Connect. Create. Innovate. India Mobile Congress 2018

New Digital Horizons

Connect. Create. Innovate.

India Mobile Congress 2018

October 2018

KPMG.com/in New digital horizons: connect, create, innovate

1 Current state 2 Where we want to be

Trillion dollar digital economy 1.1+ billion subscribers dream: Convergence of connectivity and advanced technologies like AI, Teledensity at M2M, IoT, analytics is bringing India closer to its trillion dollar 89.72 per cent digital economy dream. Telecom companies (telcos) having a direct interface with end users, can 512 million internet play a central role in the digital subscribers revolution by moving beyond connectivity. It can be the platform to allow the interplay of these Government initiatives advanced technologies to create digital solutions across varied driving digital growth industries. In the next few years, a significant portion of revenue will be growing from FDI ~ USD5.9 billion digital initiatives enabled by during Apr-Dec 2017 5G network. 3 Challenges

Falling Huge capex Debt repayment of USD119.44 billion revenues requirement as against its annual revenue of around (ARPUs) (USD17 USD38 billion billion FY19-20)

Connect Investments in 1 rural India 2 content ecosystem

Enhance start-up Create networks ecosystem to 3 4 of the future foster innovation

Expanding business Build a customer models beyond 5 centric ecosystem 6 connectivity

Significant intervention from all stakeholders (public and private) required to uplift the industry and realise the 5 Need of the hour potential that new digital horizons hold

Rationalise Robust cyber,data Increase overall spectrum allocation security framework fiberisation Bridge skill gap and pricing and data privacy norms

Simplification and Favourable device, Redefine Adjusted Rationalisation of uniformity of RoW component Gross Revenue taxes and levies’ policies manufacturing (AGR)

Public Private Lower cost Partnership(PPP) of backhaul models for shared connectivity infrastructure

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved Foreword

Indian Telecom Industry has including over 8600 villages and I am happy to be part of the IMC witnessed one of the fastest paces installation of over 300 mobile meet this year, with a theme of of expansion in the recent years. tower sites. We are into the 4th connect, create and innovate that The government and the industry year of Digital India initiative, in this resonates well with the direction have worked together to make period we have tripled our telecom that the industry is headed Indian Telecom Network, the 2nd infrastructure, we are spending towards. I trust a meet like this largest in the world with a total 9 billion in providing optic fiber in will provide an opportunity for all subscriber base of over 1.1 billion rural areas. The government will the stakeholders involved – big or and an overall tele density of close be setting up over 2.5 million Wi-Fi small to showcase their expertise to 90 per cent. The government hotspots across the country to and be part of the larger system has a digital vision for India and the enable connectivity covering the that drives India forward, digitally. strategy is premised on access and urban and rural areas. Wishing you all the very best. inclusion, giving a digital identity to everyone and delivering next Adaption of technology, whether generation goods and services to applications or services, is best all citizens. understood in the local languages. We are also working on a mass The National Digital digital literacy program so that Communications Policy (NDCP) people at the bottom of the 2018, was approved by the pyramid will not merely have cabinet this year to lay out policy access to technology but also will and principles framework that be able to leverage technology will enable creation of a vibrant in their local language. This will competitive telecom market. The enable this section of the society key themes that the policy aims to stay connected and digitally to look at include, the regulatory informed. Aruna Sundararajan and licensing framework impacting the sector, connectivity While digitalization is progressive, Telecom Secretary and for everyone, ease of doing the connected space comes Chairman of the Telecom business and adoption of new with challenges and there Commission technologies including 5G and the should be a strong focus on Government of India IoT to accomplish the mission to security. Every nation faces cyber connect, propel and secure India. security challenges. Countries The common underlying themes like India, where digital growth of ‘Make in India’ and ‘Skill India,’ has been exponential, the would be inclusive elements of the magnitude and complexity above. of these challenges become multi-fold. A comprehensive In a connected era, easy access cyber security policy along with to information should be enabled the sectoral CERTs are the key for all citizens. We have begun building blocks of India’s cyber a number of initiatives like security infrastructure. India is BharatNet, Network for Left Wing currently working towards putting Extremism Areas, connecting a comprehensive data protection remote areas of the North East framework in place.

It gives me immense pleasure services and revenue streams for acknowledge the efforts made by to bring to you IMC 2018. IMC all players in the ICT ecosystem. IMC and KPMG in India’s team in with its vast range of dignitaries, However, to untap its true potential making this report insightful. speakers and attendees is playing it is important that due emphasis Thank you. a crucial role by bringing all the is given by the government players in our telecom ecosystem and industry on spectrum together on a single platform. The harmonization, infrastructure future of our industry is defined creation and introducing relevant in platforms like these where all regulatory measures. stakeholders connect, create and IMC 2018 plans to focus on how innovate which strongly aligns with the trinity of regulators, academia our central theme this year. and industry can collaborate to Telecom provides connectivity CONNECT India, CREATE an that fosters inclusion, drives ecosystem for ICT players to thrive empowerment and enables and contribute to the growth of transformation. The near digital India and INNOVATE to ubiquitous reach of the mobile bring a faster growth in technology Rajan S Matthews makes it the best tool to deliver adoption, network solutions that development to the very last will allow an unforeseen socio Director General mile through ‘Digital India’ and economic development of India. COAI a ‘mobile first’ approach. It is I am pleased to inform you important for the future of India to that IMC, Cellular Operators have a robust telecom network as Association of India (COAI) along India has an opportunity to power with KPMG in India has brought ahead of the rest of the world as out a comprehensive report on a digital economy. The promise of how the New Digital Horizon is 5G is tremendous and it will be un-flolding for India. I would like to a catalyst in the evolution of new

Welcome to the 2nd edition of academia, industry would be a key IMC 2018: New Digital Horizons: differentiator that will make India a Connect. Create. Innovate. digital leader. The event is aimed to explore Our research paper, written by our the current dynamism in the knowledge partner KPMG in India, telecommunications sector which studies the evolution of networks has become a catalyst for a digitally of the future and dwells into how empowered and connected India. technology will be shaping our With the stupendous success lives. It identifies some of the from last year, IMC has become trends on customer expectations South Asia’s largest digital and how telecom companies are P Ramakrishna technology forum bringing evolving their business models CEO together the congregation to meet those expectations. It of regulators, academia, is clear from the report that India Mobile Congress researchers, industry leadership only companies which thrive under one roof. It is aimed to on innovation and cutting edge bring together the converging technology are the ones which will communication industry on one be able to leapfrog the exponential platform in India, to showcase growth offered by the sector. emerging opportunities and I conclude by thanking the team at trends, technologies, business IMC, COAI, and KPMG in India for opportunities, applications, working together to successfully platforms, government policies deliver this program to you. Our and initiatives. aim is to be a one-stop-shop expo India has the world’s 2nd largest destination for the mobile industry telecommunications network and in India and South Asia and internet user base. It is becoming ultimately, gain from the insights the hotbed for innovations in and partnerships forged this year telecom services, equipment in India. and network technologies. As Thank you. new technologies like 5G and IoT are ready to usher an industrial revolution, building a collaborative framework between regulators,

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved © 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Foreword

The amalgamation of players in media content to the end consumer of media. Rapid use of machines the ICT sector is creating new either by way of collaboration or to augment human intelligence landscapes. Technology is fuelling through creation of their own. The in creating a new paradigm of the shift and shaping a new industry overall, while experiencing opportunities impacting consumers narrative of the ICT ecosystem disruptive innovations is also and enterprises. As we look into the which in my view has assumed witnessing the slow convergence future, networks have the potential critical propositions with the market of the telecom industry with media, to be an intelligent platform to aid boundaries dissolving and changing using technology to drive costs consumers and enterprises to reap operating models. High-speed down. It is undisputed that the ability benefits of new age technologies. connectivity, strategic collaborations of ICT companies to adapt to the ICT businesses would need to re- and altering growth strategies might continuously evolving technologies evaluate their existing strategies and well determine the next phase of to suit the changing needs and operating models to leverage the growth of the industry. preferences of consumers is all good emerging opportunities and sustain news for them but, it could leave the against new evolving challenges. In association with the IMC and telecom operators in a precarious COAI, KPMG in India is pleased situation, where only those players to present the report – ‘New with deep pockets could survive. digital horizons - Connect, create and innovate’. This report traces The market has already witnessed the evolution of various network the consolidation of two major enabled services over time and helps players while, the other four understand how telecom services players are unable to sustain their consumption has been changing businesses and are on the verge over the years and how it is likely of exit. The industry might see only to impact the larger ecosystem of 4-5 main players in an aggressive telecommunications in our country. telecom market of the future. To conquer this frontier, the operators The growth of the Indian economy will have to be ready for the ‘Digitally is closely linked to the rise of Arun M. Kumar Native’ consumers who expect the telecommunications sector innovative, converged services of Chairman and CEO as they are intricately linked to impeccable quality delivered to them KPMG in India connectivity as a fundamental seamlessly. Enhanced customer requirement for driving businesses. experience coupled with exceptional The telecom sector in India has quality of services shall act as the witnessed immense disruption key differentiators, which would help in the last few years. This the operators not only retain their phenomenon has propelled a shift existing customers, but also acquire in the user behaviour with the the new ones. passive consumers of voice and SMS services becoming active The next phase of growth in the participants. They are now one of the industry is hinged on convergence largest consumers of mobile data of ICT. Digital technology, coupled and high bandwidth applications like with radical shifts in consumption video streaming and social media. patterns have undeniably resulted in Mritunjay Kapur The consumers have benefited the blurring of boundaries that define National Head immensely from discounted pricing the ICT sectors. ICT convergence Markets and Strategy due to hyper competition, availability is now a reality and is expected Head - Technology, Media and of affordable smart phones and to cause significant disruptions Telecom evolving ICT infrastructure. across the entire value chain. Very soon, the traditional ways of media KPMG in India Furthermore, the operators are consumption shall make way for ongoing the innovative way to offer demand and dynamic consumption

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1. Executive summary 01 2. Telecom sector - the ground covered so far 05 3. Connect the unconnected 11 4. Create an ecosystem for digital enablement 21 5. Networks for the future 27 6. Innovate beyond connectivity 39 7. Technology shaping our lives 47 8. Challenges to digital penetration and way forward 77

The Indian telecom sector has charted an Connect the unconnected unparalleled growth story. With over 1.1 billion 06 subscribers, overall teledensity around 90 per cent With around 67 per cent of our population living in and 512 million internet subscribers01 as on June rural areas and the rural teledensity is 57.99 per cent 01 2018, it stands tall as second largest in the world. In as on June 2018 , rural India presents a gigantic FY17, the Indian telecom sector contributed about opportunity for growth. The stark digital divide is 6.5 per cent of Gross Domestic Product (GDP)02 and evident by the low internet penetration of 19.48 per 01 plays a pivotal role in creating the building blocks cent in rural areas . of the digital economy which is estimated to be However, rural telecom will require a serious revamp USD280 billion as of FY1803. of backhaul connectivity and fiberisation. Fiberisation of backhaul will increase the capacity and reduce the The telecom sector is at the forefront of the digital latency period and is critical before 5G deployment. revolution and the dream of a trillion digital dollar In India, about 80 per cent of cell sites are connected economy will be achieved through convergence and through microwave backhaul and only 20 per cent capitalisation of multiple technologies such as AI, through fibre07. However, 70-80 per cent fiberisation is Machine-to-Machine (M2M) and IoT and collaboration required for effective network roll-out for 4G and 100 between government and industry players. While the per cent fiberisation for 5G08. growth story has so far been stupendous and holds enormous potential, the sector currently faces an In regions where fibre backhaul is not possible, uphill task of debt repayment of about USD119.44 higher-capacity microwave links will have to be billion as against its annual revenue of USD38.78 installed. E-band and V-band spectrum needs to be billion03. Given the industry’s average return of capital allocated to telcos at the earliest so that they can employed at 1 per cent, there is a dearth of funds for utilise them for low-cost, high last-mile connectivity the huge capital expenditure that lies in store for the to base stations. While some telcos are currently sector. focusing on expanding the reach of fibre network to homes, policy amendments encouraging active This situation is further compounded by disruption infrastructure sharing will shape fibre leasing and of traditional voice and messaging revenue streams renting dynamics in India. because of digitalisation. While the exponential rise in data consumption (wireless: 4026 PB during the To build a diversified and digital ecosystem, the quarter April-June 2017 to 10418 PB in April-June fundamentals of conventional network and business 2018)01,04 has provided some relief, it has not been architecture need to be revised. Therefore, ICT, enough to uplift the overall Average revenue per infrastructure providers (IP), Telecom Service user (ARPU), which stands at USD1.25 (INR80.97) Providers (TSP), Internet Service Providers (ISP), and in FY18 (USD1.79 or INR117.37 in FY17)05. The content providers will play an important role in paving ongoing price war and lack of adequate monetisation the way for digitisation in a reliable and sustainable of content delivery coupled with increasing costs fashion. from bandwidth and speed upgrades have put the telecom sector in a precarious situation. It will take Create a start-up ecosystem the collective will and action from all stakeholders, The technology landscape in India has seen a rapid private and public to reinvigorate the sector. Lack of transformation in recent years because of the strong immediate action on this will risk the derailment of emergence of various start-ups. This has created the vision of Digital India and the socio-economic a momentum for a plethora of new ideas fuelling development that it promises. disruption, innovation and investments across Telecom companies (telcos) need to think of new verticals. Riding on the pillars of future technologies avenues for growth as legacy revenues are under like AI, IoT, robotics and analytics, the Indian start-up pressure. This could mean expanding their existing ecosystem is shaping up in positive light. solutions to newer markets while realigning their business models to cater to emerging opportunities. The following are the three themes that telcos need to focus on: connect, create and innovate.

01. The Indian Telecom Services Performance Indicators April – June, 2018. FX Conversion Rate for FY18 - 05. The Indian Telecom Services Performance Indicators Quaterly reports for FY17 and FY18 64.46 06. http://www.worldometers.info/world-population/india-population/ 02. https://www.investindia.gov.in/sector/telecom, Accessed on 25 September 2018 07. 5G a distant dream for India when backhaul takes a back-seat: Experts, The Economic Times, 11 August 03. COAI Annual Report, 2017-18 2017 04. The Indian Telecom Services Performance Indicators April – June, 2017. FX Conversion Rate for FY17 - 08. Why India must get fiberised to leapfrog to 5G, The Financial Express, 17 February 2018 64.46

However, to drive and nurture a strong Further, the survey also indicates IOT followed by entrepreneurial culture, the government has AI and robotics are identified as the leading game to address a series of roadblocks related to changers over the next three years globally. administrative and economic areas for start-ups. As India stands at the cusp of transforming into one of the world’s fastest growing digital economies, Create networks of the future these emerging technologies have started traversing While the Indian telecom sector has come a long across businesses accelerating their growth journeys. way and has experienced tremendous growth in Telecom, despite being central to this digital evolution, the past decade, it is lagging on quality parameters has so far not been able to reap benefits from like network throughput and 4G coverage. With this growth. Instead, we are seeing a sect of new data surge and increasing use of IoT and M2M agile digital businesses emerge which are not only applications, the telecom ecosystem will have to creating an intermediate layer between connectivity boost its network capacity to offer high-speed data providers and the end users but also increasingly access and minimum latency. Although 5G is likely to making customers agnostic of which network to be the key enabler of the fourth industrial revolution choose. and an integrated ecosystem across business-to- To outpace the digital disruption and ensure that they business (B2B), business-to-consumer (B2C), and remain the epicentre of the growth, telcos will have business-to-government (B2G), until it is launched, to innovate on two fronts i.e., redesign their business the telcos will have to improve on their existing models beyond connectivity and enhance their networks to enhance their performance. customer experience. Software Defined Networks (SDN) and Network Redesigning the business models Function Virtualisation (NFV) are examples of cloud- based technologies. These can replace complex With traditional revenue streams maturing, network functions with customisable virtualised redesigning business models is the need of the software. It is estimated that SDN and NFV could hour. Industry players are already commercialising generate significant savings in overall operator consumer behaviour, trends and innovative operating expenditure and will be the main drivers technologies to create new paths to outpace the of adoption of these technologies in an otherwise competition. Telcos should leverage this gold mine of financially constrained industry. data and move up the technology stack by providing platforms and applications to create industry-specific To unleash the full potential of Digital India, an solutions using emerging technologies. This will investment of USD17 billion is required over the help telcos transition from just being communication next two years. Significant investments are required providers and become core to the enterprise and over the next two years to unleash the full potential consumer digital transformation. of Digital India. However, this can only happen when adequate Return on Investments (RoI) is The adoption of 5G will drive demand from enabled through a facilitative policy and regulatory enterprises and allied industries such as e-commerce, environment. healthcare and automotive. Though the potential opportunities for collaboration are unlimited, telcos Innovate beyond connectivity will have to develop vertical specialisations in these industries to understand the enterprise solution As per KPMG Technology Innovations Lab’s findings requirements and collaborate with tech companies through a web survey comprising of 15 countries and innovators to provide a holistic solution. and 15 countries and more than 750 technology leaders, India is ranked third in the tech leadership Telcos will have to develop some of these capabilities charts for countries showing most promise for in-house or acquire through partnership and disruptive technology breakthrough that will have a collaboration with other ICT players. global impact. It will take the collective will and action from the entire ICT ecosystem along with adequate Enhancing customer experience government support to unearth the true potential of The rapid change in consumer demand, led by the Indian digital economy. With connectivity and the enhanced network connectivity and improved speeds promise of 5G being the most critical enabler to the has increased on-the-go consumer count. They are vision of digital India, Telcos will have an important becoming accustomed to accessing information, role to play. retail, financial and entertainment services across

devices. Consumers are demanding more from their Conclusion network providers and are looking for personalised service offerings. The existing high customer churn India is at the helm of a new revolution ‘Industry indicates that telcos need to work on increasing 4.0’, as digital transformation makes inroads across customer loyalty which includes the following: sectors altering the modus operandi for businesses. The enhancement of features in affordable • Telcos need to differentiate beyond networks and smartphones, constant connectivity and 5G’s deploy disruptive technologies that will act as a potential will position the telecom sector uniquely in catalyst to provide a better customer experience this transformation.

