Just called to hang up: Why call drops won't end soon

The world is on the cusp of moving to the era of 5G, which is key to make autonomous cars, connected devices, smart cities, remote surgeries and a host of technologies and services mainstream. But consumers in the second largest mobile market in the world are still grappling with issues as basic as call drops.

Even Prime Minister Narendra Modi could not escape the menace and pulled up the Department of Telecommunications (DoT) last month.

The spurt of 4G mobile services after the entry Reliance Jio in September 2016 has virtually made voice calls free and made India one of the fastest-growing data consuming markets in the world, but a lot is left to be desired in terms of quality of services.

The right of way (RoW) issues for setting up of towers, multiple permissions for installation of sites/towers, fears over EMF (electromagnetic field) radiations, lack of enough investment in 2G infrastructure, burst in voice call volumes are some of the reasons for the same.

Earlier this year, after many interventions from DoT and telecom regulator Trai, service providers including Bharti Airtel and Reliance Jio committed an investment of over Rs 74,000 crore to upgrade and expand their infrastructure to address the issue of call drops. But the impact is yet to be seen. The financials of the incumbents have nosedived in the last few years, impacting the investing capabilities of players, apart from making a dent in profits and revenues.

Also, the quality of service rules applies to open-air spaces and not indoors, so there could be various reasons for call drops. For instance, it is usually difficult to get good coverage in basements.

There are too many 'buts' in the current Indian telecom story, which was once a favourite destination for global telecom firms, experts concur.

Numbers, short of expectations

Infrastructure – Towers/Base Transceiver Station (BTS) 
Till May 2018, the number of towers stood at 4,71,000, while in 2017 and 2016, the number of towers stood at 4,61,000 and 4,40,000, respectively. Similarly, the number of base transceiver stations grew from 11,57,649 in 2016, to 14,52,339 in 2017 and 18,02,589 in May this year, as per data from Tower and Infrastructure Providers Association (TAIPA).

Industry AGR and Realisation For Voice And Data 
The industry's adjusted gross revenues (AGR) have been on a decline since the financial year (FY) 2016. This year coincides with the entry of Reliance Jio in the sector. AGR came down from Rs 1,47,600 crore in FY16 to Rs 1,41,000 crore in FY17 to Rs 1,12,300 crore in FY18, shows data from Cellular Operators Association of India (COAI). Similarly, voice realisation declined from 33 paise per minute in September 2016 to 20 paise a minute in March 2017 to 13 p/min in FY18. In the last three fiscals, data realisation declined from 18 paise/MB to 1.9 paise/MB to 1.4 paise/MB, respectively.

Data Boom 
The only silver lining is increase in data usage with the onset of 4G services. The industry's data usage per subscriber per month has gone up from 232 MB in September 2016 to 1,006 MB in March 2017 to 2,447 MB in March 2018, show figures from COAI.

Voicing it up

The arrival of Mukesh Ambani-owned Reliance Jio changed the industry dynamics. Voice calls became virtually free, data is being offered at dirt-cheap prices, the sector is left with only three private players and its combined debt has reached over Rs 7.76 lakh crore. Profitability and revenues have sunk.

Incumbents including Airtel, Vodafone-Idea are unable to phase out 2G as 60-70% of the total subscriber base of over 1 billion users is still on basic 2G connections. The telecom players are now aggressively working to make their networks 4G/VoLTE-enabled across India.

According to estimates, data is growing at 1,300% and voice at 40%, but the growth in the infrastructure is not matching the increase in traffic. The monthly data usage per smartphone (GB/month) in India is expected to go up to 13.7 GB by 2023 from 5.7 GB in 2017. The total mobile data traffic per month in India is expected to grow five times from 1.9 EB (exabyte) to 10 EB by 2023, as per Ericsson.

Ashish Sharma of PwC said the telcos need to address the twin challenges of improving their viability along with the user experience on both voice and data. "The increase in data has choked out the backhaul capacity for voice as well, which has resulted in the significant loss in quality around even basic voice calls. A single technology network (only 4G) has a lower cost of delivery compared to a network which has multiple technologies (2G/ 3G/4G). However, given that a considerable portion of the population continues to be able to afford only basic feature phones for their connectivity needs, which is basic 2G voice calls, the decision to phase out these technologies is not an easy one."

Responding to DNA Money's queries, Airtel, now the second-largest telecom player after Vodafone-Idea, said its capital expenditure for FY18 was Rs 24,000 crore, which was up 42% from the previous fiscal and for FY19, the capex is the same at Rs 24,000 crore.

"We have doubled our network in the last three years -- increased mobile sites from 2,00,000 to about 5,00,000 to support the massive growth in data and voice usage. In FY18 alone, we have added 1,10,000 mobile sites. We have optimised our 3G network, which carries bulk of the voice traffic for smartphone users, by deploying state-of-the-art network solutions and advanced network software," an Airtel spokesperson said.

We have enhanced our 4G coverage and added advanced pre-5G technologies like massive MIMO (multiple-input and multiple-output) and carrier aggregation, which will improve 4G availability, both indoors and outdoors and ensure that 4G smartphone users are always getting the best of data speeds, the spokesperson added.

