By Himanshu Kapania
On September 5, 2019, India launched fixed broadband fibre-to-the-home (FTTH) services by wireless operators. Let us examine the future of fixed broadband services in India over the next six years.
In the last four years, mobile operators upgraded India's wireless internet access services with an investment of over `6 lakh crore , attracting nearly 600 million mobile broadband consumers. As a result, the country's overall internet traffic volume has crossed 200 petabytes per day, second only to China.
This fast-paced adoption of the digital lifestyle boosted the digital entertainment and media market, with over 30 OTT players having mushroomed in this period. Today, at 10 gigabytes per subscriber per month, India boasts of the highest data usage on the small screen globally.
Yet investments in wireline business have hardly even approached full potential. India has only 18 million of the >1 billion global wired broadband subscribers. Of these, 10 million access internet on lower speed co-axial copper cables. As for FTTH penetration, India's presence is even weaker, with only 1.3 million FTTH households against over 350 million in China.
While telecom consultants, broadband experts, and many financial analysts estimate India's fixed broadband market to expand to 50 million by 2022, and 100 million by 2025, we see a clear gap between the visible consumer demand and fragile supply of fixed broadband FTTH services.
Indian digital consumers want access to whole gamut of video content anytime, anywhere, and seamlessly across devices at 50-100 Mbps or even higher speeds.
OTT players have forced traditional media and broadcasting companies to revisit some of their core business assumptions; cable and DTH Pay TV service providers are also trying to convert normal TV sets to smart TVs. This cord-cutting phenomenon, a rage in the western world, is expected to trend in high-income urban Indian households.
KPMG's India Digital Future Report 2018, Mass of Niches expects the native digital segment to shift from passive consumption to deeper engagement. Of the projection of 820 million digital users by 2025, they estimate 425 million to be wireless broadband customers, and over 100 million households to be highly engaged digital users. These 'Digital Enthusiasts', primarily millennials and Gen Z individuals, with >`5 lakh pa incomes are more likely to pay for wired and wireless broadband services and OTT content.
The wired broadband revenue market size is projected to grow at a CAGR of 23%, expanding from `11,000 crore in FY18 to `50,000 crore in FY25. These projections appear plausible as the large screen device experience becomes even more exhilarating with UHD 4K content combined with enhanced multiplayer gaming experience.
Households will transition from paying `500 per TV set to their Cable/DTH operator, to a home broadband service at `700-`1,000 monthly ARPU for the entire household, with an additional `200-300 for OTT services.
This will increase the average Indian consumer's monthly data consumption from 10-12 Gigabytes on a 4-6-inch wireless smartphone to 150-200 Gigabytes of usage at home. Globally, as per Cisco’s 13th Annual Visual Networking Index (VNI) report, 69% of data traffic of 123 Exabyte per month is generated from fixed broadband services -India's trend in the long run can be no different.
Two or three integrated telecom operators are indicating early interest to tap the Indians’ unmet demand for FTTH. In the past, Indian home broadband market remained underdeveloped due to absence of organised cable industry, which still remains fragmented and undercapitalised. With FTTH , globally fixed broadband services have evolved to become fast and reliable, with speeds ranging from 100 Mbps-1Gbps, leading China, Indonesia, Malaysia, Korea, and Japan, among others, to adopt it . For example, in China, 81% home broadband users are on FTTH, and even developing nations, like Indonesia, Brazil, Thailand, Mexico, South Africa, Turkey,Vietnam, etc, are adding over 1 million fixed broadband FTTH subscribers per quarter consistently since last year.
What, then, is holding back Indian FTTH market growth? While demand for enhanced home broadband network and OTT services is not in doubt, the business case for next-generation Indian FTTH services remain unconvincing. As per an E&Y study, India's construction cost to reach a FTTH household is among the highest in the world at $1,580, i.e., `1,10,000, against $200 in China, $307 in Thailand, $334 in Indonesia, and $432 in Malaysia. The reasons for high FTTH rollout cost in India include exorbitant cost of RoW, high lead time for approval, uncooperative building societies, unorganised/expensive fibre construction services, high fibre maintenance cost, etc.