• Use advanced analytics to understand customer Being the key stakeholder with an obvious path to preferences based on their digital behaviour full connectivity for the consumer makes telcos a necessary part of any future consumer proposition • Adopting an organisation-wide cultural change regardless of who owns the platform. The path and build customer centricity across all functions. forward is leveraging this strength while navigating the challenges in regulation, changing technology and Challenges and way forward changing consumer dynamics. The telecom sector’s current structure is weighing on its growth. Moreover, its burgeoning debt, falling revenue and constrained margins leave little room for further investments. The government has set the tone of a progressive policy framework with the National Digital Communication Policy 2018. The policy promotes the judicious use of Universal Service Obligation Funds (USOF) and public private partnership to promote connectivity through its Bharat Net, Gram Net, Nagar Net and JanWifi initiatives. However, monetisation models and financial viability of these initiatives need to be well defined to make the public-private partnership successful. Some of the potential areas, which could be looked at with respect to promoting an investor-friendly environment in the telecom sector are as follows:

• Spectrum management, its pricing and future availability roadmap

• Redefine Adjusted Gross Revenue (AGR)

• Bring down levies such as Spectrum Usage Charge (SUC) and Licence Fee (LF)

• Reduce the tax burden

• Lowering the cost of backhaul connectivity

• Development of the start-up ecosystem

• Data privacy

• Favourable device and component manufacturing

• Robust cyber and data security framework

• Bridging skill gap

• Public Private Partnership (PPP) models for shared infrastructure

The convergence of information, ubiquitous Some of the other key initiatives undertaken by connectivity and technology heralds a new India the government to support the growth of digital which is marked by societal and entrepreneurial economy are: transformation. The transition from trunk calls • Right of Way (RoW) to 5G, IoT and AI has been nothing less than a metamorphosis of our economy. • Ease of installation of infrastructure

As per KPMG Technology Innovations Lab’s findings • Proliferation of broadband through public Wi-Fi through a web survey conducted from November networks through December, 201701 which comprised of 15 • Common duct policy countries and more than 750 technology industry leaders (CXOs, entrepreneurs, venture capitalists) • Next generation network India is ranked third in the tech leadership charts • Electronic Development Fund (EDF) for countries showing most promise for disruptive technologies like AI, robotics and IoT breakthroughs • Centre of Excellence for IoT

that will have a global impact. • Introduction of policies to promote Foreign Direct With a vision to make India a digital economy, the Investment (FDI)

government through its policies and regulatory • Amendment in unified license for active interventions has provided a positive trajectory to the infrastructure sharing Indian Information and Communications Technology (ICT) sector through initiatives like Digital India • Favourable mergers and acquisition policy program, formalisation of NDCP, Smart Cities and • Formulation of spectrum trading and sharing BharatNet. norms.

Major milestones achieved through government’s initiatives02,03,04

Digital empowerment Innovation and Digital infrastructure Make in India Governance of citizens centre of excellence

• 114,552 Gram • Electronics • eTaal – significant • EDF with corpus • Safe and Panchayats (GPs) manufacturing growth in of USD342 secure connected through clusters e-governance million for cyberspace optical fibre network transaction per start-ups • 120 mobile • Robust cyber under BharatNet day (86.8 million manufacturing • Nano technology security policy, transactions in 2018 • Enhanced outlay units set up in centres Information till April) of USD957 million last 3 years Technology • Centre of towards smart cities • 2.92 lakh common (IT) Act and • 225 million Excellence for service centres dynamic Indian • 28 State data mobile IoT Computer centres handsets • BHIM App touched • 3rd largest start Emergency manufactured a record high of 913 • 800 services up ecosystem Response in India in FY18 million transactions being delivered on with 1000+ Team (ICERT) of USD15.5 billion in Government of India startups added FY18 • Botnet cleaning (GI) cloud initiative in 2017 and malware (Meghraj) • USD51.7 billion value • Seven centres centre of digital payments • 3,856 government of excellence made in FY18 departments and in emerging agencies integrated technologies with Mobile seva platform

• 203 e-hospitals

Source: MEITY and DOT Annual report 2017-18, https://www.thehindubusinessline.com/economy/budget/slick-rise-in-funds-for-smart-cities/article22624920.ece https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/bhim-upi-transactions-touch-rs-1-trillion-in-fy18/articleshow/63574195.cms, Accessed on June 2018, Average FX conversion rate during 2017-18 - USD1 = INR64.46

01. The Changing Landscape of Disruptive Technologies, KPMG in US, May 2018 03. Smart Cities still a work in progress, The Hindu Business Line, 01 Feb 2018 02. Annual Report 2017-18, MEITY 04. BHIM UPI transactions touch Rs 1 trillion in FY18 , Economic Times, 02 Apr 2018”

The Indian telecom sector’s subscriber base is Over the years, the telecom sector has become growing at a Compound Annual Growth Rate (CAGR) a significant contributor to the country’s growth. of 17.44 per cent05, reaching 1.1 billion during The sector contributed 6.5 per cent to total Gross FY07-1806 and the sector’s revenue doubled from Domestic Product (GDP) in FY1808, generating direct USD19.5 billion in FY06 to USD38.78 billion in FY1707. and indirect employment opportunities for over four Numerous players in the market - TSPs, IP, regulatory million people and attracting FDI of USD6.2 billion in bodies and the government have collaborated FY1809. together and fostered the Indian telecom growth.

Interesting facts summing up India’s current digital drive

Total Total telecom Total internet Active social population: subscribers: subscribers: media users: 1.4 billion 1.1 billion 512 million 250 million

M-wallet Mobile banking E-commerce M-commerce transactions transaction penetration: penetration: volume: 3.02 volume: 1.87 26% 20% billion (2017-18) billion (2017-18)

114,552 GPs Number of 3.14 billion connected via digital buyers: transactions high-speed 224 million recorded in broadband (2018) FY18 on eTaal connectivity

Sources: -- www.worldometers.info; -- The Indian Telecom Services Performance Indicators, TRAI, January-March 2018, Accessed on 01 October 2018 -- Statista; Digital in 2018, Hootsuite, Accessed on 01 October 2018 -- Payment System Indicators, Reserve Bank of India, September 2018 -- Annual Report 2017-18, MeiTY, Accessed on 01 October 2018. The sector contributed 6.5 per cent to total GDP in FY 2018, generating direct and indirect employment opportunities for over four million people and attracting FDI of USD6.2 billion in FY18.

05. KPMG India’s Research 06. The Indian Telecom Services Performance Indicators April – June, 2018. FX Conversion Rate for FY18 - 64.46 07. COAI Annual Report, 2017-18 08. https://www.investindia.gov.in/sector/telecom, Accessed on 25 September 2018 09. FDI in telecom sector surges to $6.2 billion in 2017-18: Manoj Sinha, The Economic Times, 25 September 2018

Average Average Ecommerce Internet Mobile’s Unique fixed internet mobile annual ARPU: penetration share of mobile user speed in internet speed consumer goods by country web traffic penetration Mbps in Mbps (in USD)

Worldwide 53% 40.7 21.3 52% 68% 833 average

Highest 99% 161.2 54.2 83% 84% 2,062

India 39.32% 19.7 9.1 79% 63% 113

Sources: Digital in 2018: Hootsuite report 2018; TRAI- performance indicator report June 2018

India Mobile connectivity index

Consumer Content and Overall index Infrastructure Affordability readiness services 53.7 41.1 77.3 50.3 51.8

Sources: GSMA’s mobile connectivity index accessed on 16 October 2018

The journey of the industry from being a Today, the business is no longer only dependent communication provider to becoming an important on technology. Sure, that remains a driver; but only economic enabler has passed significant milestones. one of the many including asset-light business The telecom sector has undergone radical models and rapidly changing hyperlocal consumer transformations in the past few years and it stands preferences. Emerging technologies like 5G, IoT, as one of the most disruptive and customer focused M2M and cloud technologies have created a new industries today. India adopted the third generation paradigm to develop sophisticated, sustainable and mobile network (3G) in 2010 which introduced India scalable infrastructures to pave the way to fast data speed and played a significant role in for ‘Digitalisation’. Hence, the ICT industry will be the path towards the transformation of sector from at the forefront of the newly emerging environment voice-centric to data-centric05.This received a further and help give a global competitive edge to the Indian stimulus with the launch of the fourth generation economy. And that’s the threshold from which the of mobile networks (4G) and Voice over Long Term next quantum leap – or the roll-out of 5G services – Evolution (VoLTE) services in the year 201505.Today, will occur. most TSPs in the country boast of providing 4G services to their subscribers and the industry is seeing a steady rise in the number of 4G customers. In addition to VoLTE, the industry has also rolled out the optical fibre network in excess of 2.8 million kms10 to provide reliable, secure, reasonable and high Quality of Service (QoS) to all citizens.

05. KPMG India’s Research 10. Status of BharatNet, Bharat Broadband Network Limited, Accessed on 10 October 2018

Growth of telecom industry

<1 4.7 10

Riding on technology wave, video OTT revenues to grow at a CAGR 4G launch of 45% during 2018-2023 12% 19% <50%

Deployment of IoT, AI, VR/AR IPTV 2016: across businesses Entry of a 10% new player 73% 98% 4K HD trigger Significant infrastructure upgrade videos high data planned through NDCP 2018 usage; 60% 5G launch spectrum unsold in Video 2% 50% 83% Industry auctions conference 4.0

Cloud 2017: Data share Rural computing in non-voice 2.0 revenue reach 84% compared to 23% in 2013 AI, AR, 1,287 Big Data, 1,263 IoT 1,183 1,196 1,234 1,170 1,034 970 905 2018: Consolidation amongst existing players

580 663 473 488 520 401 283 322 233

2013-14 2014-15 2015-16 2016-17 2017-18E 2018-19F 2019-20F 2020-21F 2021-22F

Total data subscribers Total subscribers

Data usage per % 4G data % 4G data Rural internet subscriber per subscribers revenue penetration month (GB)

Sources: Crisil Research, Accessed Date, 08 October 2018

Despite the rapid subscriber base growth, the Indian The road ahead telecom growth story is in distress. In particular, in As disruptive technologies develop and consumer 2017, telecom companies (telcos) faced financial expectations evolve, most industries in India are woes with a price war, which resulted in a sharp facing a triad of change relating to technology, decline in ARPU. The decline was so sharp that it competition and consumers, bringing the telecom reached USD1.25 in 2017-1813 and USD1.13 in industry at the forefront of this tectonic change. April-June 2018, the lowest level since 2010. With economic activities relying on information, Nonetheless, the industry is shifting gears to ride communication and technology more than ever, the over the issue by varying its pricing and bundling opportunity for the sector is vast. strategy, consolidating synergies and expanding its footprint in the ICT ecosystem through acquisition. The convergence between telecom operators, ICT However, these initiatives are yet to show results. infrastructure providers and content providers is The government will play a critical role in re- set to generate prodigious opportunities to connect, energising and funding the sector to shape India’s create and innovate. digital landscape.

Connect, create and innovate

CONNECT the unconnected

• Total subscriber base is expected to reach 1.28 billion in FY22 • By 2022, 10 million public Wi-Fi hotspots will be deployed CONNECT • Aims to provide 1 Gbps connectivity to all gram panchayats by 2020 and 10 Gbps by 2022.

CREATE an ecosystem for digital enablement

• Telecom sector to create 11-12 million job opportunities in the services sector • Attract USD100 billion of investment to the telecom sector CREATE by 2022 • Telecom industry to contribute an additional 3.5 per cent to the GDP from 6.5 per cent in FY18 • 5,000+ tech start-ups including 300+ ICT start-ups in FY17, estimated to reach 10,500 by 2020.

INNOVATE beyond connectivity

INNOVATE • Potential USD1 trillion of revenues for digitally enabled businesses by 2022 and USD1.8 trillion by 2025 • Cumulative USD1 trillion 5G economic impact in India by 2035 • 2.7 billion IoT units and a market size of USD15 billion by FY20.

Sources: -- Readying India for a USD 1 trillion opportunity through Digital, Nasscom, December 2017 -- 5G to offer $27 bn biz opportunity for India by 2026, The Economic Times, 22 May 2018 The trinity of increasing mobile penetration, -- Panel on 5G deployment in India predicts ‘$1 trillion impact on economy’, Hindustan Times, 23 August 11 2018 1.2 billion aadhar cards and over 312 -- INDIAN IOT MARKET SET TO GROW UPTO USD 15 BILLION BY 2020, Nasscom, 05 October 2016 million Jan Dhan accounts12 enable real -- Digital India: Telecom skills group sees surge in job opportunities, The Economic Times, 25 November 2016 -- Indian Start-up Ecosystem-Traversing the maturity cycle, Edition 2017, Nasscom, Accessed Date 08 time direct benefit transfers and provide October 2018 -- Pradhan Mantri Digital Saksharta Abhiyan (Gramin), Pradhan Mantri Yojana, Accessed Date, 08 October digital delivery of services like education, 2018 -- 5 Crore Rural Indians to Get Wi-Fi, Thanks to Union Budget Scheme, Daily Hunt, 02 February 2018 healthcare etc. -- Expect India mobile sector to create $217 bn value by 2020:Min, Business Standard, 27 September 2017 -- National Digital Communications policy 2018, Department of Telecommunications, 01 May 2018.

11. State/UT wise Aadhaar Saturation, 30 Sep 2018 12. Press Information Bureau ,Government of India, Ministry of Finance, March 2018 13. The Indian Telecom Services Performance Indicators Quaterly reports for FY17 and FY18

Today the Indian telecom industry is at a crossroad, and the changing consumer requirements of urban where it needs to meet the basic connectivity and semi-urban India which demands next generation requirement of rural India including 4G proliferation solutions through emerging technologies.

State-wise urban-rural teledensity - The stark urban-rural divide

Rural teledensity All India - June 2018 89.72

Urban teledensity 313.9 Urban teledensity 158.16 Rural teledensity 57.99 264.8 177.0 174.0 180.4 176.5 167.3 145.2 158.4 153.9 165.3 141.1 133.3 162.4 156.9 147.5 140.5 134.8 11 7. 7 87.8 80.7 76.7 75.9 74.3 58.8 66.3 63.6 60.7 56.0 59.1 64.4 43.2 49.4 48.4 44.6 43.6 J&K Bihar Kerala Orissa Punjab Assam Gujarat Andhra Madhya Madhya Pradesh Pradesh Haryana Himachal Rajasthan Karnataka North East Tamil Nadu Tamil Maharashtra West Bengal West Uttar Pradesh

Source: The Indian Telecom Services Performance Indicators, January-March 2018, TRAI

The Indian telecom sector is going through an invigorating journey and it is exciting to be a part of it. As the Indian economy is leapfrogging towards digital growth, the telecom sector will play a critical role in not only While India’s overall teledensity stood at enhancing the penetration of emerging technologies like 89.72 per cent, rural teledensity remained IOT, AI, M2M through connectivity but also provide a low at 57.99 per cent in June 2018. Internet platform to create solutions for consumers, enterprises penetration in rural India has been at just about and government to deploy these technologies to foster 19.48 per cent. As around 67 per cent of the growth in different sectors. However, to unlock the true country’s population lives in rural areas, the potential, it would be critical that all stakeholders in the digital divide between urban and rural India is sector, government and industry, work cohesively in significant. addressing some of the pertinent challenges to ensure that the best of the services can be provided to the Indian telecom consumers at par with their global counterparts. We assure the government of full support and look forward to be a path of the growth story. Balesh Sharma CEO Vodafone Idea Limited

Vectoring on rural India While India’s overall teledensity stood at 89.72 per On its part, the government has also been making cent, rural teledensity remained low at 57.99 per cent facilitative investments. Its digital literacy drive is in June 201801. Internet penetration in rural India has expected to reach 60 million rural households with an been at just about 19.48 per cent01. As more than investment of around USD350 million by FY1903. 66 per cent of the country’s population lives in rural The phase 1 of the BharatNet project resulted in areas, the digital divide between urban and rural02 1.1 lakh villages being connected and service ready04. India is significant. In the recent fiscal budget, the government proposed Not surprisingly, the focus of telcos has been shifting an investment of about USD1.5 billion in FY1905 to away from urban circles, which has hit or is hitting develop additional telecom infrastructure. saturation levels. The rural sector is coveted despite Additionally, Public Private Partnership (PPP) models infrastructure hurdles such as lower bandwidth and are also evolving such as Google’s partnership with coverage, high upfront investment cost, low pricing RailTel as a backhaul provider for enabling public power, and high customer switching among service Wi-Fi hotspots at 400 railway stations. Eventually, providers. In the hinterland, aggressive expansion these services will cover 6,000 railway stations06. by operators and the launch of 4G (VoLTE) services Also, BSNL is partnering with Facebook to set-up has improved penetration. Similarly, the availability community public Wi-Fi hotspots in rural India. of local-language apps and devices have increased smartphone adoption, especially in rural areas. However, significant efforts from all stakeholders are required in broadband expansion and fiberisation which will be critical to eliminate the digital divide.

Fixed and mobile broadband subscriptions per 100 inhabitants, in 2017

Fixed-Broadband Mobile-Broadband

43.8 153.8 41.6 148.2 39.3 132.9 33.9 30.9 112.8 Average Average 26.9 of 27.5 90.2 88.1 of 100.1 25.8 87.5 83.6 78.1 1 7. 8 13.7

25.8 1. 3 U.S. U.S. U.K. U.K. India India Brazil Brazil China China France France Finland Finland Argentina Argentina Singapore Singapore Korea (Rep) Korea Korea (Rep) Korea

Source:The State of Broadband: Broadband catalyzing sustainable development, September 2018

The government has also been making facilitative investments.

