It is back in the fray with a plan to offer 4G services, but its limited reserve of spectrum may play spoilsport
It was slated to be the next big telecom battle. And this slugfest, focused on high-speed data on LTE 4G networks, as everybody had predicted, was supposed to be a three-way fight with Bharti Airtel, Reliance and Aircel pitted against each other.
However, on Monday, Russia's Sistema shook things up further by declaring its intention to roll out 4G LTE services on the 800 MHz band, the first and perhaps the only player in the country to do so.
The announcement came soon after its Indian joint venture, Sistema Shyam Teleservices (SSTL), the sole bidder in the 800 MHz CDMA auction, won the spectrum in eight circles for Rs 3,639 crore. Sistema said it picked up only those circles that have a sizeable (over 60 per cent) share of the country's data market.
However, it might be a while before Sistema launches its LTE 4G services. With the LTE 4G market still in its infancy, new players, which also includes Videocon, are unlikely to be in any hurry to launch their services. RIL, which has chosen the 2300 MHz band for 4G, is going slow on the launch and the launch is not expected until the end of the year. Airtel is off the ground but is moving with measured steps and has so far launched services only in select cities. SSTL, too, will be following their lead.
Says its soft-spoken president & chief executive officer Vsevolod Rozanov: "We are looking at a time zone of two to four years before we launch 4G LTE services. We have to first work out a business case for it. But our focus will be on driving data services, though we cannot live without voice".
Sistema, which lost its licences in 2012 after the Supreme Court cancelled all licences issued by former telecom minister A Raja following allegations of fraud, has been treading cautiously. It bid for only those circles that measured up to its parameters on pricing, spectrum availability and the data potential of the market.
Win some, lose some
It has resulted in the company shrinking its operations substantially. From being a pan-India player, it has now cut its operations to just nine circles (including Rajasthan). As a result, its subscriber base has fallen sharply. It is expected to fall by another 3.5 million after it shuts operations in three more old circles. However, that may not be a huge loss for the company as its new nine circles make up for 75 per cent of its current revenue.
Sistema had to do some tough juggling to ensure it did not miss out on new data opportunity while keeping its budget in check. For instance, Rozanov says that while Mumbai has a large data market, spectrum price was prohibitive (base price constituted 24 per cent of the total price of the eleven circles it had earlier decided to bid for) and, therefore, he decided to give the city a miss and instead use the amount to buy spectrum in five other circles with good potential in the data market. Similarly, it wanted to be in Andhra Pradesh, but decided against it as enough spectrum was not available to provide both quality data as well as voice services.
Rozanov's immediate focus is to push data usage through smartphones. He hopes to leverage on the fact that he will be able to double his tower capacity (he has more spectrum now) to handle data, which will mean improved services and higher data speeds.
At present, 20 to 22 per cent of SSTL's revenues come from data, 90 per cent of which is through dongle subscribers and the share of smartphones is near negligible. "Our challenge would be to increase usage on smartphones and create more applications," he says.
However, his biggest challenge would be to launch LTE 4G services with so little spectrum. It has only 3.75 MHz in each of the nine circles and there is scope to raise it to up to 5MHz in only seven circles.
Globally, 800 MHz is becoming a popular band for rolling out LTE 4G services, especially in Europe. At present, there are more LTE 4G services in the 1800 MHz band (about 40 per cent of the network), but the 800 MHz band is fast catching up. There are over 70 devices and 4G phones which run on the band, despite prohibitive prices.
But unlike India, the UK and other countries have offered at least 10 MHz of spectrum in the band to start with. Sistema's challenge becomes even more acute as its competitors in India- Reliance and Airtel- have plenty of spectrum, 20 MHz each in the 2300 MHz band. It simply means they can offer more bandwidth at higher speeds to customers.
Rozanov admits that for LTE 4G services the minimum spectrum needed is at least 5MHz, but in many circles like Delhi and Mumbai there is no scope to get that much spectrum for lack of availability. He is pinning his hopes on the example of Metro PC in the US, which has been able to offer services with limited amount of spectrum.
In addition to that Sistema also has some advantages over its Indian rivals in the 2300 MHz band. For one, 800 MHz being a low frequency spectrum is more efficient and gives an operator wider coverage and better indoor coverage, which is critical for data services, which are mainly used in offices and homes. It also means lower investment as fewer towers are required to cover the same area. The savings in investment would mean it has more leeway in pricing its products or improving margins.
However, competitors say the advantages do not give Sistema an edge. They say that while initially operators in the 2300 MHz band will have to make higher investment than those in the 800 MHz, in the long run they will score over Sistema as it will have to invest in towers continuously to support more subscribers. "So while we make the investment up front, they will to do it over a period of time, " says a senior executive of a rival operator.
The opinion, of course, is divided on Sistema's future. Analysts say Sistema can get over the problem of limited spectrum in the 800 MHz band by following the global model-offering LTE 4G services across various spectrums, with consumers moving seamlessly from one band to another without them knowing. "Sistema could buy more spectrum in the 700 MHz or in other bands to resolve the spectrum limitation."
For now though, Sistema does not have to make any major investments. It has to pay for the new spectrum in installments and the money that it paid earlier to acquire the spectrum will be adjusted in the price. Also, it does not have to pay anything till March 2016. And after that it has to pay Rs 200 crore every year for ten years.
It could also redeploy its towers and equipment in the eight closed circles to support its network in the new circles. The company has 18,000 towers and equipment in the closed circles.
But can Sistema take on the expected aggressive challenge from Reliance or Airtel? Says Rozanov: "At the moment, I don't even know the 2300 MHz business case, but in the few areas like Kolkata or Pune that Airtel has launched, we are not threatened."
Surajeet Das Gupta | New Delhi March 13, 2013