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3G in India: status check

Although telcos are upbeat about potential demand for 3G services unless these are priced aggressively, adoption may fall short of the projections, writes Nivedan Prakash

As India leaps into the world of 3G with the soft launch of services by MTNL and BSNL in select cities, it is time to take a look at the state of 3G in the country and the likely pace of adoption in the near to mid-term.

3G is not going to result in a sea change in the mobile landscape. The investments by carriers in 3G are part of an evolutionary process one that has already seen a migration from 2G to 2.5G in the past. The success of 3G is going to depend on demand for superior quality voice services and data heavy, media rich content. The initial pricing has been on the higher side and it will have to drop if mass adoption is to ensue.  

3G licensing in India has come quite late in the day.  China and Vietnam licensed 3G with a nominal license fee to leverage the technology’s ability to boost their economies. Spectrum policy in India has been the victim of slow decision-making, which has left the country lagging behind many others. 

“Since the announcement in 2006 about the auction of cellular 3G spectrum, operators and the subscribers have been waiting for 3G services in India. The auction policy has been announced and finalized, but no firm date has been set for the auction till date. This delay of over three years has deprived Indian subscribers of the benefits of high-speed mobile data services available to over 300 million subscribers residing in over 125 countries with significant concentration around the Americas, Europe, and South East Asian countries,” commented Dr. R Venkateswaran, CTO–Telecom Business Unit, Persistent Systems.  

The telco view is that 3G will permit them to offer data related services and also some innovative video VAS services; this, they expect, will give millions of people access to broadband Internet in a short span of time. The demand for USB wireless modems and all sorts of 3G devices will be considerable and this will have a positive impact on the domestic economy. 

This is also an opportunity for Indian software companies to join hands with service providers to develop applications that will meet the needs of the Indian mobile user. At a later stage, these could be rolled out into other emerging markets.

The primary idea behind moving to 3G has been to enable high-speed data transfer and to enhance the user experience with bandwidth heavy services such as live video streaming and many other graphic formats. As 3G is packet based, it uses wireless spectrum more efficiently than earlier formats.  

Sangeet Chowfla, CSO, Comviva, opined, “3G is the next step in mobile evolution. It is a standard designed to handle both voice and data simultaneously and will make users’ lives much easier. The slow data transfer problems that subscribers faced with 2.5G will be alleviated by the 3G network. SMS, Interactive Voice Response (IVR), music download, Internet applications/search, which has huge potential in the Indian market, will see an upsurge with the rollout of 3G. It will help operators offer rich content and new services such as mobile commerce, mobile music, video-based services and hi-speed mobile Internet services.”  

Nanditha Krishna, Industry Analyst–ICT Practice, Frost & Sullivan, South Asia and Middle East, said that 3G in India is initially expected to provide additional spectrum for voice services. This would pave the way for data usage on mobile phones. This is vital as operators are focusing on customer acquisition as well as ‘sticky offerings’ to prevent churn. 3G enables better VAS services due to the higher levels of bandwidth that it can accommodate. The technology is expected to drive data card adoption. Currently, Tata Indicom and Reliance are the only players in the data card segment. With more players coming into the market, sales are expected to boom with competitive prices and attractive schemes.  

“The mobile ecosystem is evolving. With globalization, we are witnessing a drastic change in the way that people work. 2.5G services have limitations of speed for offering bandwidth hungry applications and services. As a large number of people are experiencing broadband on fixed line, they have similar expectations for wireless broadband access also. To cater to this requirement of our customers, we have rolled out 3G, which will revolutionize the way in which customers communicate and entertain themselves,” opined J Gopal, ED, MTNL Mumbai.  

Poor broadband penetration, a large untapped rural market, and the challenge of providing high bandwidth in rural areas using landlines are all factors favoring a 3G rollout. With 3G, network operators can offer wireless broadband services. Moreover, many operators are starved of spectrum and as 3G offers four to five times the voice capacity of 2G spectrum, it is a cost-effective tool to deliver voice. Services beyond voice and text can be offered; 3G offers a platform which can offer true multimedia services.  

In urban India, 3G facilities will help in faster data and voice connectivity enabling services like video on demand. In rural India, with the coming of 3G, telemedicine, virtual marketplace and e-learning will get an impetus. The technology will be critical for operators in enabling the differentiation of their service portfolio, by providing a far richer service experience than is currently available—particularly in the deployment of audio-visual services.  