01. The Indian Telecom Services Performance Indicators April – June, 2018. FX Conversion Rate for FY18 - BharatNet and NDCP are aimed to 64.46 provide the required momentum 02. http://www.worldometers.info/world-population/india-population/ 03. Pradhan Mantri Digital Saksharta Abhiyan (Gramin), Pradhan Mantri Yojana, Accessed Date, 08 October to the sector in terms of 2018 infrastructure and investment push 04. “BharatNet Phase 1: Target Achieved Through Meticulous Planning and Focused Implementation at Ground Level; Press Information Bureau ,Government of India, Ministry of Communications, Accessed however speedy implementation in June 2018” of these initiatives would be key. 05. 10,000 crore to boost telecom infrastructure , The Hindu, 01 Feb 2018 06. 6000 railway stations will be Wi-Fi-enabled in next 6 months, Economic Times, 28 August 2018

India’s low broadband penetration compared to global the 50 Mbps per citizen target, the government peers signifies a huge potential for the industry. The has to provide five times the spectrum and the NDCP released in September 2018, which aims to telecom network has to grow from the present two provide fixed-line broadband access to 50 per cent million Base Transceiver Stations (BTS) deployed of households by 2020 and universal broadband to 10 million. This will require focused and timely coverage of 50 Mbps for every citizen07, should also provisioning of resources. It will be important boost broadband expansion. Moreover, the BharatNet that the government intervenes to provide the project (phase 2) under the Digital India initiative aims requisite resources in terms of spectrum, right to connect additional 150,000 Gram Panchayats (GPs) of way permissions, financial incentives and an through high-speed optical fibres by end of 201808. implementation monitoring system to achieve the targets defined in NDCP 2018. Currently, the average speed of Indian operators is below 10 Mbps09 and if we have to achieve

Status of BharatNet project

Status as on Status as on Status as on Sr. Description of work No. 2 September 2018 3 September 2017 21 August 2016

1. Optical Fibre Communication 2,79,346 kms 2,43,590 kms (OFC) pipe laid (1,20,713 Gram (1,08,275 Gram 1,55,398 kms Panchayats) Panchayats) 2. Optical fibre laid 2,87,878 kms 2,25,475 kms (1,19,036 Gram (100,768 Gram 1,31,494 kms Panchayats) Panchayats) 3. Tenders finalised 3,291 blocks / 3,326 blocks / 2,541 blocks / 1,22,828 Gram 1,24,291 Gram 95,242 Gram Panchayats Panchayats Panchayats 4. Work started* 3,281 blocks / 3,242 blocks / 2,430 blocks / 1,22,305 Gram 1,21,328 Gram 87,176 Gram Panchayats Panchayats Panchayats 5. Current weekly performance of 386 kms 971 kms 1,089 kms optical fibre laying 6. Current weekly performance of 194 kms 615 kms 830 kms OFC pipe laying 7. Optical fibre cable delivered on site 3,41,568 kms 2,86,944 kms 1,77,998 kms 8. Service-ready Gram Panchayats 1,14,552 Gram 32,715 Gram 8,472 Gram Panchayats Panchayats Panchayats

Source: Status of BharatNet, Bharat Broadband Network Limited, Accessed on 11 September 2018

New asset-light operating models of fibre leasing and renting may be explored in view of declining profitability and stretched balance sheets. While some of the operators are currently focusing on expanding fibre home reach, policies and schemes encouraging active infrastructure sharing will shape up fibre leasing and renting dynamics in India.

07. “National Digital Communication Policy, 2018 - Draft For Consultation, Department of Telecommunication 09. State of Mobile Networks: India (April 2018), OpenSignal, Accessed on 18 October 2018 – Ministry of Communication, Government of India, 1 May 2018” 08. KPMG India’s Research

Urban India and the surge of data usage Data consumption in India has grown exponentially subscriber per month to 4.7 GB01 as of June 2018 over the past few years due to increased smartphone (up from 420 MB in FY16)10. With continued operator penetration and improved coverage of high- investments in 4G roll-outs and aggressive operator speed data network coupled with low data tariffs. data plans, there is an inherent shift in consumer September 2016 was a watershed moment when data usage patterns. Incumbents followed suit and the arrival of a new greenfield operator resulted in a introduced aggressive 4G data plans, leading to a steep drop in data prices and subsequently resulted fundamental shift in the way consumers use data. in an increase in average wireless data usage per

Falling data tariffs have led to rapid data uptake10

4,708 ~7,000 MB

Data usage/ subscriber/ 1,360 month (MB) Increase in data 420 revenue has been offset by fall in 310 data realisation 256 229

68.5 Average realisation 12.4 Paise/MB (Paise/MB) 16.4

FY15 FY16 FY17 FY18 FY20

Source: Crisil Research, Accessed Date, 08 October 2018

Increased competition has led to commoditisation telecom operators - average voice revenue per user of voice revenue and emergence of data services as declined about 30 per cent in FY18 and is expected the primary driver of potential revenue growth for to further decline by 15-20 per cent in FY1911.

With continued operator investments in 4G rollouts and aggressive operator data plans, there is an inherent shift in consumer data usage patterns

01. The Indian Telecom Services Performance Indicators April – June, 2018. FX Conversion Rate for FY18 - 64.46 10. Crisil Research, Accessed Date, 08 October 2018 11. CRISIL Research, 01 June 2018

Demand for mobility, app-based and OTT services to spawn bundled services opportunities Personalised 5+ inch screens in the form of approximately USD40 for a 4G smartphone13 has also smartphones and tablets have emerged as the contributed to increased use of mobile devices with preferred entertainment mode. Around 95 per cent 4G capable device penetration reaching 22 per cent of households12 in India own just one TV making at a pan-India level in 2017 from 12 per cent in 201614. smartphones the second screen for users. The Consequently, mobile as a medium has become the low price of an entry-level 4G enabled device — most popular and adopted device for consuming starting at around USD21 for 4G feature phones and online content.

Rise of digital media proliferation to drive future adoption 72.6% 27.4% 30.8% 2018 56.9% Desktop/laptop Mobile Share of average devices time spent 2013 Share of time spent on digital 17.9% 67.8% mediums- 2017

Digital TV 2017 2023

390 mn Smartphone subscription 975 mn

~100 mn VoLTE connections 800 mn

Average monthly data usage per 5.7 GB 13.7 GB smartphone

Source: Mobile data traffic in India to grow 5 times by 2023: Ericsson report, The Economic Times, 12 June 2018

With expected exponential rise in data usage, telcos need to find new ways of monetising data.

12. India Trends 2018: Trends shaping digital India, KPMG, May 2018 13. CRISIL Research, 20 July 2018 14. India Mobile Broadband Index 2018, Nokia, Accessed Date, 20 Sep 2018

Video streaming has the biggest share in media consumption

8-10% 4-8% Active users (in mn) of OTT platforms Social Others Media YouTube 225 Operators’ OTT 50-100

Hotstar 75 15-18% Browsing Voot 30 Amazon 13

Netflix 5

65-75% Sony LIV 5 Video streaming TVF Play 4

Online video consumption grew 5X in 2017 ALT Balaji 2

2017

2023

Online video audience (millions) Video OTT revenues (INR billion)

550

CAGR – 20% CAGR – 60%

225 CAGR – 50%44.9

93.2 4.3 1 7. 2 FY18E FY23P FY23P FY23P Advertisement Subscription

Sources: -- India Mobile Broadband Index 2018, Nokia, Accessed Date, 20 Sep 2018 -- Media ecosystems: The walls fall down, KPMG, September 2018 Mobile data usage in India rose to the levels of a few developed markets in 2017 and is expected to surge 5x by 2023. Video streaming contributed 65-75 per cent to total mobile data traffic in 2017 in India, driven by 4G uptake, the emergence of OTT players and availability of content in Hindi and regional languages.

With this shift to a data-centric revenue driver, audience base through a distribution medium operators across the globe are exploring further data which is increasingly becoming digital monetisation opportunities. Given the potential of the • Convergence and digital distribution mediums content market, operators are investing in content also open up monetisation avenues for content ecosystems (creation, curation and distribution) creators – which have traditionally been led to provide further data value-adds. Operators like through advertisements. Convergence opens Telefonica, BT, AT&T are investing in developing up a monetisation outlet, especially for a content and evolving into digital media franchises subscription-based revenue with a sharp focus on bundled offerings including bundled TV, wireline and wireless phone services. • For the telecom operators, content becomes Operators in India have also pursued different more important and has the potential to act strategies with respect to defining and developing as a key differentiator eventually helping with their content portfolios (from sourcing original customer stickiness on their network content to being an aggregator of video and content • Telcos can also look to monetise the projected platforms). The trend of investing in content can be surge in data traffic (by 2021, 82 per cent of all IP expected to continue as operators strive to provide traffic is expected to be video)15 at scale. differentiated experiences to the end consumer with respect to content, media and video consumption. Capitalising on this opportunity, telcos are changing their business models and are coming up with The boundaries between Technology, Media and lucrative bundled offers and free subscriptions to Telecommunications (TMT) sector are increasingly certain OTT apps to drive ARPU. Telcos are evolving blurring across the globe with connectivity being the from pure voice providers to ‘triple-play’ or ‘quad- catalyst for this disruption and driving convergence of play’ players integrating their voice, data, and content business models. As this convergence starts to play offerings. out across the globe, India is not likely to remain far behind. • Airtel launched Airtel Home, a digital quad-play platform bundling home broadband, fixed line, Benefits and opportunities abound for the post-paid mobile and digital TV in June 2018 stakeholders of the TMT ecosystem as a result of the convergence theme. • Jio is betting on bundled OTT and Internet

• The convergence of traditional content-led Protocol TV services along with voice and data. organisations with telcos and technology led platforms results in content reaching a wider

15. Fast Data Use Cases for Telecommunications, Voltdb, September 2017, Accessed on 01 October, 2018

Emergence of triple-play and quad-play services

Video/ content

Data Voice

Telcos Dominated by OTT players

Apps and streaming content directly to Either building consumers through Internet their own platform or partnering with OTT players Impacting telcos’ WhatsApp, with basic communication an active monthly service revenues i.e. subscriber base messaging and voice of over 200 million in India, has virtually stopped the use Evolution of telcos from being purely voice of SMS for data providers to ‘triple-play’ or ‘quad-play’ players subscribers

Telcos globally, particularly in Europe, have • China Telecom has a 59 per cent triple-play leveraged the evolution of triple-play and quad- penetration rate which has improved wireline play models either against rising competition or to broadband churn rate to 1.1 per cent.18 attract new customers. High speeds, enhanced network capability, and • About 15 per cent of Belgian operator Telenet’s strong content competency are necessary to customers subscribed to its quad-play services succeed in convergent strategies. Globally, telcos in Q1 2018 compared to about 9 per cent in Q1 have opted to build, acquire or partner with 2 0 1 7. 16 different players in the ecosystem to enhance their service offerings. Bundled offers increase average revenue in addition to reducing churn.

• Belgium-based operator Proximus’ multi-play Data accounts for only 35 per cent of subscriptions grew 7.2 per cent year on year. the revenues of Indian telcos despite Its ARPU was EUR110-115 for multi-play offers the spike in volume. That’s in sharp versus EUR30-35 for single offers in Q2 2018. contrast to chinese players whose data The full year annualised churn rate for multiplay revenue accounts for 60-65 per cent of was 2.9 per cent compared to 19.4 per cent for their total wireless revenue19. single play.17

16. Telenet scores with quad-play bundles, Broadband TV News, April 26, 2018 1 7. Proximus Company Presentations, Accessed Date: 28 September 2018 18. 2018 Interim Results, China Telecom Corporation Limited, 20 August 2018 19. CRISIL Research, 01 June 2018

Control over content is driven by collaborations and investment models

Content

Partnerships Strategic investments

• Airtel, Vodafone Idea • Reliance Jio aggregating content and investing in aggregating content original and exclusive content

• Airtel partnered with • Acquired digital rights for Winter Olympics 2018, Hotstar for content EFL Cup and T20 cricket series comprising live sports, • Acquired 5 per cent stake in Eros International movies and TV shows and 25 per cent stake in Balaji Telefilms20

• Airtel partnered with Netflix. • Announced merger of its music app with Saavn.

Multi-play strategies in India are still in their infancy. Telcos face a number of challenges related to infrastructure and digital literacy in rural areas, and most importantly, content including the availability of regional language content. However, monetisation opportunities have encouraged some players to take initiatives on the infrastructure and content fronts to strengthen their position as multi-play providers.

20. Reliance Industries to buy 5% stake in Eros for over Rs 340 crore, Times News Network, 21 February 2018

As the digital revolution continues to accelerate and robotics move firmly into the mainstream and expand at an astonishing pace, business leaders upturn businesses like media and entertainment, are grappling with emerging technologies, fuelling transportation, healthcare, security and retail. This simultaneous disruptions across all aspects of the places the ICT sector at the heart of this revolution, enterprise. The transition from an industrial economy with telecom being the essential lifeline. that favoured mass production and scale to a digital It is evident from a recent KPMG survey that economy that favours information, is challenging the companies which are able to deploy some of these existing ecosystems. The fourth industrial revolution new edge technologies are the ones driving business is quickly unfolding as the evolution of AI, IoT and transformation.

The road to growth: Disruptive business models

List of several companies named by tech industry leaders as companies they believe are most likely to disrupt their business.

12% 11% 10% 9% 9%

Alibaba Facebook Airbnb Amazon Google

Source: KPMG Technology Innovation Findings, The Changing Landscape of Disruptive Technologies, KPMG US, 2018. The figures are based on responses provided by global industry leaders across 15 countries

The survey also indicated that over the next three years, IoT is identified as the leading game changer and e-commerce as the biggest disrupter globally. 17% 13% 8%

IoT AI Robotics

Source: KPMG Technology Innovation Findings, The Changing Landscape of Disruptive Technologies, KPMG US, 2018

The road to growth: Disruptive business models Based on KPMG Technology Innovations Lab’s findings through a global web survey of more than 750 technology industry leaders (CXOs, entrepreneurs, venture capitalists), e-commerce is seen as the top disruptor in the next three years.

26% 19% 14% 11%

E-Commerce Social Autonomous Entertainment Source: KPMG Technology Innovation Findings, The Changing Landscape platforms networking transportation platforms of Disruptive Technologies, KPMG platforms US, 2018. The figures are based on platforms responses provided by global industry leaders across 15 countries.

E-commerce platforms are transforming at the on people’s life, behaviour and choices. Social speed of light, from fast deliveries to highly network platforms also play an important role efficient logistics and supply chain operations along in the distribution of innovative technologies. with new mobile payment services and digital Disruption resulting from transportation as a assistants. This top ranking is consistent with the service and self-driving vehicles is reflected in the tech industry leaders’ responses in identifying ranking of autonomous transportation platforms. Alibaba and Amazon as top companies to watch as Entertainment platforms ranked fourth as the disruptors of their business. shake-ups in traditional entertainment companies are expected to continue. Social networking platforms ranked second. These platforms are known to have a strong influence

Top disruptive business models by country to drive growth in future Even though e-commerce would be a top disruptor globally, social networking platforms would be the top disruptor for India.

China India Japan U.K. U.S.

Autonomous To reap the true benefits transportation of technology for platforms 18% 12% 20% 15% 15% the socio- economic development of the country, it is important that all stakeholders come together and contribute E-commerce 29% 17% 30% 26% 24% towards providing platforms an environment that will foster innovation, entrepreneurship and Entertainment investments. 16% 9% 10% 19% 12% platforms

Social networking 12% 20% 17% 19% 23% platforms

However, for India to emulate similar success in these businesses as its global counter parts, there is a lot that needs to be done. As per CISCO’s Digital readiness research released in May 2018, India’s score of digital readiness is 10.54, a little lower than the global average of 11.96, but with a vast difference with the highest score of 20.101, achieved by the U.S. The government is cognizant of the significant efforts required to make a digital India and NDCP 2018 is a progressive step towards the digital empowerment of India. NDCP 2018 has also outlined the following strategies to strengthen India’s digital footprint and coverage with the aim to achieve the following objectives by 202202:

1. Provisioning of broadband for all 2. Creating four million additional jobs in the Digital Communications sector 3. Enhancing the contribution of the Digital Communications sector to 8 per cent of India’s GDP from ~ 6 per cent in 2017 4. Propelling India to the Top 50 Nations in the ICT Development Index of International Telecommunications Union (ITU) from 134 in 2017 5. Enhancing India’s contribution to Global Value Chains 6. Ensuring Digital Sovereignty.

To reap the true benefits of technology for the socio-economic development of the country, it is important that all stakeholders come together and contribute towards providing an environment that will foster innovation, entrepreneurship and investments. It is believed that the two most important focus areas would be:

• Creation of a conducive environment for innovators and entrepreneurs to thrive • Creating networks for the future, to support the functioning and adoption of the new edge technologies.

01. “Country Digital Readiness: Research to Determine a Country’s Digital Readiness and Key Interventions, Cisco, May 2018 “ 02. National Digital Communication Policy, 2018

Start-ups adding significant value across industries India’s start-up ecosystem has grown at a rapid pace (1,000 tech start-ups added in 2017)03 and have played a big role in the growth of the Indian economy. Backed by improved connectivity and internet penetration, start-ups are building solutions across industries such as healthcare, banking, insurance, travel, agriculture and education.

India Start-up landscape

1 2 3 4 5

rd Number of tech 3 startups (2017) 40% +190 +500 largest startup startups in the accelerators active ecosystem 5,200 B2B segment and incubators investors

6 7 8 28% 31% 13% Tier II and YoY growth in USD 13.7 billion Tier III cities top verticals invested in gaining 2017 (2017) Health- Fintech E-commerce tech momentum

Sources: -- The YourStory 2017 Startup Funding Report – $13.7 billion invested across 820 deals, YourStory, 23 December 2017 -- Over 1,000 tech start-ups added in 2017, says Nasscom, The Indian Express, 2 Nov 2017 - Business incubators leading growth of startups in India’s tier II/III cities: NASSCOM report, The Economic -- Indian start-up ecosystem- Traversing the maturity cycle, Edition 2017, NASSCOM, Accessed Date, 21 - September 2018 Times, 05 Dec 2017

Government backing has come in the form of the and grow. For innovation to thrive, a multi-pronged Start-up India programme, setting up an investment approach has to be taken i.e. funding support, fund of USD1.38 billion04 to support development infrastructure support, tax and surcharge relief, and growth of innovation-driven enterprises, tax regulatory and compliance support and enterprise incentives, patent right reforms, single-window level adoption. clearances and easing of restrictions on foreign Nonetheless, the start-up landscape shows venture capitalists. tremendous potential in India and even the most Incubators/accelerators play an important role conservative sectors such as Banking, Financial by providing mentorship, nurturing ideas and services and Insurance (BFSI) are embracing extending technical support and providing access innovation and collaborating with start-ups. to funding. To encourage innovation, Niti Aayog Technologies such as AI, Blockchain, Augmented as part of its Atal Innovation Mission (AIM) will Reality (AR)/Virtual Reality (VR), robotics and provide USD1.49 million to 100 new incubators and open Application Programming Interface (APIs) USD30,000 to 500 tinkering labs in schools05. will bring profound changes in the way business strategies would be defined. The future will see the However, despite the positive economic growth emergence of frameworks for concurrent adoption and government policies, India faces an uphill of these technologies and play a very crucial role in task to become a mature start-up community – building a vibrant digital economy. mainly owing to skill-gap, lack of robust regulatory framework around data, compliance and Intellectual A conducive start-up ecosystem could accelerate Property Rights (IPR), lower connectivity in rural the adoption of technologies and help create areas and limited awareness in tier III cities that innovative models to monetise ICT opportunities may contribute immensely to their ability to scale emerging across industries.

