the fact that the incumbent’s efforts to deny Points of Interconnection to Jio calls, leading to call failures to users causing huge inconvenience to users in both ends, was unjustified.

This figurative act of wilful bullying came to an immediate end with the TRAI suggesting a comprehensively calculated penalty to be imposed on them.

While these were the effects of the outward flowing tides on the boats, one can't help but to witness the affecting change happening in the lives of other stakeholders such as consumers, internet content providers, and other internet based service providers.

The data consumption has increased manifolds in months. According to a report on internet trends by Kleiner Perkins Caufield Byers' (KPCB), an American venture capital firm, Monthly Data Consumption increased from 200 mn GB/month in June 2016 to 1.3 bn GB/month by the end of fiscal year 2016-17.

A 600% rise, paving way for increased traffic to many high data consuming areas such as video streaming apps. Gainers also include e-commerce firms and importantly, FinTech firms such as PayTm which saw an increased user-base and better volumes.

Also, average data prices (averaged cumulatively), fell from 3.5 $/GB to 1.9 $/GB during that span. 

The very first lesson which one learns when she is first introduced to the subject of management is to scan the business environment thoroughly before and while doing the business as the market is always dynamic

That said, from the eyes of a 19-year old undergraduate, it is very hard to imagine that the highly qualified and well-paid management executives of telcos with an onus of billions upon them actually managed to forego this very important act for 6 continuous years.

It wouldn’t have been very conservative to call it a threat when a company with its pocket as deep as Mariana’s trench topped with previous telecom experience bought out the only company in the market with a nationwide 4G spectrum usage license over the most efficient bandwidths. (Infotel Broadband Services Limited)

It again wouldn't have been very conservative to be threatened with the fact that billions of dollars  ($ 22bn and still counting) were coming out of the Mariana’s trench and being channelled straight into the ploughing laying down of its optic-fibre based technological back-bone.

Not only was this 4G development ignored by the telcos while they were still struggling to penetrate 3G SIMs into the Indian phones but also ignored was its factoring in while articulating their future technological plans.

This new ball-game is the result of differences in technology and approach towards consumers. The most important difference lies in the approach; while the incumbents had been using the HSPA (High Speed Packet Access) based transmission network to provide data services which enabled them to provide 2G/3G services, they simply upgraded to HSPA+ to support 4G speeds, which, could not be served to the masses since it could not provide huge bandwidths to a lot of users at a particular point of time.

Parallelly, Jio used LTE (Long Term Evolution), a completely different system which transfers data over the IP (to support 4G), the main advantage of which, was its ability to serve to a huge mass of users at the same time without compromising on the speeds.

Now one wonders why incumbents could not use IP based tech. The reason being that their decade old optic network wasn't supportive, it used 12-24 fibre network while Jio had 288-fibre thick optic network making it possible for every user to access a 20MHz bandwidth (too much to provide for data and voices combined), while incumbents offered 5-7MHz that too only for data as voices were routed differently.

Experts across the globe consider LTE based network as "true" 4G. While the CSFB (Circuit Switched Fallback) system of incumbents failed as the data was shifted to 2G speeds while a call was connected.

Adding to an extensive LTE network layout, Jio also made arrangements for voice calls to be made on the LTE network making it VoLTE (Voice over Long Term Evolution), thus bringing down call connection costs to ‘zero’ levels and passing on the benefits to users.

That said, from the eyes of a 19-year old undergraduate, it is not hard to imagine what could have done.

Though upgrading to an LTE based network would have required a complete from-the ground building up of the infrastructure, the incumbents could have dared to provide for it in certain high-tension areas such as metropolitans.

They could have diverted funds for the same by cutting down on redundant and nonsensical (seriously) advertisement expenditure and invested that.

> The zoo-zoo based ad series cost Vodafone a fortune

> Remember the huge Airtel re-branding?

> As expected, Abhishek Bachchan could not forward the Idea.

The huge advertisement spends resulted in a Dead-weight loss in the market, which is now visible.

Historically, the affluent Indian was a proud owner of the Nokia 3310 with an Idea/BSNL connection. That was 2001. The services of telcos were limited to voice calls and expensive SMSs.

It was only in 2007 that phones with internet browsers came in the market. It was news, internet on the go. That was the dream, which remained a dream for a long time as the telcos could not match up with the handset development and mobile internet was virtually non-existent and even in metros, the connection was indeed very slow.

It took another 3 years for the operators to actually make mobile internet accessible to the masses, India was far behind the US market, though the handset market was not.

Eventually, within 3 more years, with the advent of smart phones, mobile operators had no option but to shift their focus to internet.

Now the point to be noted here is that the telecom operators were always reluctant to changes or upgradation in services. Case in point, 3G network was born in 2001, but even till 2014, was beyond reach of an average user.

It was always the Handset manufacturers who forced revolution in telecom. But this time, it was a telco which forced revolution in handset market, for a change, with all manufacturers bringing 4G enabled phones to meet the sudden surge in Jio led demand.

While it would be wrong to say that Airtel did not make use of the LTE technology, but the fact remains that the scale at which it was deployed, virtually made it look like a pilot project. Evidently a myopic approach.

Truly, the incumbents had and in some ways, still have a very myopic approach, which is very much visible in their stand in major policy decisions.

The incumbents made a strong lobby against the proposed abolishment of roaming charges during the UPA 2 regime earlier this decade.

They are also in an ongoing argument with TRAI against abolishment of IUC (Interconnect User Charges), where a telco pays another to connect the calls between them. An abolishment would reduce costs by 14ps/min - a good 25% reduction.

A 19-year old undergraduate has an opportunity to learn some extra-ordinary lessons from this market drama.

The approach of incumbents has always been laid-back and focused on selling and making money rather than on delivering value. (The age-old Selling Concept)

As Drucker says, "The aim of marketing is to make selling superfluous", a theory in itself, working again as Jio delivered value and even though one can say that it had freebie support, it actually made hard-selling superfluous. The nation did not see any major ad campaign to sell its plans except for a couple of TVCs aimed for brand building purposes. Even brand ambassador Shah Rukh khan was seen more on Nerolac ads.

An act of logical forecasting and industry study can help one see the road ahead

LTE is not the end, for Jio, while LTE should be the beginning, for others, as the data based communication is set to penetrate in the core of India, comprising of tier-2/tier-3 cities, villages and most importantly, home and commercial users. The Rs 1500 ‘feature phone’ will only help such penetration.

While Jio has leveraged the tech for various purposes, it will be interesting to see its impact on FTTH (Fibre to the home) service. Point also to be noted here is that the apps it has to offer, are not just add-ons, they mean serious business. Jio TV app, for example, is every bit as good as a full-blown TV.

And as a Multi Service Operator, it plans to bring its presence in other forms of apps as well to increase its service quality.

On the other hand, the incumbents can enhance the HSPA+ infra along with providing the existing users quality VAS to retain them; (Airtel has started with its post-paid promise).

And for the stakeholders, the main gainers would be content providers such as YouTube, Hotstar, Amazon Prime video.

Data consumption saw manifold increase. And with data reach increasing, it won't be long before data consumption will be informally seen as one of the development indicators just like electricity consumption.

The recent trends show that the transcendence of brands in telecom is long gone (Transcendence of technology has emerged) and people are choosing services over brand loyalty, which has prompted the companies to be on their toes, in order to retain and acquire the fickle minded customers.