Idea has made a keenly awaited announcement with its quarterly results today – the launch of 4G LTE services.
The services will be launched in Kerala, Maharashtra & Goa, Andhra Pradesh, Karnataka, Madhya Pradesh & Chhattisgarh, Punjab, Haryana, North East, Tamil Nadu and Orissa, though not all together.
The company, which has been famously saying that it doesn’t think the Indian market is anywhere near ready for 4G services, seems to be responding to explosive sales of 4G devices in India. At Rs 4,999, India’s cheapest LG device, ZTE Q Lux, today costs less than most 3G phones, and every week, over 1 lakh 4G devices are sold in India.
In other words, in a matter of one year, there would be 52 lakh 4G devices sold, and the pace of expansion is only going to increase.
The problem with such a fast expansion is that this puts operators like Idea at loss to figure out how to monetize their ongoing 3G investments. The company is still investing heavily into 3G and will need to continue to do that for another one year to largely fill in the gaps of its 3G network.
However, Idea’s 4G networks are also going come almost in the exact same circles where it is putting in 3G towers right now. For this reason, most operators have been cautious about investing in 4G so that they can ‘monetize’ their 3G investments.
However, the consumers don’t seem to have listed to Idea or anyone else, and have aggressively chased 4G handsets. Every week, just one single model of 4G devices – the Lenovo K3 Note – sells 50,000 units. Other models, such as Lenovo A6000 Plus, A7000, Yu Yuphoria, Yu Yureka Plus and so on sell another 60,000-70,000 per week.
Sales of 3G-only handsets priced about the Rs 7,500 mark (a kind of median price for the Indian smartphone market) have nosedived, forcing a rethink from operators.
In fact, it remains to be seen whether operators like Bharti Airtel and Vodafone will use their recently won 3G spectrum to deploy 4G, instead of 3G, networks over the next 8-10 months. Doing so would help them withstand competition from 4G operator Reliance Jio.
IDEA’S PLANS
Just three months ago, when Idea was asked if it planned to do “meaningful capital expenditure” on deployment of 4G in the current financial year, CEO Himanshu Kapania said he did not think so.
“Meaningful capex , if you were to use the word for 4G launch , which i s the correct word to use, the answer is No. We will do POC (proof of concept) , and wait to study what is happening across the world especially in large markets which have low ARPU levels as well as see moves of the competition (unless there is a competition dynamics which undergo a change…)”
However, in just three months, Idea Cellular seems to have seen the change in competition dynamics (Reliance Jio launch etc) that it was dreading.
In today’s statement, it said it would launch 4G services in “calendar year 2016.” The words “calendar year 2016” is used to capture the period from January to March of next year.Otherwise, the company would have said ‘next financial year’ — starting from March 2016.
Idea “has initiated multiple steps towards introduction of 4G LTE services on 1800 MHz spectrum band in 10 service areas of Kerala (10 MHz), Maharashtra & Goa, Andhra Pradesh, Karnataka, Madhya Pradesh & Chhattisgarh, Punjab, Haryana, North East, Tamil Nadu and Orissa (5MHz each), in a phased manner from calendar year 2016 onwards,” it said.
To specifically say calendar year is intended to include the January-March period, and indicates clearly that the first launch will happen in the January-March period. And if the launch has to happen then, the investments must be being made as we speak.
In other words, Idea is not doing “proof of concept” investments this year, but shelling out serious money to prepare for a launch early next year.
Reliance Jio will launch nationwide by December.
Interestingly, Idea also said that is planning to introduce its own range of ‘Digital Services’ across various categories like entertainment, information, communication, utilities and API services etc. in the next financial year. Such services are key thrust area for Reliance Jio.