03. Over 1,000 tech start-ups added in 2017, says Nasscom, The Indian Express, 2 Nov 2017 04. Start-up India Scheme, Department of Industrial Policy and Promotion, Accessed on 23 July 2018 05. Niti Aayog to fund tinkering labs in schools to boost scientific temper, Livemint, 30 May 2016

The transition from an industrial Start-ups have played a major economy that favoured mass role in the growth of the Indian production and scale, to a digital economy across industries such economy that favours information, as healthcare, banking, insurance, is challenging the existing travel, agriculture, and education. ecosystems. The fourth industrial Further efforts in areas such as skill revolution is quickly unfolding development, a robust regulatory as the evolution of AI, IoT and framework and greater connectivity robotics move firmly into the would contribute immensely in mainstream. their ability to scale and grow.

With the emergence of disruptive technologies, network upgrades will be key to survival. While 5G will be a game changer, the telcos will have to improve on their existing networks to enhance their performance. Ubiquitous connectivity, faster data speed, smarter devices and increased data traffic have changed the dynamics of telecom network infrastructure requirement. Factors influencing investment in telecom infrastrucuture

Future corporate Digital industrial Proliferation of Need for Advanced networks ecosystems OTT services connected devices analytics Provide high-speed Participate and Support customer Improve latency of Digitise business and high-reliability collaborate in demand for rich 4G LTE, leading to models of telecom networks to improve bringing multiple content such as 4K, increased efficiency and allied industries productivity, reduce under one digital 8K, virtual reality costs and support umbrella (e.g. for (VR), augmented Support massive Segment customer enterprise digital smart city) reality (AR) and machine-type and provide transformation 360-degree videos communication customised solutions

Telco expectation

Source: – KPMG in India’s analysis in 2018

Comparison of India vs peers on quality of service (QoS) parameters

India’s 4G download speed compared to global peers…

SINGAPORE U.K. U.S. INDIA 46.5 22.1 18 9.1

...even lags behind in latency U.S. U.K. 30.2 ms 43.8 ms 59.2 ms 72.9 ms INDIA SINGAPORE

India’s 4G coverage lowest compared to global counterparts U.S. U.K. 86% 79% 91% 68% NDIA SINGAPORE

Source: State of the Mobile Network – India: April 2018; US: July 2018; UK: April 2018; Singapore: May 2018, OpenSignal. Note: speed, latency and 4G coverage are average of maximum and minimum

A few critical aspects for telcos to facilitate a swift move towards achieving latency requirements having a bearing on QoS are:

• Infrastructure upgrade including effective placement of cell sites for maximum coverage to demand-heavy areas. Sites to be connected by Optical Fibre Communication (OFC) or ‘Fibre to the Tower’ approach • Confluence of networks, Wi-Fi and Bluetooth for faster connectivity • Transformation of network architecture by reinventing IT platforms • Adoption of Artificial Intellgence and Machine Leaning based technologies to ensure smooth functioning of existing networks and new roll-outs.

Pervasive connectivity On the network front, Wi-Fi is emerging as an omni-present free-of-cost alternative providing fast access to data.

Wi-Fi, an enabler to facilitate omni-present network

Issues High-speed indoor Capacity for congested Connectivity gaps addressed coverage networks

Wi-Fi hotspots

Wi-Fi spectrum sharing between operators leads to high traffic load, resulting in lower Challenges speed and connectivity

Potential Release of relevant unlicensed spectrum and other policy measures to support Wi-Fi resolutions expansion

Establishing Self-Organising Networks (SONs) that use AI and ML based technology to help telcos monitor and control traffic

Globally, data offloading through Wi-Fi is expected to reach 63% by 2021

Source: Global Mobile Data Traffic Forecast, 2016–2021 Q&A, Cisco Visual Networking Index, 31 July 2018

In India, only 16 per cent of public data is offloaded Players globally are developing models to efficiently to public Wi-Fi networks, compared to the average of use Wi-Fi to bridge their offline and online presence. 30 per cent in the U.S., the U.K. and France, mainly In China, the Online to Offline (O2O) model is gaining because of lack of Wi-Fi infrastructure01.However, traction, helping retailers’ market products by using government impetus for increasing Wi-Fi hotspots Wi-Fi and location-based techniques. A major internet to 10 million by 202202 and policy reforms such as player partnered with one of the leading commercial the simplification of Right of Way (RoW) should Wi-Fi service providers to extend its reach to the ensure universal connectivity as well as low cost for offline channel for marketing products. operators. Telcos are establishing Wi-Fi networks in public places such as shopping malls, railway stations, gardens and theatres, and are increasingly partnering with each other to expand their Wi-Fi hotspot Government impetus for increasing Wi-Fi network. TSPs and ISPs are jointly working on hotspots to 10 million by 2022 and policy providing seamless and interoperable internet and reforms such as the simplification of RoW broadband servcies through public Wi-Fi hotspots. should ensure universal connectivity as well Femtocells (small towers installed at the user’s as low cost for operators. location) and Li-Fi (uses light bulbs for transmission) are other emerging technologies that can support universal connectivity and bandwidth in future.

01. Telcos may cry hoarse but India needs public Wi-Fi, Livemint, 10 July 2018 02. National Digital Communications Policy, September 2018

Building infrastructure blocks from Technologies to expand capacity and 4G to 5G smoothen transition to 5G

While a robust infrastructure backbone is a must for Indian operators are still rolling out the 4G network, handling increasing data, prudence on technology and coverage in the country lags behind global adoption, network upgrade and overall transformation peers. The exponential growth in data consumption is also called for. As 4G-LTE is gaining traction in India, necessitates new technology to raise throughput. competitive disruption and its impact on profitability Operators globally have increased throughput and leverage will govern the capex decisions of through technologies such as Carrier Aggregation telcos in the next few years. (CA), advanced multiple-input and multiple-output (MIMO), and higher order modulations (for instance, Fiberisation of backhaul will allow enhanced capacity 256-QAM). and low latency, and is critical before 5G deployment. In India, about 80 per cent of cell sites are connected Indian telcos have already adopted 2-band CA. Given through microwave backhaul and only 20 per cent the consolidation in the industry, 3-band CA is the through fibre03. However, 70-80 per cent fiberisation next prudent step and can help raise peak speed is required for effective/efficient 4G and 100 per cent to up to 160 Mbps09. Indian operators conducted for 5G04. Cumulative fibre-deployed-to-population ratio commercial trials for 4x4 MIMO technology in 2017, in India is about 0.1x, compared to 1.2x for the United and have begun deploying it in April 2018. States and 0.7x for China05.

Over the past few years, Indian telcos have expanded CA benefits for global telcos their fibre network. A large telco aims to roll out 9,000 new sites and 4,150 km of fibre optic in FY19, taking its fibre backbone to 23,100 km06. One of the Indian telecom operators plan to invest 07 South Korea’s largest USD7.29 billion in fibre network development . In telecom operator reduced its FY19, approximately USD10.85 billion (excluding churn to 2.1% from 2.4% 5G spend) investments will be incurred on network infrastructure08. A significant proportion of these investments will be incurred on strengthening backhaul. Singapore’s largest telecom operator improved its throughput to 300 Mbps, twice that of the previous level, and improved its market share by 3.4% The telecommunications sector is at the core of any nation’s growth and development, and India is no different. Over the years the sector has played a stellar role in ensuring connectivity for all. We are Germany’s largest telecom today on the brink of the next wave of growth in the operator improved its throughput form of new and innovative services. Globally CSPs to 300 Mbps, twice that of are not only focusing in making their networks more the previous level. It improved agile and cost effective through implementation of data ARPU to USD8.1 (USD7.8 technologies like SDN and NFV but also creating previously) new business verticals by developing customised solutions around IOT, analytics, M2M. As some of these technologies are still fledgling, CSPs Source: India Mobile Broadband Index 2018, Nokia, Accessed Date: 28 September 2018 prefer to partner with tech/platform providers to develop some of these solutions for their enterprise customers. This convergence is a start of a new era, a beginning where the role of the CSP is expected to be much larger where their strategy should evolve 03. 5G a distant dream for India when backhaul takes a back-seat: Experts, The Economic Times, 11 Aug beyond connectivity. MSPs will play a critical role 2017 in equipping them with technology and expertise 04. Why India must get fibreised to leapfrog to 5G, The Financial Express, 17 February 2018 05. “Finolex Cables Rating ‘Buy’: Edelweiss says reasonable growth lies ahead, The Financial Express, 16 to make this network transition seamless in this April 2018” journey. 06. “Airtel announces massive expansion plans for its future-ready network in Rajasthan, Airtel, 28 August 2018” Sanjay Malik 07. “Reliance Jio to invest Rs 50,000 crore to build JioGigaFiber network: report, Business Today, 31 July 2018” Head of India market at Nokia 08. “Post-Jio onslaught, industry survivors pin revival hopes on soaring data usage and consolidation, Crisil Research, 18 September 2018” 09. India Mobile Broadband Index 2018, Nokia, Accessed Date: 28 September 2018

Cloud Cloud has been at the forefront of major disruptions in order to keep pace with the ever-growing demand in the ICT industry over the past few years. The of higher bandwidth. The telecom operators are growth in data traffic from videos to an increased increasingly accelerating investments in cloud adoption of bandwidth consuming apps is forcing technologies and expertise to be more agile, cost- service providers to spend significantly on equipment optimised and increase customer satisfaction.

Telco cloud

Telco as cloud user

Virtualised network Agility and flexibility

Software defined networking Optimised connectivity

Network functions More innovation

OSS/BSS migration to cloud Customised products and services

Telco as Cloud Service Porviders (CSP)

New business models Build and sell own IaaS

Product innovation New revenue streams

Alliances and partnerships/Ecosystem Cloud brokering services

Fog computing One of the emerging solutions is ‘Fog computing’, which has the potential to extend cloud computing to power both cloud and mobile applications through virtualised resources. Less data is transported to the cloud for data processing, analysis and storage, raising efficiency and security characteristics. Fog is predominantly relevant to IoT, as substantial bandwidth is required to transmit significant data volumes generated by all the connected devices and sensors for processing and analysis.

Additionally, numerous innovations adopted by global operators to expand network capacity and strengthen signalling, are gradually making inroads in India.

New technologies to upgrade/modify 4G and facilitate 5G roll-out

Quadrature Amplitude LoRa Narrow Band IoT Network Slicing Modulation (Long Range) Key Feature - Higher Key Feature - Key Feature - Multiple Key Feature - Long transmission of data Connects IoT-based networks over range and low power per waveform devices and M2M common infrastructure consumption wireless Benefit - Improves communication Benefit -Higher speed technology network capacity Benefit - Throughput and wide coverage Benefit - Higher range optimisation (up to compared to existing 200Kbps) cellular networks

Heterogeneous LTE-A Pro Beam Forming Massive MIMO Networks (Hetnets) Key Feature - Key Feature - Radio Key Feature - Key Feature - Include Interconnection of interface; beam is Antenna technology both large and small multiple carriers (up to directed from cell base for wireless cell sites five) station to user device communication Benefit – Support Benefit - Releases Benefit - Helps in Benefit - Eliminates different radio spectrum capacity and strengthening signal network interference technologies such as allows high bandwidth capacity and signal fading Wi-Fi and wireless (100 MHz) issues

Key Feature - Central cloud-based units to link core network with user and enable mobile Cloud RAN edge computing Benefit - Low latency, faster speed and network flexibility

Source: KPMG India’s Research

SDN and NFV to optimise network architecture

Growing data consumption and bandwidth The use of AI, ML, and deep learning will facilitate requirement necessitate dynamic network automation and integration of SDN and NFV architecture to handle traffic and storage. Software- technologies into the network. These technologies defined networking (SDN) and network function help operators automate manual activities and virtualisation (NFV), which use virtualisation, are two eliminate delays and errors, thus ensuring faster major network design-related technologies touted as services and cost benefits. Precision algorithm for transformational. They allow operators to: intelligent network optimisation, effective operations, and precautionary maintenance is also essential.

• Upgrade and configure network quickly at a low • One of the telecom operators in India partnered cost due to standardised servers for software with a Korea-based telecom operator to install AI- and control functions enabled networks along with machine learning • Launch new services and applications quickly and big data analytics. This helped to improve as standardisation eliminates recurring network customer experience by detecting network reconfigurations. issues, troubleshooting, and optimising network usage.

While India is taking multiple initiatives, it has a long way to go in terms of expansion, modernisation and improving the efficiency of networks before 5G is rolled out by 2020

India’s technology benchmarking versus global peers

5G 4.5G – 4.5G Pro 4G Fiberisation SDN-NFV

5G test bed LTE-A: February • Leading Indian operator set-up with IIT 2016 (2 band CA) partnered with AT&T Chennai in 2018 and Linux foundation for technology innovation India • Leading Indian operator and SK Telecom partnered for developing SDN/NFV

• Limited policy support

Commercial • LTE-A: March • AT&T to virtualise 75 launch of 5G in 2014 (2 band per cent of network by U.S. October 2018 CA) 2020 • LTE-A Pro: • Centurylink virtualised Testing phase 60 per cent of PoPs as of 2017

Trials completed • LTE-A: March NTT DOCOMO to in May 2018 2016 (2 band virtualise 75 percent of Commercial CA) network by 2020 Japan launch in 2020 • LTE-A Pro: Testing phase

Test trials by • LTE-A: British Telecom uses wide operators in November 2013 area networking (SD-WAN) October 2018 (2 band CA) and NFV to launch Network U.K. • LTE-A Pro: Automation Platform and a Testing phase new service

• Soft launch in • LTE-A: Korea Telecom 2018 Olympics November 2013 implemented all layer South • Network roll- (2 band CA) transformation for SDN/ Korea out in 2019 • LTE-A Pro: NFV in 2017 September 2017

Test trials by LTE-A: September China Mobile deploys operators in end 2015 (3 band CA) SDN/NFV in September China of 2018 2018 for core network separation

Low adoption High adoption

Key challenges in terms of transition 5G and deployment: 5G will allow operators to move beyond connectivity and collaborate across sectors The move towards virtualised networks and cloud has such as manufacturing, finance, transport, retail indeed allowed telecom operators to be more agile and healthcare to deliver new and personalised and flexible; however, there are still challenges faced services. Opportunities related to IoT, M2M and worldwide in a software-dominated environment. AR/VR will create new revenue streams from B2C, • Migrating legacy set-ups: In actual network B2B and business-to-government (B2G) segments. scenarios, operators are likely to migrate from Given a plethora of applications that will be their legacy set-up and establish a thorough driven by 5G, network and service quality will network functionality using software running be of critical importance in the networks of on a cloud-based virtualised infrastructure. They tomorrow. Given the volume of data available at would have to do this across different network their disposal, investments and capability building layers and overhaul their current Operational in the data and analytics space will be crucial for Support System (OSS)/Business Support System operators to service the 5G requirements from (BSS) systems to properly bill for a new range of both an effectiveness and efficiency perspective. services rather than network products Specifically, enhanced use of analytics will • Interoperability: Telcos also face a distinctive be critical to further streamline network and set of challenges while entering a virtualisation business operations while maintaining a high level space, especially when moving towards the path of network availability and minimising network of VNF. The integration of legacy platforms would downtime (which could be catastrophic for the be a significant challenge and in addition to that mission critical applications). the skill set refresh of the existing workforce The first commercial use of 5G is expected to be could pose another risk for enhanced mobile broadband (eMBB) and Fixed • Data security: Telecom operators, on their Wireless Access (FWA) services which will meet journey from being a network company to a the performance requirements of high-demand cloud company, are likely to face a plethora of applications such as AR/VR and ultra-high-definition challenges in securing the cloud. Cyber risks are (UHD) video. Beyond eMBB, networks will be able high and growing at a substantial rate, which to handle different demands on mobility, latency, further poses a challenge reliability and device density from industries such as automotive, manufacturing, energy and utilities, • IoT as risk: Cloud computing is a prerequisite and healthcare. for IoT, which requires bandwidth to connect thousands of devices, where sensors try communicating with each other, and if not managed efficiently, the system could crash. As Rapid advancements in the use of machines the IoT market has a direct connection with the to augment human intelligence are creating a cloud, the telcos need a secured framework to new reality in which we increasingly interact determine the security of personal data from any with robots and intelligent agents in our daily data breaches and cyberattacks. lives, both privately and professionally . The list of examples is long, but a few of the most common applications today are found in education, health care and gaming. As we look into the future the network will be an intelligent platform that enables this new reality by supporting the digitalisation of industries and society. This network platform consists of three main areas: 5G access, automation through agility and a distributed cloud. This network platform would perhaps deliver truly intuitive interaction between humans and machines. We are fully committed to support the government’s vision of bringing 5G to India to aid the realisation of ‘Digital India’ initiatives. Nitin Bansal, Chairman and Director, Ericsson India Pvt. Limited

5G opportunities for telcos

IoT sensors and networks

Connected utilities

Smart cities 1 2 3 5G Framework and IoT Platform Industrial automation Autonomous robots

to Facilitate Public asset management and maintenance Enterprise 2020 Predicted Estimated to Solutions Intelligent automation Expected to account USD13 billion Traction Remote delivery launch for 20% addressable of all data revenue Cloud infrastructure traffic by opportunity by Intelligent predictive warehousing 2023 2026 demand and supply control

Agriculture (USD400 million) Healthcare (USD1.6 billion)

Public Safety (USD1.6 billion) Manufacturing (USD2.4 billion)

Retail (USD1.15 billion) Energy and Utilities (USD2.1 billion)

USD 1 trillion cumulative economic impact of 5G in India by 2035

Sources: --. 5G network to account for 20% of all data traffic in 2023: Ericsson, Hindustan Times, 15 June 2018 -- 5G to offer $27 bn biz opportunity for India by 2026: ERICSSON, The Economic Times, 22 May 2018

While operators can offer a number of data- However, huge spending on the existing network intensive applications through modification and and fiberisation may restrict immediate large upgrade of networks, roll-out of 5G will be critical investments on 5G by Indian operators. So while for services requiring >1 Gbps downlink speed10 there is consensus of thoughts on the benefits and and 1ms latency11. AR, VR, and cloud-based potential of 5G, its implementation and economic applications will be the key 5G-enabled applications viability still remains a challenge. The existing requiring new technology rollouts and network financial stress on the telecom sector leaves little architecture. room for telcos to invest in 5G. Emergence of new revenue streams from B2B and B2G, coupled with growing data monetisation Modification and upgrade of networks, rollout in B2C segments, is likely to aid revenue growth. of 5G, including AR, VR and cloud based 5G-enabled industry revenue has the potential of applications, will be critical for services requiring adding USD27 billion business opportunity for India >1 Gbps downlink speed and 1ms latency. by 2026, out of this USD13 billion is addressable revenue opportunity for telcos should they be willing to expand their play beyond connectivity.

