Ever complained about the dollar becoming more expensive?

Comparing the price of the rupee and the dollar? This is not the best way to understand currencies! This is because comparing the dollar to a specific currency tells you as much about the other currency as the dollar. The data is not clear.

For this problem, the DXY or the Dollar Index comes to the rescue. It measures the relative strength of the dollar to a basket of foreign currencies. These currencies are based on importance; they aren’t equally weighted.

Similarly, the NIFTY or SENSEX Indexes are a basket of securities that can be used to understand the stock market’s strength and sentiment.

Here, ’strength’ is measured with the relative value of the dollar rising, making goods and services cheaper for the US.

But, how is this useful in markets?

The index is useful for trades as it provides a general direction for the US Dollar. Traders can perform technical analysis on these charts to make trades for or against the dollar.

From an economic perspective, the index can provide insight into:

1. Interest Rates: This informs investors about US monetary policy, where the US Central Bank can raise or lower interest rates. Higher rates attract more investment and demand for the dollar, making it stronger.

2. Economic Data: US GDP growth, employment and inflation affect the index. These indicators being positive makes the dollar stronger.

3. Global Economic Events: Trade wars, financial crises or changes in global regulations affect the US financial system. The USD being the reserve currency of the world, it’s prices are closely followed.

A recent example of insights using this index is the sentiment towards the second Trump presidency. The dollar was at its 3-year high, but now it is reducing sharply due to negative sentiments around the policies of the Trump Administration.

MEME OF THE WEEK:

Market Kya Keh Raha Hai Sir?

Indian telecom is about to change. Bharti Airtel, the second-largest telecom operator in India, announced that it’s partnering with SpaceX’s Starlink.

Not to be left behind, Jio also made a similar announcement the very next day. Both these companies went from calling Starlink unfair, to being friends. Let’s understand why.

Arranging the Chess Board

The history of the internet in India is like a Bollywood movie. In 2016, when Jio was launched, it forced all competitors to slash prices and focus on improving their products.

Within 6 months, Jio managed to gain over 100 million subscribers. It did so by offering free SIM cards and free 4G data at speeds faster than existing players. Jio wasn’t the only problem these operators had to face.

In a decade-long legal battle, the courts ordered telecom companies to pay their unpaid spectrum and licensing fees. Airtel’s total liability was estimated to be ~₹41,000 crore.

Spectrum is a range of radio frequencies used for wireless communication.
It is sold through a process where various parties bid for the spectrum. This process is called an auction.

The process is transparent as the highest bidder wins. The Department of Telecommunications (DoT) under the Ministry of Communications conducts the auction.

Airtel managed to survive this. Jio eventually had to raise its prices. Airtel could match these prices and increase coverage by buying other competitors.

What’s next for Jio & Airtel?

Innovation after Jio’s entry improved India’s internet accessibility. India's internet penetration increased from 16.5% to 65.89%! That's more than 4x growth in 9 years. Market share stabilized as well, with Jio in first place and Airtel in second.

In 2022, for more innovation & profitability, India began its move from 4G to 5G. With 5G, telecom players could reach new customers and charge higher prices to existing ones.

5G significantly increases data transfer speeds and network reliability. Users were able to stream high-quality videos with little to no buffering and download huge files.

Looking ahead, before 6G arrived, the next innovation in internet technology was satellite internet. The benefit of this technology is that it can bring high-speed internet to rural Indians without towers or auctioning for spectrum.

Starlink tries to enter India.

In late 2021, Starlink registered its office in India and began taking pre-orders. At the time, no auctions for satellite spectrum had taken place. Seeing this, the Indian government ordered them to refund the collected amount, as it was done without permission.

This was the first attempt that Starlink made to come to India.

This was a significant moment for India, as before these permissions were not given to any Satcom company. This was because the government didn't have the authority or process to do so. It only knew how to sell licenses for traditional spectrum.

Satellite spectrum works differently. No country owns this spectrum; it is only managed by a UN body called the International Telecommunication Union (ITU). ITU is responsible for sharing bandwidth with satellites.

India had reservations about this system. It was concerned that it was not as transparent as a traditional auction. To resolve the matter, the Telecom Regulatory Authority of India (TRAI) hosted a public consultation to hear arguments for Satcom pricing.

As expected, Jio, Airtel, Vi, and Starlink dominated the six-hour-long argument.

What did Starlink say?

Starlink's main problem was that the government had never given satellite spectrum to anyone before. It only had processes for the telecom spectrum.

Another problem was that Jio, Airtel and Vi were trying to convince the government to use the same process as telecom spectrum for satellite spectrum. Starlink did not want this.

To prevent this from happening, Starlink spoke against using the traditional auction process for satellite spectrum. Instead, Starlink supported the 'administrative allocation' process. Here, the satellite spectrum is given without an auction. This allocation is in line with international practices.

The reality was simple: the government could not auction the satcom spectrum in the first place. Starlink was speaking in support of this fact while accusing Jio, Airtel & Vi for being anti-competitive.

What did Jio, Airtel, and Vi say?

