The internet revolution that kicked off with the e-commerce boom over 15 years ago has now converged with telecom devices that access internet wirelessly through Wi-Fi, leading to growth in digital advertising and m-commerce.
While India became the third largest smartphone market in the world in 2015 — behind China and the US, accelerated by the growth of mobile internet, it is soon expected to overtake the US and take over the second spot.
A BCG-IAMAI report expects data-enabled mobiles as a proportion of the overall installed mobile handsets to rise to 89 per cent over the next four-five years.
The early adapters and primary drivers of this trend are the large, and growing, millennial population. Young, well-educated and employed, tech-savvy, with disposable incomes and the willingness to spend, they have contributed to this growth.
Social media is a big magnet for this section of the population. Social networking sites such as Facebook and WhatsApp have a much younger following. Predominantly, such sites are accessed through smartphones, fuelling the digital media consumption.
This is also the case with travel aggregators such as Ola and Uber. The ease with which these firms offer cab and auto services (mobility solutions) via their mobile apps has made many of us willing users.
E-commerce apps
Additionally, rising e-commerce sales spurred by popular sites, offered through mobile apps that run on these smartphones, also aid growth.
Unlisted firms such as Flipkart and Snapdeal are seeing a shift in usage from the traditional e-commerce portals, accessed via computers, to their mobile apps. The trend in traffic growth has been accelerating towards such apps.
These trends are reflected in the results of the country’s largest telecom operator, Bharti Airtel. For the quarter ending December 2015, the company posted an eight per cent sequential quarterly growth in its data customer base. Additions to 3G data customers increased rapidly at 18 per cent. While data usage per customer grew 10 per cent, data realisation per MB dropped to 6 per cent, highlighting pricing pressures.
Growth spectrum
With the burgeoning expansion of smartphones, users are now faced with deterioration in service with abrupt disconnection during peak times. This phenomenon in industry parlance is referred to as “call drops.” Spectrum expansion can mitigate such concerns.
In 2015, the auctions for airwaves in four bands received bids for ₹1.10 lakh crore. The top bidder was Idea Cellular, bidding ₹30,307 crore, with Vodafone following with ₹29,960 crore. Airtel wrapped up the third place at ₹29,130 crore.
This acquisition has allowed Idea Cellular to offer 3G in 13 circles and enable 4G coverage in 10 service areas. Airtel, on the other hand, can offer pan-India 4G services.
Not only new data bands, but spectrum auctions also included the renewal of licences. Nine licences of Idea Cellular, seven each of Reliance Telecom and Vodafone, and six of Bharti Airtel, due for expiry in 2015-16, were up for grabs.
A BCG-IAMAI report says: “3G/4G coverage in lower-tier towns and cities can double to almost 50 per cent by 2018, with the corresponding figure for rural areas slated to quadruple to almost 20 per cent.” The growth of telecom companies is, however, dependent on acquiring additional spectrum.
The 2016 auction
The spectrum auction scheduled this year is, therefore, critical for determining the industry’s growth, as well as the prospects of individual companies. In January 2016, the Telecom Regulatory Authority of India (TRAI) recommended auctioning off additional spectrum, including the highly efficient 700 MHz, for the first time. This is the frequency that is most suitable for offering high-speed broadband services. As a result, TRAI has recommended a premium reserve price of around ₹11,500 crore per MHz, pricing it at four times the reserve price of 1800 MHz.
Telecom operators have been opposing this move as the infrastructure to handle the 700 MHz spectrum is not yet completely ready. Saddled with investments to make their network compatible to 4G and debt repayments, a section of the operators feel the timing is premature and may only add to their woes.
As per the Budget 2016-17, the government estimates it will collect almost ₹1 lakh crore from a combination of spectrum auctions, licence fees and one-time spectrum charges.
If the Centre is going to over-charge for the spectrum, the operators will pass on the cost to consumers, thus increasing the cost of these services. However, given that smartphones have now become an integral part of our lives, as long as such price increases are muted, most of us might be willing to pay for such conveniences.