10. 5G to offer $27 bn biz opportunity for India by 2026: ERICSSON, The Economic Times, 22 May 2018 11. ITU Regional Seminar 5G Implementation in Europe and CIS, July 2018

Bandwidth throughput and latency requirement for 5G-enabled applications

Autonomous driving Augmented reality Tactile Internet

1ms Virtual reality

Fixed Real-time gaming

Disaster alert Multi-person Video call On the go 10ms Nomadic

M2M connectivity <1 Mbps 1 Mbps 10 Mbps 100 Mbps >1 Gbps Bi-directional Automotive ecall remote controlling First responder connectivity 100ms

Device remote controlling

Wireless cloud-based office Monitoring sensor networks 1,000ms

Personal cloud Video streaming

Services inside the blue box to be delivered by legacy networks Services outside the blue box to be delivered by 5G networks

Source:© 2018 Understanding KPMG, 5G:an IndianPerspectives Registered on future Partnership technological andadvancements a member in mobile,firm of GSMA the KPMG Intelligence, network Accessed of independent on 7 September member 2018 firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1

Document Classification: KPMGIndia Confidential is lagging on quality parameters such as It has been predicted that there will be 40 billion throughput, latency and 4G coverage. To provide personal smart devices and 100 billion internet next-generation offerings, telcos in India will require connections around the world by 2025. This will sufficient network capacity to offer high-speed data virtually eliminate information silos and mean faster, access and ensure minimum latency. more secure and more intelligent data exchanges. Annual storage of data generated from this will reach up to 180 billion TB, a 20-fold increase compared with today. India will also play a significant role in this as it prepares for 5G roll-out. Research has shown that With their role expanding many organisations are already working to seize the beyond just connectivity, telcos first-mover advantage in the deployment of intelligent will have to invest in next innovation platforms, aiming to lead in the intelligent generation networks required world. Enterprises that succeed in integrating sensing, to strengthen traffic handling connection and intelligence into their businesses will capacity, therefore, ensuring be the biggest winners in the intelligent world. high standards in service quality Mr Jay Chen, and data storage. CEO, Huawei India

Rising demand and cost pressures driving technology adoption

Operators will face the need to reinvent business models on both the consumer and enterprise sides to meet the rising demand spurred by improved networks. Meeting customer expectations in terms of latency, quality and scalability will be paramount in successful deployment of services.

Drivers Cost pressure

Rise in volume of data being Network opex growing to 31 per carried by cellular networks- AR/VR, cent in FY20 (22 per cent in FY15) HD video

2020 - 2.7 billion units of IoT EBITDA margins declining 28 per devices USD15 billion market size cent in FY20 (33 per cent in FY15)

Critical, real-time and bandwidth intensive application requiring high Total Debt- Approximately performance networks. USD119.44 billion in FY18

Technological solutions to support revenue growth and contain cost

Continued roll-out network transformation to support revenue and 4.5G, 5G, network- reduce cost SDN/ NFV – An enabler slicing, to increase for virtualisation, spectrum capacity, flexible architectures to bandwidths and optimise network opex denser radio cost architectures

Sources: -- CRISIL Research, 8 October 2018 -- India will soon be a leader in IoT, Business Insider, 15 May 2018

Demand for enhanced customer experience

Since the introduction of 3G, consumers have demanded higher internet speeds and improved connectivity. The proliferation of smartphones and roll-out of 4G has propelled the demand for data and placed on-the-go content in the hands of the consumers. 4G has spurred higher data usage through gaming, video conferences, consumption of videos, web browsing and social media, with the availability of high quality video formats and increased bandwidth. This has led to a seismic shift in consumer demand and expectations and telecom operators are rapidly evolving and upgrading their networks to stay ahead in the game. They are investing in enhancing their customer offerings through acquisitions and partnerships and creating a digital backend, which can enhance customer experience. However, the existing high customer churn rate indicates that telcos need to do the following to increase customer loyalty:

• Differentiate beyond networks: They need to deploy disruptive technologies that can help provide a better customer experience. These include mobile apps, Software as a Service (SaaS), AI, IoT intervention, wearables and AR/VR

• Use advanced analytics to understand customer preferences based on digital behaviour

• Transform the organisation culture and inculcate a customer-centric approach across all functions.

Omnichannel user experience With evolving networks and proliferation of 4G/ 5G devices, consumer needs are evolving beyond Consumers have an increasing preference for connectivity and demand has shifted to data and on-the-go applications. This requires strengthening on-the-go content in the hands of consumers. of technologies allowing ubiquitous access for Operators are increasingly focusing on investing enhanced user experience. The emergence of in enhanced service delivery capability through acquisitions and partnerships and creating a digital technologies has led to the popularity digital backend, which can enhance customer of smartphones, social media, smart TV and experience. wearable gadgets, making the digital platform a key part of the customer’s journey in a service or product cycle.

Intelligent interactive platforms integral for enhanced customer journey

Research Select Purchase Pickup Use Feedback

E-commerce Compares similar products Removal of Calls for silos Contact add-on centre Picks services order Unified view Store Visits retail store

Adds to cart Tracking and places Pays customer Mobile Web search order bill journey for store location Predictive Email Pickup Welcome information email analytics Bill Social information Omni- media Reads reviews on Facebook, Twitter channel digital Tweets platform Company usage Browses company website website experience

Telcos need to offer an omnichannel user towards omnichannel customer experience experience because of the emergence of varied through unified billing touch points and user expectations on quality. • Telcos globally are bundling services such as This requires customisation of services through chatting, video sharing, mobile payments and development of intelligent interaction platforms. taxi services under these platforms. Omnichannel digital platforms enable telcos to offer customised solutions by monitoring the customer’s journey from acquisition to churn and creating actionable insights. Moreover, they can provide a single platform for consumer grievance redressal and for offering a suite of digital services such as music, games, online payments and education. This may help telcos monetise data, reduce churn and limit competition from OTT providers. Some examples of omnichannel adoptions are:

• One of the Indian telecom operators recently launched a quad-play platform in a move

Customer centric ecosystem

Dimensions of my life and my wallet Commu- nication

Work

Transport

Mind My motivation

Personal media

Slice of the wallet

My wallet My attention

Customers Body

Home

My connection My watch

Shopping News and entertainment

Finances

Source: Innovation Lab at KPMG Ignition, KPMG in the U.S.

Ownership of data which includes: consumer buying allows telcos to strategise store locations, and viewing behaviour, location-based services and layout and billboard placement real-time data from customer interaction can help • Telcos can study consumer behaviour data and telcos leverage big data analytics. collaborate with marketers and other clients to • Telcos can utilise this data for contextual develop customised products across industries. marketing and for upselling and cross-selling Telcos globally are creating consumer-insight products in partnership with IT companies. • Information gained from location-based services

Enterprise offerings to drive the next wave of demand

While consumer demand has led to rapid uptake of provider but also transform themselves into a 4G and operators are investing heavily in building service provider to provide solutions to specific 4G networks, the next wave of innovation in the industry verticals, adopting ‘networks as a service’ telecom sector will be pivoted around enterprise model. solutions led by 5G. 5G will engage a new Industry experts estimate India’s IoT market size generation of consumers and enterprises lured to touch USD15 billion by 202001. To participate in by innovative services and seamless connectivity. this journey, telcos need to create new network 5G, in its initial phase is likely to be targeted at platforms, business models and capabilities to consumers to deliver enhanced mobile broadband harness the new technology. experience and its next phase, may provide an opportunity for operators to go beyond connectivity If incumbent telcos are not prompt then non carrier and partner with service providers across finance, service providers and system integrators can transport, retail, health and other industry segments continue to fill the void. to deliver demand stemming from their agenda of Network as a service is likely to force telcos to becoming digitally agile. collaborate with hardware providers, data storage This not only opens up opportunities for telcos to providers and system integrators to provide a participate in B2C technology proliferation but also holistic IoT solution to businesses. The potential to innovate in B2B offerings. The consumerisation opportunities for collaboration seem unlimited. But of technology will mean that the future telecom to capture value, telcos need to be at the forefront business models are likely to be driven by users to understand the enterprise solution requirement – whether in a consumer or enterprise context. and bring together an ecosystem of innovators to To participate in this opportunity, telcos need to provide a well-rounded approach. transition their role into not just a connectivity

The time has come for the world to sit up and take notice of India and its capabilities. India today is doing things in the technological space which the rest of the world can learn from and emulate. Leading organisations are choosing India to be one of their centres of excellence to develop technologies which can be exported the world over. We as an organisation remain extremely committed to the Indian market and consider it an honour to act as a catalyst in the Indian growth story. Sanjay Kaul Cisco India Head

01. INDIAN IOT MARKET SET TO GROW UPTO USD 15 BILLION BY 2020, Nasscom, 05 October 2016

Redesigning the wheel With rising internet users, businesses need to reinvent the way they interact with increasingly tech-savvy customers. Changing consumer expectations, connectivity, network capabilities, cheaper data and devices are altering the dynamics of most of the industries. These factors, along with policy reforms, evolving and converging business models, infrastructure investments and increasing mobility are pushing the industry towards a digital ecosystem.

Demand drivers for innovation

TECHNOLOGY/ Government Consolidation INNOVATION initiatives IoT AR/VR Blockchain AI

Internet penetration Data Robotics and New entrants analytics CONNECTIVITY automation 3D Wi-Fi hotspots printing Cloud Omni-channel 4G-5G digital platform networks Competition Investments Broadband Fiberisation

CONSUMER Cheaper DEMAND Converged services smartphones

Exponential growth driven by technology and innovation

Businesses are creating digital platforms to replace or augment their high-cost physical infrastructure for delivering services, increasing customer outreach, tracking and improving performance and creating new business opportunities. Telecom has been instrumental in developing a digital society. However, it is the enterprise transformation that will be pivotal to India’s overall growth and a game changer for the telecom industry. Telcos are a building block of the digital evolution, but their role has been limited to providing connectivity. The returns of digital growth have not accrued to the telecom sector. With legacy revenues being under pressure, telcos should focus on creating new business models to provide solutions beyond connectivity. Integrated IoT, cloud, AI and data analytics offerings can accelerate digital businesses across various industries, including industrial markets, media and entertainment (M&E), banking, healthcare, e-commerce and transportation. As per the KPMG Innovations Lab’s findings during an online survey conducted in November- December 2017, about fifty per cent of tech industry leaders expect media, transportation, healthcare, and consumer markets to have the greatest transformation in the next three years. In recognition of new business models and disruption successes such as Netflix and Amazon Prime, the U.S. sample pegs media to be heading toward the greatest transformation (18 per cent) , a finding reinforced by the U.K. at the same percentage. China, at the forefront of AI-empowered news and messaging sites, rates media relatively high as well. China’s embrace of mobility as a service, including ride sharing, can be seen in the strong (18 percent) rating in the transportation vertical.

5G, in its initial phase is likely to be targeted at consumers to deliver enhanced mobile broadband experience and its next phase, may provide an opportunity for operators to go beyond connectivity and partner with service providers across industry segments to deliver demand stemming from their agenda of becoming digitally agile.

Top industries that are predicted to have the highest disruption/transformation in the next three years

Global U.S. China India Japan U.K.

Automotive/ transportation 13% 13% 18% 14% 13% 16%

Consumer markets/retail 11% 13% 14% 9% 7% 8%

Education 8% 13% 8% 5% 13% 5%

Energy/Utilities 8% 5% 6% 14% 0% 10%

Healthcare 12% 11% 11% 6% 17% 11%

Industrial manufacturing 10% 10% 4% 8% 13% 15%

Media 14% 18% 11% 6% 13% 18%

Telecommunications 10% 7% 16% 12% 23% 5%

The above figures were collected during an online survery and captured the opinion of over 750 global tech industry leaders across geographies

With legacy revenues being under pressure, telcos need to focus on creating new business models to provide solutions beyond connectivity. Integrated IoT, cloud, AI and data analytics offerings can accelerate digital businesses across various industries, including industrial markets, media and entertainment (M&E), banking, healthcare, e-commerce and transportation.

Media and Entertainment: Witnessing converging business models

Media companies around the world continue to face There is a strong sense of urgency to evolve and a period of profound transformation, brought about by transform. the prevalence of disruptive technologies. The growth The TV and film ecosystem is expected to evolve and scale of over-the-top (OTT) content providers are and adopt a platform business model, which may giving consumers more flexibility and choice than dramatically change the way viewers select, purchase ever before for their content viewing options. and watch TV programmes. Companies looking to OTT content delivery is likely to bring about a participate in the new TV ecosystem are attempting redistribution of TV industry profits, and it may to navigate an uncharted territory and may need to just be the beginning. Industry players have spent grapple with significant change. decades perfecting a highly profitable model that is The Indian M&E industry is expected to grow at a now being significantly disrupted, and the onslaught compounded annual growth rate (CAGR) of 13.1 per of disruptions is happening at an increased speed. cent to USD36.89 billion by FY2301.

M&E sub-sector growth (CAGR over FY14-FY18)

Digital Animation TV Print Films advertising Gaming and VFX

10.7% 6.5% 5.9% 37.5% 21.2% 15.9%

OOH Radio Music

12.6% 10.8% 14.1%

Source: KPMG India research and analysis, Media ecosystems; The walls fall down, KPMG, September 2018

Digital access and consumption have grown rapidly marking the beginning of a major structural over the last 24 months following the roll-out of shift. The ubiquitous usage of data is leading to a 4G, supplemented by falling data costs and soaring seismic shift in media consumption. Telecom and smartphone penetration. Digital usage has become technology companies have an opportunity to serve more democratised and deeper, benefiting multiple the burgeoning digital subscriber base through the sectors. Digital advertising and mobile gaming content part of the value chain. Traditional media grew in excess of 30 per cent in FY1801. Moreover, companies have started to build direct-to-consumer growing demand for digital content boosted the platforms, resulting in the convergence of business films, music, animation and VFX segments. On the models in the TMT sector. flip side, traditional print players, particularly in the Online video viewers and time spent on digital media English language segment, are feeling the heat with have grown in recent years. The number of such the growing digital consumption as both readers and viewers in India is estimated to be about 225 million advertisers are migrating towards digital. in FY18 and 550 million by FY2301. Consumers are The convergence of TMT has blurred the lines spending more time accessing media on mobile between various players across the value chain, phone than on television.

01. KPMG India research and analysis, Media ecosystems; The walls fall down, KPMG, September 2018

Average daily time spent on media

7H 25M 2H 26M 3H 01M 1H 24M

Average daily Average daily time Average daily Average daily time time spent using spent using social TV viewing spent listening to the internet via media via any device time (broadcast, streaming music any device streaming and video on demand)

Source: Digital in 2018, Hootsuite, Accessed on 28 September 2018

Increasing digital distribution is making media players focus on content aggregation and sceptical of the distribution channel. Broadcasters have their own OTT platforms, but partnerships with telcos have gained traction in the ‘digital live TV’ segment. Telcos not only offer a wider reach with negligible customer acquisition cost but also provide steady subscription revenue. The promise of 5G wireless technology holds the possibility of a sweeping transformation of the TV and film industry into a platform business model. 5G is expected to offer a bigger pipe, a faster stream and lower latency. The potential of bundling is likely to allow a single window of access to various IoT solutions, along with content, putting telcos in a distinct position as against the traditional in-home providers. However, telcos need to successfully integrate with the ecosystem to create distinct bundling solutions. Telcos are already vertically integrating content creation into their core business, reflecting the emergence of this trend.

Technology enablers

Rapid technology evolution, driven by connectivity IoT solutions, has a significant and disruptive impact IoT can help companies fetch and serve content on media creation, distribution and consumption. that would appeal to specific individuals, thereby Technical innovations such as digital delivery and improving the client conversion ratio, and boosting ad consumption, AI, IoT, 5G, robotics and automation, spend and subscription income. AR/VR, 3D printing and blockchain are at various stages of maturity. They can significantly impact businesses and consumers, including the M&E sector. Telcos need to decide the extent to which they want to be a part of this disruption. They can The BBC is experimenting with either limit their role to a connectivity provider or be wearables for news using speed- the disruptor by being the platform on which these reading technology from Sprit. innovations happen.

Iot impact areas for M&E

Product monitoring

Supply chain and customer IoT budget monitoring focus Personalised Premises monitoring content

Gaming GPS, RFID working with near-field communication, IoT sensors cellular data, infrared signals, Wi-Fi, or Bluetooth Music – e.g. free music downloads M&E Potential industry uses Leveraging location, behaviour, Animation Monetise consumer preference and data insights demographic data from multiple channels/devices Targeted advertising

Live events – Bundled with VR and e.g. IoT stadiums Bundling AI to create enhanced ecosystems

Source: KPMG India research and analysis, Media ecosystems; The walls fall down, KPMG, September 2018

AI The media industry is among the largest users of unstructured data such as video, audio, scripts, social media posts, and hence, is poised to gain from the influx of AI technologies.

AI Technology M&E Category Key Usage Recent Development

By feeding, browsing and scrolling data to several TV Personalisation complex ML algorithms, these recommendation engines automatically align the content with the taste and ML preference of the user Animation and Character ML-powered facial animation packages allow users to record VFX design facial data via webcam for creating complex animation characters in a short time

Natural language Content By leveraging AI-powered voice assistants, several radio processing Radio classification companies are launching ‘voice on demand’ in order to and archiving widen their reach Films Prediction Production houses are harnessing the power of predictive analytics for facilitating release date selection in order to enhance box office success rate for the movie Predictive analytics Digital Lead Advertising agencies are now using analytical engines generation powered by ML and big data in order to develop customer and customer profiles for lead generation and customer retention with retention data generated by multiple channels and platforms

Video and scene recognition solutions such as AWS Rekognition and IBM Watson Cognitive Highlights enable automatic content creation and analysis of emotion. Hotstar, an Indian online streaming platform, uses AI platform for performing its global streaming.

