The Telegraph
Saturday , February 15 , 2014
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New tension in telecom
Jio to give rivals a headache

Mumbai, Feb 14: Reliance Jio — the 900-pound gorilla that has gatecrashed the telecom party — may not have won any spectrum in the 900MHz band but it is likely to have the biggest disruptive influence on the Indian telecom industry.

That is the broad consensus that has started to emerge after telecom experts and analysts have had a chance to pore over the results of the latest round of 2G telecom auctions in 22 circles that ended yesterday.

Reliance Jio now has the second largest share of the country’s spectrum at 12 per cent — just behind Bharti Airtel with 17 per cent.

“We believe the high spectrum payout is the first level of disruption by RIL — and plays into the third of the long-term concerns that we have highlighted from RIL-Jio’s entry (pressure on revenue growth, margins and capital expenditure). We believe with RIL-Jio’s launch approaching, the three factors could continue to come under pressure for the incumbents,” said Sunil Tirumalai and Chunky Shah, analysts with Credit Suisse Securities (India) Private Ltd.

Tirumalai and Shah believe that Reliance Jio could enter voice by using a fall-back option onto an underlying 2G/3G network, with high speed data on TD-LTE 2300MHz.

Reliance Jio has admitted as much in its press release. “RJIL plans to provide seamless 4G services using FDD LTE on 1800 MHz and TDD-LTE on 2300MHz through an integrated system,” the company said.

One of the reasons for the delay in the launch of 4G services by Reliance Jio after emerging as the sole winner of spectrum in all 22 circles in the May 2010 auction was the fact that there wasn’t enough devices that could operate on the TDD-LTE network.

That is now starting to change. “There ar4e several mobile phones and devices available today which have the capability to operate both TD-LTE and FD-LTE technologies in 1800MHz and 2300MHz bands as well as conventional 2G / 3G networks. Rapid strides in global LTE rollouts and introduction of several new chipsets is making LTE enabled smart mobile phones and devices affordable. In any case, Wi-Fi enabled 2G/3G device can access RJIL's services through an affordable pocket router,” the Credit Suisse analysts said.

There are three possibilities for RJIL's network strategy:

a) It could use the 1800 spectrum, which it has now acquired, to first launch its 2G network and the 4G service in the 2300MHz band. The FDD-LTE will then be a long-term option

b) RJIL uses 1800 for FDD-LTE and 2300 for TDD-LTE, and offer voice services using Voice over LTE. In this option, the non-contiguous spectrum gets wasted.

c) It could also use the 1800MHz band for FDD-LTE and 2300 for TDD-LTE, and offer voice by tying up with an existing operator on 2G network. The non-contiguous spectrum can come in handy in a scenario where spectrum is trade-able.

All of these options could be massively disruptive for the industry.

If RJIL intends to offer voice services, then the company will need to enter into interconnect/termination agreements with other operators. “We expect the issue of termination rates to become the next battleground for the industry,” the Credit Suisse analysts added.

Globally, mobile networks are moving to IP-based platforms. RJIL, being a new operator, starts with a completely IP-based network. Costs of running networks could be significantly lower on IP platforms than traditional platforms.

Rajiv Sharma, Tucker Grinnan and Kumar Manish, analysts with HSBC, believe that Relaince Jio is likely to deploy FD LTE in the 1800MHz band and not use it for voice fall back.

The HSBC analysts expect the Mukesh Ambani company to actively participate in the 850 band auctions and use this spectrum for voice fallback.

Nilesh Banerjee and Vikas Jain, analysts with Goldman Sachs Global Investment Research, say Reliance Jio had consciously avoided the 900MHz band as the “900MHz LTE ecosystem is currently relatively immature and is not the best fit for a telco such as Reliance Jio that is looking to launch LTE.”

They reckoned that Reliance Jio had focused on the 14 circles in the 1800MHz band that had a higher proportion of the urban population that would be in sync with its data-focused strategy.

They added that the 1800MHz spectrum was technology-neutral and could be used for both 2G and 4G services. “Thus, RIL could initially use it for 2G (to offer voice services to its data consumers) and then, as and when appetite for data increases, the spectrum could be used for 4G,” the Goldman Sachs analysts said.

By avoiding the 900MHz band, Reliance Jio appears to have avoided major cash burn as part of a cautious strategy that was evident when it signed tie-ups with Bharti Airtel and Reliance Communications for sharing infrastructure.