Their problem came from the advantage Starlink could get over their existing customers in urban areas. These areas are rich and buy premium plans. Starlink can do this without the need for huge on-ground capital expenditure.

They said that Starlink’s promise of rural connectivity is not true and it is just a way to get spectrum rights cheaply. This was an attempt to convince TRAI to level the playing field, i.e. to have the same process for both satcom and telecom companies.

With 7,000+ satellites circling the Earth, Starlink could challenge the capacity of the existing players, making it a dangerous competitor.

From enemies to friends: Why this is surprising.

To understand this, we must look at the direction TRAI went in. The choice was between a traditional spectrum auction and an administrative allocation where the government grants spectrum without bidding.

TRAI had to follow global practices. This served as a reality check for the telecom companies, as they were caught off guard.

That being said, both Jio and Airtel are not against having satellite services in India. Both recognize how this technology could enhance their offerings. Jio and Airtel are the only two companies with licenses for satellite spectrum.

Both had partnered with other global STACOM companies.
Bharti Airtel bought a stake in Eutelsat Oneweb and Jio did with Luxembourg-based SES to launch Jio SpaceFibre.

The reason for partnering with Musk could be that Starlink would anyways enter India. Competing would be expensive and cut into profits. They can instead benefit from using their tech and satellites.

This deal is also beneficial for Starlink. In one go, it would have access to work with the two largest network providers in the country. This would come after approvals from IN-SPACe and the Department of Telecommunications.

But, is Starlink any good?

To get a better understanding of the possible prices in India, let's take a look at our neighbour. Last year, Sri Lanka became the first South Asian country to give a telecom license to Starlink.

Based on Sri Lanka’s prices, the one-time price for the hardware is ~₹25,000 - ₹30,000, with a monthly subscription of ~₹5,000 - ₹7,000. Both Jio & Airtel have monthly plans for under ₹500, with either a free router or installation.

Starlink is ~10x more expensive than the existing option for the first year. The ARPU (average revenue per user) for Airtel is ~ ₹225, or under 5% of Starlink's possible monthly cost.

Attracting customers on a large scale would be a problem for Starlink. Although, there are examples of Starlink being more affordable.
In Africa, prices are lower. The lowest price for a monthly subscription is ~ ₹850, and the upfront device cost is ~ ₹16,000.

There is scope for lowering costs.

But, then who will buy Starlink?

Starlink might not be competing with your ₹500 mobile plan. It's serving an entirely different segment where connectivity limitations are a problem for business potential.

Starlink can theoretically connect with 128 devices per network. To the segment, it might be targeting.

The cost can be spread out; it might not be such a big deal.

Here are a few examples of how Starlink can be used in different sectors.

1. Premium Mobility: Premium trains, buses, and private jets can offer uninterrupted connectivity throughout journeys, even on remote routes.

2. Remote Operations: Industrial sites like mining operations, oil rigs, and construction projects can maintain critical communications without massive physical infrastructure investments.

3. Disaster Response: When cyclones or floods destroy traditional networks, no towers or cables means no waiting for physical repairs in critical situations.

4. Vehicle Integration: Next-gen EVs or trucks could bundle Starlink as a premium option, enabling advanced navigation and entertainment even in remote areas where cellular networks fail.

Additionally, Starlink does not have fixed pricing. It adjusts its prices based on available bandwidth and demand and supply. If the rollout is slow, India will use less bandwidth, and Starlink can start with lower prices.

Conclusion: What you’ve just learnt

1. Market Segmentation: Premium pricing creates new market segments - Starlink's high cost isn't a barrier but a feature targeting commercial users with specific needs beyond mass-market solutions

2. Strategic Alliances: Strategic partnerships can turn potential competitors into friends - Starlink chose collaboration over competition in India's price-sensitive market.

3. Regulatory Reality: Regulatory approval remains a critical bottleneck - Even with technological and commercial readiness, government permission determines ultimate success

4. Currency Understanding: An index could be better at providing valuable insights for traders and economists on interest rates, economic performance, and global events.

That’s a lot of learning. Here’s a question that someone who’s learned this can answer:

Why would premium customers pay 8x more for Starlink when traditional telecom options are so much cheaper in India?

What More Caught My Eye?

1. How Maruti Suzuki and Hero FinCorp are now friends

2. Should investors invest in ITC Hotels?

3. Will Airtel be the next Tata Sky?

4. Tesla has landed in Mumbai!

5. Does Piramal want to take the exit?

Recommendations

This week, I recommend watching an interview with Sushant Dash, the CEO of Starbucks India. The discussion covers Starbucks' entry into India, its franchise growth strategy, and investment planning. The speaker also explains how Starbucks maintains premium quality internationally while creating new product categories.

This is a must for anyone interested in understanding the coffee industry in India, Starbucks' global business strategy or hearing leadership insights.

Thanks for reading this weekend’s newsletter. I’d like to know your thoughts, so please feel free to comment below. Your feedback helps us improve!

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Song of the Week:

This is Parth Verma,
Signing off.