Blockchain Blockchain has the potential to transform several markets within M&E, particularly those where participants could benefit from security and transparency, such as distribution of payments, funding, monetisation, and contract enforcement.

Transparency is the key value add for M&E industry

Provide transparency to elements of the media Piracy and entertainment supply chain to curb piracy

Enable tracking of usage and monetisation Tracking of digital content

Blockchain-based payment and contract options Payment can impact pricing, advertising, revenue sharing and royalty payments

Enable content creators to directly distribute Content Aggregation their work to consumers, bypassing traditional distribution channels

Microsoft launched a blockchain solution for managing content rights and royalties for media and entertainment industry. The solution will first be deployed in their gaming partner ‘Ubisoft’ and then to their other gaming partners in phased manner. A video streaming software technology, Linius, has been using blockchain protected content distribution to fight the war on TV and film piracy.

AR and VR In India, AR and VR are still in a nascent stage with limited adoption across sectors. However, in the past few years, businesses have gained better understanding of the benefits of AR and VR. In 2018, the AR/VR market in India, driven by the M&E sector, is estimated at USD52.7 million, and is expected to grow 35 per cent between 2018 and 2023 to reach USD234.4 million01.

Mobile manufacturer OnePlus streams its launch events in VR; it started with the OnePlus 2 launch in 2015, for which the company even created its own version of a cardboard headset.

AR and VR, though currently with limited adoption, has huge potential

Marketing and advertising are expected to become Currently, some basic increasingly immersive 360-degree VR content is through AR and VR, being streamed through potentially generating a video consumption and higher level of engagement Advertising Videos social media platforms with viewers

Print Films

Print stories and With the potential to advertisements are transform movie theatre being augmented Live events experience, VR theatres through AR mobile have also started surfacing applications

Attempts are being made in India to capture live sports, concerts, product launches, etc. in VR, and showcase the novelty of these technologies at meetings/conferences

Source: KPMG India research and analysis, Media ecosystems; The walls fall down, KPMG, September 2018

01. KPMG India research and analysis, Media ecosystems; The walls fall down, KPMG, September 2018

Agriculture: At the cusp of digital disruption

Digital solutions to improve productivity, revitalise Technological innovations to support activities, depleting natural resources, ensure better farm from production to distribution of agricultural management and improve farmers’ connect across output, should help resolve challenges faced by key the value-chain are expected to transform agriculture stakeholders in the agricultural value chain including in India. farmers, agri-input providers, traders, government, processing companies and end-users.

Agri-tech start-up models emerging in India

Farming as a service

Up-stream (Input) Engineering led Marketplace model innovation (Matching agri-input 01 03 05 sellers to farmer

Down-stream (Output) “Farm to Fork” supply chain model (Matching farmers to businesses or retail customers for fresh produce, 02 04 processed food) IoT/Big-data led innovation

Source: KPMG in India’s analysis in 2018

The agri-tech sector offers solutions to several operational challenges. Government’s encouragement has led to establishment of over 250 start-ups across the value-chain02. Additionally, the government is funding and providing incubation support to start-ups offering innovative technologies.

02. Promoting start-ups in Agriculture, Ministry of Agriculture and Farmer’s Welfare, Government of India

Multiple technological solutions across the value chain to improve efficiency Technical innovations such as IoT, big data analytics, drones and imaging techniques, and blockchain are likely to help improve farm productivity, reduce post-harvest loss, and assure effective utilisation of storage and transportation infrastructure.

Digital interventions across the agri-value chain

Traders/ Consumer/ Production Storage Government Processing Middleman Retailer

• Lot of critical • Smart • Adoption of e- • Predictive • Data and • Smart data at various warehousing marketplaces analytics to analytics packaging sources which solutions for connecting assess crop to assure solutions could be continuous farmers to production, quality of and real-time automatically monitoring processing demand- products assessment collected at of critical companies supply to meeting of quality low costs parameters eliminating ensure food domestic for safe and middle-men security and and healthy food • Data and • Real-time, inflation international insights-driven sensor based standards farming for tracking of increased the produce productivity from farms and better to storage resource minimising utilisation transportation risks

Source: KPMG in India’s analysis in 2018

IoT and big data IoT and big data analytics facilitate smart farming techniques to ensure improved crop yield through automation and daily monitoring of routine farm activities. Data collated through sensors and analytics allow early detection of causes for crop failure and timely corrective actions to avoid crop loss.

Fujitsu, a Japanese ICT provider leverages IoT to drive efficiency and improvement in agriculture production. Its cloud service offer data-driven agriculture management for farms. Telecom operators in Colombia offered solutions to farmers for protecting banana plantain crops. Wireless sensor networks were deployed to monitor parameters including soil moisture, soil temperature, fruit diameter for ensuring soil fertility.

Predictive insights through IoT sensors, drones and imaging techniques

Precision farming to ensure accurate IoT usage of input at right time for improved sensors productivity Soil fertility mapping through satellite imaging Smart irrigation based on crop, soil and weather condition Tracking crop growth, infestation, and high-resolution vegetation monitoring Weather risk management to limit climate impact on plantation

Crop modelling and demand-supply Thermal imaging to assess crop yield management to ensure food security and Big data analytics control inflation Geo-tagging for crop farm-land area Warehousing and transport management estimation to avoid wastage and losses and ensure storage optimisation Drones GPS tracking of fuel, routes, idle times and to control logistics cost imaging

Aerial drones to track inventory and spoilage

Source: KPMG in India’s analysis in 2018

Engagement platforms Farmers connect with various stakeholders through creation of online platforms, mobile applications, and e-auction portals which can help them address obstacles such as lack of know-how on new technologies, use of proper seeds and nutrients, and availability of financing options and may lead to elimination of middlemen, faster time-to-market and lower wastage.

Embrapa, a state-run agriculture research firm in Brazil partnered with IT firms to develop drone technology for improving crops. It utilised Qualcomm’s image processing algorithms along with TIM’s LTE network to offer real-time data to farmers.

Telefonica and ABB partnered to develop a remote irrigation system for farmers in Spain providing irrigation schedules on mobile phones and computers. These solutions were based on mobile network access and GPRS based remote reading.

Blockchain, AI and ML Blockchain can transform the agriculture supply farming companies and non-profit corporations to chain by facilitating traceability of produce/product provide technology support to farmers, so they could to eliminate out-of-date losses and ensure inventory address the adoption and implementation of these replenishment both in the post-harvest and technologies. processing stage. AI and ML are gaining traction as effective crop modelling and forecasting tools, apart from grading and sorting of crops. Microsoft signed a Memorandum of Limited regulations on contract farming agreements Understanding (MoU) with discourage contract farming and processing Karnataka Government to develop ML and companies which could otherwise drive adoption cloud-based technologies for commodity of technology. Nevertheless, partnerships between price forecasting and crop prediction. the government, processing companies, contract

Education – Technology facilitating fast and last mile access

India has a multi-layered formal education system The government plans to integrate technology into with 260 million students enrolled in more than education through initiatives such as ‘black board to 1.5 million schools and 27.5 million under-graduate digital board’ and Diksha Digital for teacher education. and four million post-graduate students enrolled in Telecom proliferation, whether wired or wireless, can around 800 universities and 39,000 colleges03,04. The play an important role in digital education. education sector in India is estimated at USD91.7 billion in 2018 and is expected to reach USD101.1 billion by 201905. Population of about 500 million in the age bracket of 5 to 24 years05 (the largest in the world) and increasing internet penetration in urban and rural areas, at 82.1 per cent and 19.48 per cent06, respectively, bode well for growth of the online education market. India’s online education industry is expected to grow almost 8 times from USD247 million in 2016 to USD1.96 billion by 2021, with paid users rising six- fold from 1.6 million in 2016 to 9.6 million by 202107.

Key e-education categories: Market size and key characteristics

Market size (in USD million) 2016 CAGR 2021P

Driven by the increased acceptance of Primary and secondary online channel and increased internet supplemental education 73 60% 773 penetration in tier 2 cities and beyond.

Driven by high adoption of online channel Test preparation amongst the students and an increase in 43 64% 515 the number of competitive exam aspirants.

Skill development & enhancement Reskilling and online requirements for the working population certifications 93 38% 463 will lead to growth in the reskilling and online certifications market.

Online higher education will also witness Higher education a considerable growth and continue to aid 33 41% 184 in distance learning programs.

Online language and casual learning will Language and grow driven by growth language learning, casual learning 5 42% 29 but paid adoption is likely to remain limited.

Source: Online Education in India:2021, Study by KPMG and Google, May 2017

03. All India Survey on Higher Education (2015-2016), MHRD, 2016 06. The Indian Telecom Services Performance Indicators April – June, 2018 04. Educational statistics at a glance, MHRD, 2018” 07. Online Education in India Report, A study by KPMG India and Google, May 2017 05. Education and Training, India Brand Equity Foundation, July 2018

In addition, telcos can also play a role of being the platform to connect prospective students and content providers. With a ready access to a customer base, they can successfully play a role of a third party aggregator. These platforms may not be restricted to B2B models but could also explore B2C models. For example, connecting prospective teachers and students. With rock-bottom tariffs, telecom operators offering exclusive content to attract high-data users, and are either building their own education content teams or partnering with education content providers.

Technology enablers Technology-driven learning apps are using gaming elements such as point-scoring and interaction with other players, personalisation, and data-driven insights to help make the learning process continuous, interactive, and effective.

New Technologies deployed in Edtech

Technologies deployed Impact areas

Internet of things Big • Student centred data • Convenient access Artificial intelligence • Continuous learning • Interactive Cloud • Captivating content technology • Global expertise Virtual reality • Cost effective Blockchain

Source: KPMG in India’s analysis in 2018

In April 2018, Reliance Industries Limited acquired majority equity stake in Indiavidual Learning Pvt Ltd (Embibe), a note AI-based education platform through which Reliance aims to connect over 1.9 million schools and 58,000 universities across India with technology08.

08. Reliance to invest $180 million in AI Education platform Embibe over next 3 years, Analytics India Magazine, 16 April 2018

Impact of new technologies on the education sector Technology-driven learning apps are using gaming elements such as point-scoring and interaction with other players, personalisation, and data-driven insights to help make the learning process continuous, interactive, and effective.

Technology Use cases Impact areas Outcomes

Artificial Gamification High user engagement 93% of parents reported intelligence improvement in children’s grades Chatbots Improved interactions 60% of the students performed better than with teachers

AI tutors Auto feedback Can guage students to educators learning style to deliver customised support

Virtual VR content Close to real experiences Laws of friction module reality based learning being experimented by VR

Big data Big data Links all the data between Enabled the findings of platforms resources and outcomes low engagements of government school girls

IoT MOOC Take notes, bookmarks, Instances where students (Massive Open test reminders, record took MOOCs & became Online Course) lessons young programmers

Blockchain Document Significant reduction in Curb the use of fake storage the paperwork certifications

Sources: -- How Are India’s Biggest EdTech Startups Winning Students? By Treating It Like A Game, Forbes, 11 March 2018 -- Will these four technology trends change education in India?, Live Mint, 10 March 2018

Key Indian EdTech players:

• Bengaluru-based edtech startup, Byju is intelligence to measure the effectiveness of a currently leading in the space, which has student. grown to 1.26 million annual paid subscribers • Mumbai-based hybrid tutoring platform Genext 09 since its launch . Students connects parents with the best • Rajasthan-based Bodhi AI, which is leveraging home tutors for their children. data collected from students to help them It enables personalised learning improve in exam scores. for students and provides • Bengaluru-based tutoring startup Vedantu, real-time progress updates to which use data analytics and artificial parents.

09. Byju’s crosses Rs 100 crores monthly revenue, Economic Times, June 21 2018

Financial services - Technology key for financial inclusion and customer service

Financial institutions are transforming dramatically Digital payments – A giant leap towards a in the digital age in terms of their roles and cashless economy responsibilities, service offerings, products and distribution channels. Several government initiatives have led to an increase in digital transactions. Mobile wallets and mobile Strong growth in Fintech, led by the adoption of data banking transactions have grown tremendously to at the core India witnessed and implementation of 326 million and 308 million, respectively, in July 2018 open banking regulations globally. This has opened from 235 million and 118 million, respectively, in the up opportunities for non-financial companies such as previous year10,11. Online shopping has been the main ICT players to foray into financial services. driver of this growth: The RBI has granted payment bank licences to telcos, postal service providers, technology companies and Non-Banking Financial Companies (NBFCs) to meet Google, has launched Google Pay its agenda of financial inclusion. A large subscriber and has tied up with several Indian base provides telcos with an edge in the payments banks to offer “pre approved” loans landscape. to customers This poses a threat to incumbent financial institutions. However, collaboration with new players and converging business models can expedite the adoption of new-age technologies, unlock revenue streams, deliver superior customer experiences, reduce costs and increase customer access.

Consumer preference on usage of e-wallets in India – 2017

E-wallet drivers

7% Ease of use Movie ticket 23% purchase 16% Utility payments

E-wallet 19% Discount 8% Spending Private money 28% transfer Mobile bill payments Ability to pay 19% anywhere 21% 6% Online Food shopping payments 13% Safety

Source: The state of e-wallets and digital payments in India 2018, Regalix Research, January 2018

10. Mobile Wallet transactions had grown by 14.6M in July 2017, Medianama, 19 September 2017 11. Mobile wallet transactions hit record ₹15,202 crore in July: RBI data, Livemint, 7 September 2018”

With a strong digital focus and enabling infrastructure, digital payments are likely to increase in the coming • Reliance Jio has tied up with State Bank of years. With the government targeting 30 billion digital India to provide a payment platform offering transactions in 201912, the mobile payment industry digital banking, commerce, and financial has a lot of growth potential. The digital payment services to customers industry is expected to be worth USD1 trillion by • Airtel Payments Bank Limited will leverage 13 2023 . the distribution network of Bharti Airtel Telecos have also forayed into the banking space. spread across 1.5 million outlets, with Consumer preference for digital mediums may network presence spreading across 87% provide opportunities to telcos to expand their of the country, covering more than 400,000 14 footprint and open up revenue generation channels. villages and 5,000 census towns . • French telecom operator Orange has launched its ‘mobile only’ bank aiming to capture 25 per cent of online banking segment by attracting two million customers in France alone15.

12. Separate targets for institutions: Govt eyes 30 billion digital payments in FY 2018-19, The Economics 14. https://www.airtel.in/bank/about, accessed on 15 October 2018 Times, 25 April 2018 15. Orange is the new bank? Telecoms giant ventures into lending, The Economics Times, 01 November 13. Digital payments in India to reach $1 trillion by 2023: Credit Suisse, The Economics Times, 15 February 2017 2018

Open banking being leveraged by non-traditional players for innovative solutions

Initiatives for open banking can allow new entrants, engagement, and build new digital revenue channels including non-financial and technological players, into through a shared ecosystem by providing access the financial services market. Open banking may help to data of financial institutions through Application players enhance service offerings, improve customer Programming Interfaces (APIs).

Open banking architecture may boost the financial digital landscape in India

Ecosystem that provides a Financial institutions, user with a network of financial fintech firms, software institutions’ data through the Objective Who developers and use of APIs transaction platforms

Banking data access to Transfer information with third parties in real-time What How appropriate consent framework

Third parties Increase Accessibility Increase to build financial Objective transparency for customers innovationv applications

New entrants such as Market moving towards Drivers fintechs and non-financial Regulatory push value-added services players

720 degree customer view through open data

Innovative delivery models such Personalised services based Foundation for Finance 4.0 as Banking-as-a-service (BaaS) on intelligent information

Source: Fintech in India – Powering a digital economy, KPMG, September 2018

RBL bank has tied up with Bajaj Finserv to launch co-branded credit cards using digital and API banking technology.

AI has huge potential to enhance customer experience and reduce costs

AI is being explored across front, mid, and back office segments, with use cases ranging from customer services, targeted sales and marketing, smart automation of manual intensive processes, regulatory compliance, fraud and risk management. Key technical elements of AI such as ML, Natural Language Processing (NLP) and Computer Vision have found their way into a number of applications.

• State Bank of India’s chatbot, InTouch, powered by IBM Watson is used to address customer queries on banking products and services

• Motilal Securities uses Phrazor, an AI tool developed by VPhrase Analytics Solutions to generate personalised, narrative-based, easy- to-understand portfolio statements for their 5,00,000 customers in four languages

• HSBC has partnered with Ayasdi Inc, an AI start-up to combat money laundering and automate its compliance processes.

AI-based applications to have an impact across BFSI verticals

Machine Computer NLP Robotics RPA Learning vision

Front Office Middle Office Back Office

Sales and Distribution Customer Risk Reporting and MIS Compliance Management • Cross sell and Operations • Invoice Management upsell • Chatbots for • Underwriting automation • Image recognition automation • Customer higher productivity, • Intelligent to digitise segmentation query resolution • Portfolio risk document check documents analysis • Report creation • E-KYC customer • Smart • Automate legal onboarding • Claims forecasting reconciliation, disclaimers • Targeted and investigation audit trail, variance distribution • Portfolio • Intelligent text management analysis extraction • Customer behavior analysis • Customer servicing

Product and solutions Fraud management AML • Product pricing • Fraud detection • Reducing false positives and investigation • Personalised offerings • Intelligent customer and transaction • Robo advisory • Anomaly prediction segmentation • Trading pattern analysis

Source: Fintech in India – Powering a digital economy, KPMG, September 2018

Blockchain to enable a transparent and secured ecosystem

Blockchain, which is built on the concept of sharing information across parties and building consensus during transactions, can detect fraud instances early and in real-time. Blockchain can also help BFSIs reduce redundant cost in processes such as back- office reconciliation and clearing and settling of securities transactions.

• MonetaGo, has designed a blockchain solution for RBI sponsored TReDS exchange that records hashed invoice data in order to avoid double financing

• Axis Bank has partnered with Ripple Technologies for cross border remittances

• IBM has launched a blockchain platform exclusively for banking and financial services

Blockchain use cases in financial services industry

Fund Smart remittance contracts

Clearing and settling of Claims securities management transaction

Trade Capital market finance trading

Source: Fintech in India – Powering a digital economy, KPMG, September 2018”

AR/VR to enable real-time access to financial services

AR/VR is a new concept in the BFSI space. Banks real-time location of available properties. Some other have introduced AR mobile apps helping customers use cases are in payments, advanced biometric- locate the nearest ATM or branch or scan properties based security, financial education and trading. for sale. AR apps use geo-tags and maps to provide

AR/VR use cases in the BFSI sector

Virtual Customerservice trading / ATM, branch Payments locations, property evaluation

Financial Biometric education security

While adoption of new technologies can revolutionise the BFSI landscape, mobile technologies and internet penetration can be key catalysts for their successful deployment.