Telecom expert Mahesh Uppal said there are only few operators left after consolidation and mobile consumers have less choice and may, in fact, have to tolerate call drops till industry health is better. "Call drops scenario will improve only if operators see an incentive in investing in networks. The chief cause of poor network quality and capacity is lack of investment. But unless telecom players have a commercial justification to invest, they won't invest the amount needed. Recall that voice calls are virtually free on all networks and there are no revenues from the segment."

The problem has worsened of late. Operators don't often price calls separately. Customers usually avail monthly voice and data package, he said.

Elaborating on the reasons for network outages, T R Dua, director general, TAIPA, said various factors such as locational restrictions, multiplicity of policies, shutting down/sealing/demolition of operational sites, alleged fear of EMF emissions from BTSs mounted on mobile towers contribute to issues of call drops, network outages and connectivity gaps.

The RoW rules that came out in November 2016 were very critical for provisioning of over the ground and below the ground telecom infrastructure. But the implementation of these rules at the state level still remains a complicated situation. Currently, only around 10 states have aligned their policies.

DoT can't solve issues on the ground as Right of Way is largely a state subject. For instance, it may be very easy to install towers in Tamil Nadu, but difficult in Haryana and Punjab. Setting up of towers in Lutyens Delhi can be difficult and expensive, experts add.

Penalty/Fine an Option?

In 2016, Telecom Regulatory Authority of India (Trai) had recommended a compensation of rupee one for every call drop. But that was dismissed in the Supreme Court. Since then, the regulator has announced stringent rules for the quality of networks but the problem persists.

"Policing is not the answer. Also, effective policing is impossible as we have a huge subscriber base. Even imposing a fine or a penalty is not a way out since large fines are routinely challenged in courts. There is a need to design smarter rules to reduce call drops," Uppal said.

Dua said the telecom industry is going through financial constraints. However, it will not be fair to say that telecom operators are unwilling to invest in infrastructure as they are investing continuously.

No Respite

The competitive intensity in the Indian telecom industry is expected to continue for the next six to twelve months, putting further pressure on the margins of players. The financial health of the sector needs to improve drastically. This will need higher tariffs and policy support through a significant reduction in levies. Both seem unlikely in the short run, experts warn.

COAI director general Rajan Mathews said it is expected that the financial stress will continue to impact the industry for the next few years. The tariffs are already at the lowest level and the industry is going through its toughest phase.

The reduction/rationalisation of levies has been a long-standing demand of the industry. The New Telecom Policy talks about it briefly but no specifics have been yet announced by the government.

The Way Forward

5G, WiFi and fibre will be the game changer in the next two to three years.

A plan to set up over 2.5 million WiFi hotspots in the next 18 months has already been formulated by the government. These hotspots will take internet connectivity beyond the current 2,50,000 gram panchayats being connected under BharatNet through optical fibre.

If things go as planned, there will be 5 million public WiFi hotspots by 2020. Once hotspots are set up along with fibre-to-home and broadband services, it will help operators in offloading some users to the WiFi hotspots from their mobile networks, enabling improved services in their networks.

Fiberisation of telecom towers is the next critical part. Fibre leasing represents a $2.6 billion market by FY20. Fiberised towers will increase from 90,000 to 3,30,000 by FY20, according to data from TAIPA.

In India, only around 25% of towers are fiberised while globally, it is around 70-80%. Once the global standards are achieved, the rollout of 4G across India will be completed in an efficient manner, and then the country can easily shift to 5G, which is expected to be commercially launched in India by 2020.

Telecom tower players are even planning to lease out fibre from BharatNet, enabling them to enhance their capacity with the rising consumption of data services, besides saving costs. The industry needs another 1,00,000 towers in near future with the rising growth in mobile data services.

Once this is implemented, it will aid in improved quality of services and network coverage, especially data services including 4G as fibre has more capacity and can cater to a wider base of users.

Even for emerging technologies including 5G, artificial intelligence, internet of things and machine-to-machine communications, fibre is the key. Globally, South Korea, North America, Japan and China will be starting in the next one to two years.

India is moving fast on the 5G front, though in earlier technologies, we were far behind. Trai has already announced its recommendations on spectrum auction and pricing, including for 5G, but given the financial constraints of telecom players, it is unlikely that a spectrum auction will be successful if it happens soon.

5G is expected to increase the speed by over 10 times compared to 4G. With the onset of 5G, Indian telecom players will become an integrated digital service provider with digital wallet offerings, deployment of 5G networks with voice shifting to LTE, app-based video calling and virtual reality-based applications.

But all these plans will only fructify in the next two to three years. Meanwhile, call drops are here to stay, at least in the short term, an expert remarked.

DEBT OF TELECOM INDUSTRY
in Rs lakh crore

7.7 – FY18

4.6 – FY17

3.8 – FY16

2.8 – FY15

2.7 – FY14

2.4 – FY13

1.9 – FY12

1.6 – FY11

1.2 – FY10

0.8 – FY09

Industry Arpu in Rs

72 – FY18

89 – FY17

123 – FY16

117 – FY15

110 – FY14

97 – FY13

Source: COAI, Data till March 2018