While private FTTH operators need support from the municipality, state government, the Centre, and the telecom regulator, fixed broadband operators can take advantage of the significant overlap between the coverage and footprint requirement of 4G today and 5G wireless broadband providers in future.
Studies across many markets show that wireless broadband access and fixed broadband access, both at home and the enterprise, are complementary services, not substitutes. Consumers will continue to use mobiles to access internet for short-burst data requirement, but will prefer home broadband services with OTT content for two-three hours per day of television viewing. However, India's wired broadband revenue opportunity will remain a pipedream unless service providers converge multiple fibre-based networks onto a unified footprint.
There are only one or two serious players trying to address the fibre supply challenge. However, the need for FTTH broadband services is being felt throughout the country. It is not possible for one or two players to allocate scarce financial capital to address this large demand while meeting capex requirements for India's future 5G technology rollout. The existing high-cost business model for fixed broadband services supply will not yield the desired 100 million FTTH households anytime soon.
Key to home broadband market success is availability of fibre infrastructure that can encourage multiple players to serve this large FTTH market. There are two possible models:
1. The FTTH provider itself does it, making end-to-end fibre available across 1,000+ towns in each residential and commercial complex. This model is expensive, with payback period of over eight years even at an annual ARPU of `12,000, and involves duplication of resources in large markets.
2. Replicating the mobility infrastructure model of pooled common resources instead of a fragmented one-private sector managing pooled fibre resources on long-term MSA contracts for dark fibre or leased fibre circuits.
Until the birth of telecom infrastructure providers in the form of independent tower companies like Indus and ATC, India’s mobility voice presence was limited. This reduced the entry barrier for telecom players like Jio, Airtel, Idea, etc, enabling quick expansion of coverage through shared infrastructure without individual operators having to bear the capex burden of setting up their own towers. As a result, the telecom market expanded at an exponential pace between 2008 and 2015.
By converging multiple fibre-based networks onto a single- or two-network footprint, independently financed by private investors, this 'National Fibre Infrastructure' can ensure fibre availability across the country. Indian telecom operators have already built over 22 lakh km of fibre. As the country enters into the next phase of mobility growth, early interests in monetisation of non-core assets by telecom operators is being reported.
Passive Optical Network architecture already provides fibre sharing between many service providers through either Time Division Multiplexing or Wavelength Division Multiplexing . The current 22 lakh km of fibre , once transferred to a common pool managed by independent fibre infrastructure providers, will help support 1,500 petabytes of India’s daily data needs, i.e., 7.5 times the current traffic.
Unless the DoT and Trai formulate regulatory policies to support growth of an independent fibre infrastructure company, this vision will not be realised. The challenge is to get multiple tenancies so that the infrastructure cost can be spread over a large number of operators. Fibre-MSA-cost to FTTH providers has to be a reasonable 60-70% of end consumer pricing. The DoT and Trai need to push central, state and municipal legislation to equate fibre deployment with infrastructure utility status.
Policy could accord telecom optic fibre cable the status of public utility, offer a 10-year tax holiday to independent fibre companies, and encourage banks to leverage such companies to enable fibre-isation of at least 60% towers to reach 100 million households with FTTH. The National Building Code of India could be amended to make telecom installations and associated cabling mandatory for all commercial and residential buildings. A National Fibre Regulatory Authority overseeing setting up of common service ducts and utility corridors in all cities, apart from collaboration between states, the Centre and ULBs, will also need to be created.
Indian consumers are anxious to become part of the global FTTH revolution. With India's current fixed broadband business operating model, the gap between FTTH demand and supply will only widen unless a new collaborative, partnership-driven, low-cost business model and market structure become a reality. The government and regulator following the 'National Digital Communication Policy' vision will encourage FTTH services.
(The writer is Former MD, Idea Cellular. Views are personal)