BNP Paribas has partnered with a French start-up to develop a VR ‘experience capsule’ by offering virtual tour of properties to real estate investors

Transportation – Technological advancement in the sector to strengthen the country’s economic backbone

The automotive sector is a major contributor to GDP, with a share of 7.1 per cent which is expected to grow to 12 per cent in 202616. Companies are aggressively exploring new technologies to improve service quality amid rising competition. The government has also chipped in with initiatives and schemes to help the sector flourish and modernise using the latest available technology.

Technology enablers

The convergence of 5G and government incentives bodes well for transformation of the transportation sector in years to come.

New technologies transforming the transportation sector

New age technologies New age transportation

Cloud AI and ML Transportation pods

Shared Bullet mobility trains Big data Blockchain analytics

Application Air Electric taxis by end use vehicles segment IoT Robotics

Drone Connected delivery cars 3D printing Autonomous vehicles

Source: KPMG in India’s analysis in 2018

16. Auto sector may contribute 12 per cent to India’s GDP in next decade: Anant Geete, The Economic Times, 18 May 2017

IoT Big data analytics and advanced machine learning

The convergence of 5G and government incentives Automotive sector is looking to turn volumes of bodes well for transformation of the transportation passive data into actionable business intelligence sector in the years to come. through big data analytics and machine learning. This is likely to improve demand forecasts, and help Indian Railways has introduced sensor-based on- predict trends and improve vehicle performance, board condition monitoring system (OBCMS) for reduce traffic congestion, increase fuel efficiency, timely detection of defects related to passenger and enhance safety. coaches and tracks on a running train. Using IoT, OBCMS aims to strengthen the safety of train operation by constantly updating control rooms with Flexe, a Seattle based start-up, uses big data coach diagnostics and heating, ventilation and air and analytics to offer on-demand warehousing conditioning and water management details. by matching available space in a location with Once deployed, these IoT-based sensors can monitor requests for expedited warehouse facilities. the health of road, air strips and railway tracks Nimber, a start-up from Norway, tagged on a real-time basis and enhance safety. This will as “Airbnb of sending parcels”, matches also reduce operation costs, optimise resources commuters and travellers with during peak traffic congestion and reduce sudden consumers looking to ship something catastrophic failures of key assets. across the city, to create a crowd sourced delivery model. In India, Ridlr, a transport commuting and ticketing app and Ola are leveraging mobile and Cloud IoT platforms to offer end-to-end mass transit solutions, making the commute seamless Cloud technologies can provide flexibility and across public transportation modes. scalability to standardised processes across the Japan’s telecom major NTT, worked with bus transportation value chain, enabling new business operators to create safe driving conditions models such as virtual freight forwarding, which for buses and drivers. It combined sensor gives customers direct control over consignments. enabled vests and IoT to gain information about Carrier technologies may witness major a driver’s vital health parameters advancement such as ‘uberisation of trucks’, making like heart rate and nervous system the logistics industry more agile, transparent, and responses, apart from vehicle and efficient, while ensuring real-time monitoring of fleet weather condition. capacity availability.

JA Frate, a U.S. based shipping and fleet maintenance company, implemented a cloud based freight management system, FACTS, provided by Carrier Logistics Inc, and a cloud- based warehouse management system to support its growth plans, and to reduce operations and maintenance cost of on-site IT infrastructure.

Blockchain

Blockchain technology in transportation may ensure the accuracy of performance, maintenance, and service history records of vehicles. Another prospective use of blockchain is capacity monitoring and smart contracts allowing self-executing payments.

Skuchain, a Silicon Valley blockchain start-up, has created a transportation supply chain application using blockchain for smooth and transparent communication, removing distributors and intermediaries, thereby considerably reducing the cost.

Robotics

Advanced robotics, with greater mobility enabled by gyroscopes and mapping technologies, may soon be able to recognise specific shipments by size and description and move them to appropriate locations for picking and packing. Robotics may benefit immensely from the wireless controls of highly sophisticated mobile machines becoming feasible and capable to access massive computing power and storage available in the cloud. Robotics can reduce labour cost and delivery time substantially thereby increasing productivity.

UPS, DHL, and FedEx are experimenting with robotic loading and unloading of irregular parcels in their facilities. Sweden’s Scania, a manufacturer of commercial vehicles, is collaborating with Toyota on robotic truck “platoons” that will be used to move freight at Singapore Port. While, Volvo is developing self-driving trucks with capabilities to operate in underground narrow mine tunnels at depths of upto 1,320 meters.

Impact of these technologies on the transportation sector

Products (part of value Impact areas Use cases chain impacted)

• Reduce operational costs, increase Autonomous vehicles productivity • Tesla’s truck with autopilot (automobiles, private • Increase pedestrian and passenger safety features facilitate driving and public mobility • Enable information sharing by vehicles

• Amazon using drone in Drone delivery • Improve last-mile delivery England for delivery under (delivery) • Facilitate faster delivery 30 minutes

• Solve public transportation issues across the Transportation pods globe, improve safety • Heathrow airport in (logistics, delivery, London launched pods for public mobility) • Navigate through traffic congestion using intra-airport travel smart sensors, without stopping

Connected cars • Reduce congestion and vehicle fatalities • INRIX delivers traffic data (smart city, to passenger vehicles automobiles, private • Enable automakers to develop new tools for to help with shorter and and public mobility) predictive and preventative maintenance safer commutes

• Indian government Electric vehicles • Reduce carbon emissions and operational recently ordered 10,000 (smart city, costs of transportation electric cars from M&M automobiles, private • Become integral part of new-age urban and Tata Motors, to be and public mobility) transportation system used by various agencies

• Uber signed a deal with Air taxis • Reduce traffic congestion during peak hours NASA to develop on- (public mobility) • Facilitate faster movements within city demand, 200mph electric aircraft

• Increase asset availability and energy • Hitachi is currently Bullet trains efficiency and improve asset utilisation working with Virgin Rail (smart cities, logistics, to deploy high-speed public mobility) • Monitor critical train parameters to increase trains across the U.K., for safety, reduce maintenance cost project BTaaS

Shared mobility • Reduce cost for passengers • Ride hailing apps like (smart city, Uber, Ola, Lyft are • Reduce traffic congestion in cities automobiles, public complementing public mobility) • Improve air quality due to lower emissions transport in global cities

Sources: -- Tesla’s Autopilot is supposed to deliver full self-driving, so why does it feel stuck in the past?, The Verge, 24 October 2017 -- Amazon makes first drone delivery to house in Cambridge, The Telegraph, 14 December 2016 -- Airports of the Future May Relax, Instead of Frustrate Us, Temasek, 2 October 2018 -- INRIX is Powering Smart Highways Globally, INRIX, 20 August 2018 -- Tata Motors wins order for 10,000 electric vehicles from EESL, Livemint, 30 September 2017 -- Uber signs deal with NASA to develop flying taxis by 2020, The Telegraph, 8 November 2017 -- Hitachi begins work on Virgin Trains’ Azuma fleet, Hitachi, 5 May 2017

Smart-cities, a move towards digital urban India The Smart Cities mission aims to transform the quality of life by improving critical infrastructure. ICT solutions are the foundation for holistic infrastructure in a smart city. The government has allocated USD28.43 billion for 99 cities. Of this, 16 per cent will be for ICT-based projects17. Additionally, Smart City 4.0 was launched in collaboration with the United States, India Strategic Partnership Forum, and 1 Million for 1 Billion to accelerate technologies and create fundable start-ups for developing smart cities18.

ICT solutions to support tech interventions in smart city mission

ICT to Account for ~16% of Total Smart city investments, estimated at ~USD28.43 billion

Others Undergroung Others 38% cabling 26% 5% Sewage systems 7% Street lighting and monitoring ICT Based Roads 4% Intelligent 7% Smart projects 16% Smart Parking traffic Systems management system Housing 4% 26% 11% e-governance 4% Infrastructure Non-residential Smart Water, sewage 12% development metering and solid waste 15% 11% management 13%

Source: KPMG in India’s analysis in 2018

ICT solutions for traffic management, health, education, waste management, e-governance and energy management are key focus areas in smart cities. The mission is being implemented through area-based and pan-city development based on finalised principles of integrated planning, consultation with citizens, application of IT infrastructure and services, focus on area development, self-reliance for funding, focus on smart projects and distinct implementation network.

1 7. Smart Cities Report, CRISIL Research, December 2017 18. Smart City challenge calls for startups working towards social impact, The Economic Times, 23 October 2017

Technology enablers for holistic digital public infrastructure in smart cities Increasing use of smartphones and internet access facilities is likely to ensure public safety and control can fasten uptake of smart solutions in India. Rise crime. Mobile applications and web platforms can in interconnected devices and development of be effectively used to access applications such as services and applications to facilitate public services telemedicine and vehicle tracking and for registering in smart cities may be a key driver of data traffic. In grievances. Apart from this, 24x7x365 helpline smart cities, IoT and M2M technologies are likely to numbers could help understand public concerns on be prime technologies, offering IT opportunities of development and facilitate resolution. Geo-location around USD25 million per city19. based tracking of buses, trains, and vehicles may help monitor urban infrastructure availability. IoT sensors in establishments can facilitate real- time monitoring and collection of data on traffic movement, power outages, and street lights. Big data analytics may be used in predictive and Intel rolled out smart city solutions in Taiwan prescriptive analytics to address issues of traffic in association with Elitegroup Computer congestion, accidents and thefts in residential and System and Tatung for building management commercial areas. IoT sensors can also facilitate which includes connecting appliances and patient monitoring in hospitals, correct water entertainment systems and security and electricity metering, and monitor air quality, management. temperature, and humidity. Intel also partnered with Chungwah Wi-Fi hotspots offer city wide connectivity Telecom for installation of sensor based alternatives. Internet-connected surveillance through smart poles. cameras in schools, and residential and commercial

19. Indian Smart Cities: A Pool of IT Opportunities, Enterprise IT World, 01 March 2017

Application of technology in Smart cities

Satellite- Mobile apps 24x7 Public M2M/IoT/ Live based and web Helpline Wi-Fi Big data surveillance tracking platform centre

Energy management Smart health

• Smart meters • Telemedicine • Smart grids • Remote health monitoring Traffic and mobility • Energy efficient and remotely management • Smart beds. controllable LED street lights • Smart poles. • Smart parking • Traffic surveillance • Automated street signage and traffic lights • Geo-location based tracking Water management of buses and public vehicles • Smart meters • Vehicle charging points. E-governance • Monitoring water quality through sensor • Public safety surveillance • Identification of water • Public grievance redressal leakage through sensors. • Electronic service delivery. Waste management

• IoT based smart dustbins • Garbage monitoring system. Smart education

• Smart classrooms • School surveillance • Daily management of activities.

ICT is expected to play a crucial role in construction North Carolina, Town of Cary has deployed of smart cities, providing different technologies Cisco’s “Kinetic” a city platform to monitor and systems. Telecom operators can provide the available parking spots. network for connectivity of IoT/M2M devices, and Honeywell partnered with Rajkot Municipal infrastructure support through data centres and Corporation for development of command and cloud storage of data generated from the rise in control centre and city-wide surveillance. connected devices. Telcos can also partner for setting up shared Wi-Fi and wired infrastructure Telecom Italia and Telefonica partnered in smart cities. Equipment providers may provide for running two trials in a smart city in networking equipment, software, sensors, and Italy for developing new services in devices needed for creation of communication big-data space. network and infrastructure for services and applications.

Technology catalysing e-commerce The emergence of e-commerce in India heralded the coming of country’s new economy. India’s online retail market has grown by leaps and bounds from its nascent state in the mid-2000s to its current market size of USD19.5 billion20 worth of transactions at a gross level before returns and rejections. Strong government initiatives along with lower prices of smartphones and data plans as well as the use of vernacular languages have increased the adoption of the Internet. This has evolved the consumer behaviour in e-commerce space which is now a heavily discounted market place. Rising consumer expectations and higher demand for same-day deliveries are shaping the e-commerce retail supply chain. New business models, such as those of omnichannel retailing and last-mile delivery through local retailers are on rise.

Application of technology in the e-commerce space

Ecommerce retail market size

USD Billion • High growth potential from Driven by focused funding; current 2 per cent of total customer stickiness retail sales and geographical • Food and grocery is the diversification 36.40 largest segment with Driven by early stage constant funding infusions and VC funding; and new players CAGR – 33-38% high pricing • Top 10-15 cities account for discounts; ease of three-fourths of the total shopping 15.90 sales

• Uptake in Tier-2 and Tier-3 cities is expected to drive CAGR – 40% future growth

• Customer stickiness remains a challenge 6.20 • Funding is getting increasingly concentrated, constraining expansion plans of new players. 2014-15 2017-18 2020-21E

Source: E-commerce sector outlook, CRISIL Research, July 2018

20. E-commerce retail logistics in India, KPMG India, May 2018

Technology as an enabler Technology is the backbone of e-commerce by connecting the sellers and customers on mobile & web platforms and managing customer orders, deliveries, returns and payments of purchased goods. As emerging technologies such as AI, blockchain, VR and AR become widespread, technology becomes even more important for the e-commerce value chain, especially in areas such as recruitment, marketing, and advertising. Global players are strategically increasing cross- border business, transforming social networking to market places, incorporating multi-lingual integration and using the modified rebirth of the brick and mortar model to cover more ground to reach consumers.

Technological shifts in e-commerce Easy access to instant communication, information transfer, logistics processing and online networking have enabled remote orchestration of sustainable e-commerce platforms. Today, 95.9 per cent of the internet connected population accesses it via the mobile devices (phones and dongles) as on June 201821.

Application of technology in the e-commerce space

Mobile Big data IoT VR/AR AI technology

Forecast product Track items Virtual Customise entire Scan-and-go demand through the demonstration of web page based mobile payment supply chain products on customer methods Optimise price behaviour range Informed Virtual walk- AR- and VR- decisions for stock through tour (360 Actionable enhanced apps Identify target control, product degree videos) insights based audience. placement etc. on shelf pictures Utilise smart New concepts of packaging interaction: Predictive solutions. smart dressing analytics rooms, beacons or AR catalogue Chatbots and apps. voice-activated shopping devices.

21. The Indian Telecom Services Performance Indicators April – June, 2018

Sellers no longer have to micromanage every aspect from digital shopping assistants is an emerging of the e-commerce business. They also do not need amongst customers. A recently conducted require huge start-up capital as earlier. Technologies survey by Ericsson shows that 63 per cent23 of that are driving these changes are as follows: the smartphone shoppers would like a service that automatically restocks everyday items. • Big data – Anticipatory shipping is the closest e-commerce can come towards clairvoyance. A global online retailer has patented a method and Alibaba claims that AI based smart logistics system for ‘anticipatory shipping’ in which rather have resulted in a 10 percent reduction in than relying on inviting or reminding customers vehicle use and a 30 percent reduction in 24 to repeat their purchases, the system predicts travel distances . customers’ shopping lists and deliver the products to their nearest fulfilment centre even • Blockchain – Retail giants are embracing before the order is placed. blockchain to seize the technology’s potential.

The global omnichannel retailer’s recent patent

Amazon.com has obtained a patent for what describes a ‘smart package’ system that records

it calls ‘anticipatory shipping’ — a system of information on a blockchain regarding the

delivering products to customers before they package’s contents, environmental conditions,

place an order. location etc. for a blockchain-based drone

package delivery tracking system.

Amazon’s Alexa is an example of a connected • Robots and droids – For e-commerce, robots device that is changing shopping experience and droids are no longer futuristic scenarios. A for the average consumer. global online retailer started deploying robots in a few warehouses which created potential savings of about USD22 million with the potential of savings reaching to USD800 million if the • IoT – Retailers will spend USD2.5 billion on IoT company integrates more robots at its other by 202022 by giving a digital voice to people, warehouses as well25. processes and things, thus enabling better management of inventory, easy tracking of thefts and losses and an increase in shopper intelligence. Amazon has deployed more than 100,000 Kiva robots throughout its global fulfilment network.24 • VR and AR – These technologies help e-commerce vendors to display their merchandises in immersive detail, allowing Omnichannel experience – Fast forward to the users to visualise themselves using the products future immediately. This is a distinct way of engaging customers on online shopping platforms and Technological strides make multichannel selling providing them near to real-life shopping a greater possibility than ever in the e-commerce experience. space. Serving several channels at one go increases business reach, with the rising acceptance of a platform that can communicate via APIs to various Lacoste created the LCST Lacoste AR mobile sales channels. app that customers could use to virtually try

on shoes. Today, software is capable of working smoothly with data sets from an online store, social media, retail store and catalogue to attract customers, personalise

• AI – AI-driven algorithms can help personalise their shopping experience and facilitate a purchase consumers’ shopping experiences by analysing decision. As retailers opt for many channels to their past buying habits. AI can also assist increase their sales, omnichannel retailing is gaining with order and inventory management, helping ground in India. businesses fulfil orders at ease. Getting help

22. 4 Major Ways in Which e- is Benefitting From IoT, Business 2 Community, 15 November 2017 24. Artificial Intelligence in eCommerce – Comparing the Top 5 Largest Firms, Last updated on February 1, 23. Ericsson: New Report: Smartphone Shoppers Altering Retail Reality, PR Newswire, 7 May 2018 2018 25. How Technology Is Redefining E-Commerce. Forbes, 6 March 2018

India has made substantial progress in the High capex to impact the adoption of implementation of technology from 3G to 4G while next-generation networks also setting an ambitious target of adopting 5G at par with global economies. The telecom sector is currently under unprecedented financial stress. Much of it can be attributed However, India still needs to cover significant to declining revenue margins because of stiff ground as indicated by its ranking of 134 in the ICT competition and tariff wars, debt accumulated Development Index01. Challenges in terms of reduced in light of high spectrum cost and revision of profitability for service providers, infrastructure, rural taxation structures. This, in turn, limits the ability of teledensity, skill gaps etc. continue to restrict the telecom companies to invest in strengthening the advancements of the country’s digital programme. infrastructure for next-generation networks. These challenges need to be addressed to realise the full potential of digitalisation.

Margin pressures and a high level of indebtedness limit operators’ investments

Estimated capex for telcos (in USD billions) Opex and margin evolution

17 9.7% 28.0% FY20E 14 13.5% 10.8% 27.8% FY18 13.3% 9.8% 33.1% 10.1% FY17 22.3% 17.1% 4.1%

17.4% 28.5% 30.6% 17.2% 3.0%

3.7%

Access charges Employee cost FY18 FY 19-20E License fee SG&A (Cumulative) Network opex EBITDA

Source: Presentation on Telecom Services, CRISIL, May 2018

01. ICT Development Index 2017, ITU, Accessed on 24 September 2018

In India, despite the extension of deferred spectrum Spectrum availability and liability to 16 years from 10 years, cumulative network affordability capex between FY19 and FY20 is expected to reach approximately USD14.9-17 billion02. The capex will The dramatic growth of mobile customers has be primarily aimed at the rollout and strengthening outpaced the ability of telecom operators to offer of 4G services and investments for 5G deployment. reliable connectivity. The sector has grown at Further, with the saturation levels in the urban CAGR of 17.44 per cent03 in terms of subscriber telecommunications market, telecom operators are base over the last decade and is expected to looking at new avenues which would involve focus have almost a billion unique mobile subscribers on rural and semi-urban markets. by 202004. Spectrum availability and affordability thus is a critical factor to service this growing Also, as per the COAI, the roll-out of broadband number of mobile connections and the usage services across the country would require significant patterns associated with it. India’s spectrum investments over the next three to five years for availability per customer is one of the lowest in technology, fibre backbone, spectrum and equipment the world. The scarcity of spectrum leads to a making clearly evident the capex stress on the sector. higher cost at the time of auctions and puts the operator’s balance sheet under stress. This would not be sustainable in the long run as we have observed with some of the operators who have Way Forward – The possibility of sharing exited the Indian market. infrastructure can be leveraged for achieving common goals. PPP models may also be explored for rolling out shared infrastructure to rationalise the cost. Providing incentives to Way Forward – Greater availability of spectrum the industry players under the ‘Make in India’ during auctions is likely to rationalise prices. initiative would help in reducing the financial Reduction in spectrum pricing and better burden. Further, rationalization of spectrum utilisation of the USO funds would allow fees will allow operators to invest in upcoming operators some relief on the financial side. technologies and network infrastructure. Further, availability of E-band and V-band will allow operators to put a low cost and high throughput network. As per the GSMA estimate, the average price of spectrum of USD0.33/MHz/pop (acorss 850, 1800, 2100, 2300, and 2600 MHz) was almost 50 per cent higher than the median price in developing countries between 2000 and 2017 making a strong case for reducing the spectrum cost.

02. Presentation on Telecom Services, CRISIL, May 2018 04. “‘India To Have Almost 1 Billion Mobile Subscribers By 2020’, NDTV tech-media-telecom, Accessed 03. KPMG India’s Research September 2017”

Rationalisation of taxes and levies RoW policies to quicken infrastructure Taxation continues to be one of the highest development contributors to the cost structure of telecom Obtaining RoW permission from local governments operators which includes licence fees and spectrum has been a bottleneck in installing fibre networks. usage charges. Delayed implementation of RoW rules acts as Spectrum usage charge adds on to the financial an impediment to laying of the requisite optical burden of telcos since it is based as a fixed fibre, which is the basic requirement for seamless percentage of a telco’s AGR i.e. better the telco 4G connectivity as well as an enabler for future performs, higher will be the taxation amount to be requirements such as 5G. Also, many states are yet paid. Further, the universal service obligation fund to implement the single-window system under the accumulated so far has not been completely spent RoW rules passed in November 2016. while telco’s continue to be charged the same. This reduces funds available with them to invest in network and technology upgrades. Way Forward – NDCP 2018 suggests creating a collaborative institutional mechanism between the centre, states and local bodies for common Way Forward – Rationalisation of taxes and RoWs, standardisation of costs and timelines levies will help ease the financial burden on and removal of barriers to approval. Its uniform telcos. The NDCP 2018 has emphasised on the implementation across states will ensure need to reduce levies and adopt optimal spectrum seamless and timely deployment of the required pricing. infrastructure to meet the government’s Digital The government should consider: India vision. Also, another way to encourage the states to consider telecom as an essential • Lowering the high SUC (to limit it to cover service and provide adequate support to the only administrative cost of managing telecom operators, is to create a Network spectrum) Readiness Index (NRI) – a criteria to measure, • Resolving the definition of AGR evaluate and benchmark various states of India with regard to the state of telecommunication, • Realigning spectrum payment period ICT services and network infrastructure. This will • Rationalising taxes and other levies. also create competitiveness amongst the states to enhance ease of business and improve their rankings.

Lack of clarity around the Backhaul monetisation model Limited back network connectivity has impacted With multiple players in the ecosystem offering the roll-out of telecom infrastructure and similar services, differentiation is the key to attract connectivity to rural areas. One of the requisites for more customers and retain existing customers. 5G is a strong backhaul network. Over 80 per cent Operators need to offer services that are beyond of sites in India are connected through microwave voice, data and messaging. with approximately 300 Mbps capacity. Operators are yet to adapt to the convergence potential of content, media and technology and Way Forward – Development of a high partner with the start-up eco-system to offer bandwidth backhaul with low latency is services that are beyond connectivity. Passive necessary to achieve the digitisation objectives. infrastructure providers are also evaluating This calls for fiberisation of the towers to the options for monetizing the space and presence tune of 80 per cent and higher as compared to of their towers in collaboration with start-up and 20 per cent fiberisation today. In addition, the e-commerce providers. availability of E-band and V-band will help in Monetisation depends on the effectiveness of data enhancing backhaul. centres, cloud network, and will require additional investment in the development of assets and platforms.

Way Forward – Business models have to expand beyond retail customers to include enterprises and government, internet of things (IoT), augmented reality (AR)/virtual reality (VR), and cloud-related services for effective monetisation.

Digital divide leading to skewed Lack of robust cyber and data security growth framework Despite various government initiatives, internet A rapidly increasing user base on account of penetration rate in rural India stood at 19.48 per increased affordability comes with another set cent with 173.2 million users as compared to of challenges that demands attention right at the 338.84 million users in urban areas as on June CXO levels of organisations today i.e. availability 201805. Limited penetration of private operators of a robust cyber and data security framework. because of huge capex requirement limits the Cyber and data security gains significance with roll-out of backhaul. Few instances of private the increased usage of data, applications and contribution include: interconnected devices. Cyber-attacks result in not only service disruptions but also data loss. • Operators are partnering with BharatNet to boost broadband penetration in rural areas. This will help set up broadband experience centres, providing 100 Mbps connectivity through Way Forward – It is essential to define a BharatNet’s infrastructure policy that takes a comprehensive approach to security and privacy that ranges from devices • Operators are planning to offer 4G services to and gateways with connectivity to the cloud; IoT rural areas through satellites, using capacity platforms and applications; chips to services; from the Indian Space Research Organisation and development to operations. Further, the (ISRO). organisations can also set up a multi-stakeholder cell with capability and capacity to provide proactive and responsive crisis management. Way Forward – Better quality data services at more affordable prices, infrastructure investments, digital literacy and the availability of cheaper handsets will help bridge the digital divide and promote internet penetration in rural areas. Speedy fiberisation of rural India will be critical for the digital penetration. Government should formulate policies and encourage public private partnerships for the nationwide roll-out. Models allowing fibrecose and utility companies to roll-out common fibre infrastructure should be encouraged.

05. The Indian Telecom Services Performance Indicators April – June, 2018

Bridging skill gap is a prerequisite to Constraints limiting the degree of digital transformation innovation Skilled manpower is essential for adoption and As per a KPMG report - The Changing Landscape implementation of new technologies which leads of Disruptive technologies08, 22 per cent of the to overall growth of the sector. The roll-out of industry leaders surveyed felt that government newer technologies promises to bring about an restrictions in the form of regulations act as one exponential growth in employment opportunities of the leading limiters in encouraging innovation in for skilled resources. In the digital ecosystem, a the industry. The industry players and businesses huge gap exists in the technical and software skills want a very high degree of transparency translating required for implementing new technologies, such to regulators. The absence of robust technology as 5G and M2M and evolution in the ICT sector. standards and legacy IT infrastructure act as another roadblock towards encouraging innovation. As newer technologies continue to emerge and older technologies evolve, integration complexities 64 per cent of organisations viewed widening faced by consumers as well as enterprises are only 06 skill gap as a key concern expected to grow further.

49 per cent of employees expect current 22 per cent leaders viewed regulator policies skills to be redundant in the next 4-5 years with as restrictive 34 per cent of employees expecting skills to be redundant in the next 1-2 years06

17 per cent felt access to talent acted as a Demand-supply gap of 200,000 data analytics barrier to innovation professionals by 202007.

11 per cent identified non-existent tech standards as a leading factor Way Forward – Capacity-building exercise may be undertaken at the grass root level with involvement of state and central education machinery. A network of skill development 20 per cent cited legacy infrastructure as a centres may be established to promote hindrance. development and learning of multiple skills.

Way Forward – The need of the hour is for technology players to collaborate more amongst themselves and develop solutions that provide more value to the end consumers.

06. India emerges as biggest source for digital talent: Survey, Economic Times Updated: October 26, 2017 07. The digital skill gap that may trip the IT juggernaut in days to come, Business Standard, 09 June 2018 08. The Changing Landscape of Disruptive Technologies, KPMG U.S., 2018

Multiple regional languages add complexity to content creation Video viewing accounts for a large percentage of data usage. In the next five years, 90 per cent of the incremental internet users in India are likely to be local language users.09 Lack of content in the local language will act as a serious limiting factor in content uptake.

Way Forward – Telecommunications and digital service providers have to create regional content and develop multi-language data analytics tools to gather consumer insights. Devices need to provide Indian language support along with content.

3D Three Dimensional EMCs Electronics Manufacturing Clusters

3G Third Generation FDI Foreign Direct Investment

4G Fourth Generation FWA Fixed Wireless Access

5G Fifth generation FY Financial Year

1M1B 1 Million for 1 Billion GB Gigabyte

IPv6 over Low Power Wireless Personal Gbps Gigabytes per second 6LoWPAN Area Networks GDP Gross Domestic Product AGR Adjusted Gross Revenue GI cloud Government of India cloud AI Artificial Intelligence GPRS General Packet Radio Services AIM Atal Innovation Mission GPS Global Positioning System AML Anti Money Laudering GST Goods and Services Tax API Application Programming Interface HD High Definition AR Augmented Reality HSBB High Speed Broadband ARPU Average Revenue per User IaaS Infrastructure as a Service ATM Automated Teller Machine Indian Computer Emergency Response ICERT B2B Business-to-Business Team

B2B2C Business-to-Business to-Consumer Information and Communication ICT Technologies B2C Business-to-Consumers ID Identification B2G Business-to-Government IMC India Mobile Congress BaaS Banking as a Service IoT Internet of Things BFSI Banking, Financial services and Insurance IP Infrastructure Providers BHIM Bharat Interface for Money IP Internet Protocol BSS Business Support System IPR Intellectual Property Rights BTS Base Transceiver Station IPTV Internet Protocol Television C2C Consumer to Consumer IPv4 Internet Protocol version 4 CA Carrier Aggregation IPv6 Internet Protocol version 6 CAGR Compound Annual Growth Rate ISP Internet Service Providers capex Capital Expenditure ISRO Indian Space Research Organisation CERTs Computer emergency response team IT Information Technology COAI Cellular Operators Association of India ITeS Information Technology enabled Services CSP Cloud Service Providers ITU International Telecommunication Union DTH Direct-to-Home Kbps Kilobytes per second Earning Before Interest, Tax, Depreciation EBITDA and Amortisation KYC Know Your Customer

EDF Electronics Development Fund LED Light Emitting Diode

eMBB Enhanced Mobile Broadband LF Licence Fee

LiFi Light Fidelity RoI Return on Investment

LoRa Long Range ROIC Return on Invested Capital

LTE Long Term Evolution RoW Right of Way

M&E Media and Entertainment RPA Robotic Process Automation

M2M Machine-to-Machine SAAS Software as a Service

Mbps MegaBytes per second SDN Software Defined Networking

MHz Mega Hertz SD-WAN Software-defined Wide Area Network

MIMO Multiple-Input and Multiple-Output SEZs Special Economic Zones

ML Machine Learning SMS Short Message Service

MOOC Massive Open Online Course SONs Self-Organising Networks

MoU Memorandum of Understanding SUC Spectrum Usage Charges

MSCI Morgan Stanley Capital International SWANs State Wide Area Network

National Aeronautics and Space TB Terabyte NASA Administration telcos Telecom companies NAT Network Address Translations TFC Telecom Finance Corporation NBFC Non Banking Financial Companies Technology, Media and TMT NBIoT Narrow Band IoT Telecommunications

NDCP National Digital Communication Policy TSP Telecom Service Providers

NFV Network Function Virtualisation TSSC Telecom Sector Skill Council

NLP Neuro-Linguistic Programming TV Television

NLP Natural Language Processing TVWS Television Whitespace

NRI Network Readiness Index UHD ultra-high-definition

O2O Online-to-Offline UID Unique Identification

OBCMS On-board Condition Monitoring System UPI Unified Payment Interface

OFC Optical Fibre Communication USD United States Dollar

opex Operating Expense USO Universal Service Obligation

OSS Operational Support System USOF Universal Service Obligation Funds

OTT over-the-top VC Venture Capitalist

PCBs Printed Circuit Boards VFX Virtual Effects

PMA Preferential Market Access VoLTE Voice over Long Term Evolution

PPP Public Private Partnership VNF Virtual Network Function

QAM Quadrature Amplitude Modulation VR Virtual Reality

QoS Quality of Service WiFi Wireless Fidelity

R&D Research and Development Wireless Highway Addressable Remote WirelessHART Transducer Protocol RBI Reserve Bank of India Yo Y Year over Year RFID Radio Frequency Identification

India Mobile Congress (IMC) is the largest mobile, participation of 10 Partner Countries, 200+ Global Internet and technology event in South Asia. Speakers, 300+ Exhibitors, 5,000+ CXOs, 1,000+ Due to the resounding success of its inaugural International Media and 100,000+ visitors. The chapter in 2017, IMC has become a key platform international symposium will encourage debates to showcase India’s digital journey towards and dialogue that affect policy and standards, becoming an empowered global knowledge which in turn should help in bridging the digital economy. Organised jointly by the Cellular divide, enable financial inclusion and create Operators Association of India (COAI) and the a facilitative ecosystem for the development Department of Telecom (DoT), the mega-event of crucial technologies. The aim is to create will allow the world to see India as a leader in the an ecosystem for ICT players and all relevant Telecommunications and Technology space. IMC stakeholders to take part in the realisation of 2018 is supported by several Government bodies, the Digital India program. IMC 2018 also aims such as the Ministry of Electronics & Information to build upon innovative ideas, form long lasting Technology (MeitY), Ministry of Skill Development industry relationships, showcase cutting-edge & Entrepreneurship (MSDE), Ministry of Housing mobile technology and product trends, and and Urban Affairs (MHU), in addition to various provide sectorial insights and impactful solutions. other technical and regulatory outfits. This year, the event will particularly encourage the country’s robust startup ecosystem and With its theme New Digital Horizons: Connect, budding entrepreneurs, through various targeted Create, Innovate, IMC 2018 is anticipated to be engagement programs. bigger and better than its first iteration, with the About KPMG in India

KPMG in India, a professional services firm, global and local industries and our experience of is the Indian member firm affiliated with the Indian business environment. KPMG International and was established in September 1993. Our professionals leverage KPMG International the global network of firms, providing detailed KPMG is a global network of professional knowledge of local laws, regulations, markets services firms providing Audit, Tax and Advisory and competition. KPMG has offices across India services. We operate in 154 countries and in Ahmedabad, Bengaluru, Chandigarh, Chennai, territories and have 200,000 people working Gurugram, Hyderabad, Jaipur, Kochi, Kolkata, in member firms around the world. The Mumbai, Noida, Pune, Vadodara and Vijayawada. independent member firms of the KPMG KPMG in India offers services to national and network are affiliated with KPMG International international clients in India across sectors. We Cooperative (“KPMG International”), a Swiss strive to provide rapid, performance-based, entity. Each KPMG firm is a legally distinct and industry-focussed and technology-enabled separate entity and describes itself as such. services, which reflect a shared knowledge of

Special thanks to the following members Acknowledgements from COAI: of KPMG in India for their leadership and • Vikram Tiwathia – Dy. Director General guidance in preparation of this report: • Gopal Mittal – Sr. Director (Finance & Commercial) • Mritunjay Kapur • Saurabh Puri – Sr. Director (Research & Analysis) • Purushothaman K G • Amrita Anand – Sr. Manager (Legal) • Mohit Prabhakar • Vikas Kumar – Sr. Manager • Rahul Hakeem • Nabil Syed – Asst. Manager • Sonica Bajaj • Anandhi Nair –Dy. Manager • Girish Menon

We would also like to acknowledge Acknowledgements from IMC: the core team from KPMG in India who • Ankita Mittal worked extensively in preparation of this report: • Dhruv Sood • Abhirajika Rathore • M A Sudhakaran • Arjun Malhotra • Nitish Aneja • Anshuman Jha • Avinash CH • Darshini Shah • Devanshee Deepak • Gopalakrishna Anantha • Kshitiz Vaish • Mandan Mishra • Nisha Fernandes • Pawan Hejamady • Ragini Singh • Rahil Uppal • Richa Joshi • Rishabh Amla • Rishabh Rane • Rohit Bajpai • Sanjna Dhingra • Sharon D’silva • Shilpa Bhoir • Sunit Kumar • Utkarsh Bamrara • Yatin Gaind • Yasharth Srivastava

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Mritunjay Kapur P Ramakrishna National Head CEO Markets and Strategy India Mobile Congress Head - Technology, Media and Telecom T: +91 – 011- 23440234 T: +91 124 307 4797 E: [email protected] E: [email protected] Grace Mathews Purushothaman K G Program Director Partner India Mobile Congress Risk Consulting T: +91 – 011- 23440232 T: +91 22 6134 9523 E: [email protected] E: [email protected]

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