“The fundamental driver for 3G in India is to serve the country’s demand for broadband services. As per TRAI, while the number of mobile subscribers in India stands at 391.76 million, as of March 2008 there were only 6.22 million broadband subscriptions. Mobile broadband will be the technology to connect the Indian public (rural and urban) to the Internet—and hence to the world. From a technological point of view, in areas where no fixed-line infrastructure exists, deploying a mobile network is much cheaper and it can be rolled out a lot faster than wired infrastructure. The World Bank estimates that the cost of a new mobile connection is one-tenth that of a new fixed-line connection,” pointed out Jaikishan Rajaram, Senior Director–Services, GSM Association.

Impact on mobile telephony

Wherever 3G services will be deployed, the biggest impact on users will be an improvement in voice quality and fewer call drops. 3G will also create more wireless broadband users. The usage of VAS in a 3G world will be determined by the variety of content available. In India, where people are sociable, there is likely to be an uptake of services that have not enjoyed huge success in other markets, due to different cultures and norms. There is likely to be demand for video calls and video messaging in the Indian market. We also see music videos and music ring back tones gaining a significant following—as well as video sport clips attracting a wide audience of cricket fans. 3G also offers operators the opportunity to adopt differential pricing strategies for video content and to cater to the mass-market as well as niches.  

This would help operators demarcate between high-end and low-end users. Service providers offering 3G would look at customer acquisition in rural areas and protecting their existing data base in urban areas. Operators slow to offer 3G would come up with innovative voice-based services to differentiate themselves from 3G operators and retain customers.  

Vikas Jain, Business Director–Micromax, asserted, “3G is capable of changing the lifestyle of Indian consumers. The successful implementation of e-governance should happen right away. Broadband penetration should definitely improve and in the next three years, we could boast of being a connected nation.” 

At the same time 3G will also help improve voice quality in mobile telecommunications, providing a much needed added benefit to operators and consumers who will be able to choose from over 1,300 devices, including an extensive range of embedded chipsets in laptops, smartphones, mobile Internet devices, and USB modems. As 3G networks roll out, there will be a need for operators to expand backhaul across India.  

Dr Debasis Chatterji, CEO, Netxcell, said, “With the launch of 3G, bandwidth intensive services like video streaming, etc., will be available for customers and will enhance the overall user experience. Customers will increasingly be able to use the phone for entertainment rather than just making voice calls. VAS revenues are expected to increase with the launch of these services.”  

“Services like MMS, video conferencing, gaming, GPS, m-Commerce applications like online shopping through 3G terminals, instantly arranging meetings based on applications like calendar synchronization, white board applications that can recognize several languages in handwriting, searching any store/outlet in the city through a 3G terminal, and remote home monitoring systems would be commonplace in a few years after the launch of 3G services. There will be huge demand for mobile number portability, presence and instant messaging, mobile TV and convergent communication which would be consumer centric services,” added Shankar Allimatti, VP–Next Generation Networks, Tech Mahindra.  

Roll-out strategies

Starting in February 2009, BSNL and MTNL—the state-run operators who were pre-awarded 3G licenses—have rolled out 3G services in 70 (BSNL) and two (MTNL) cities nationwide respectively. The private telecom operators are in the process of planning their 3G network infrastructure and awaiting final approval from the DOT auction to start rolling out their networks; they are ready to go fully operational within six months of spectrum allocation.  

Gopal pointed out, “MTNL is operational in Delhi and Mumbai. Commercially, 3G is already available for customers in Delhi. We have launched this service in Mumbai also and soon it will be available commercially for customers in Mumbai also. We are expecting a first mover’s advantage and are expecting to grab a substantial market share in the 3G segment. Presently MTNL is planning to roll out these services in south and central Mumbai and soon we will expand our services to other parts of Mumbai, Navi Mumbai, Kalyan, and Dombivali progressively.” 

Despite the hype around 3G, MTNL and BSNL have attracted a few thousand subscribers for these services. Lack of attractive applications and content, the high monthly charges and the anticipation of private players entering the 3G arena soon are the likely reasons for the low uptake of 3G services. Meanwhile, Frost & Sullivan estimates that the number of 3G subscribers will be around 7-8 million by the end of FY 2009-10.   

Venkateswaran added, “In the first year of 3G operations, the operators are expecting 3G subscribers to pay about five times the current 2/2.5G tariffs. 3G-enabled handsets and data modems for laptops are also likely to be expensive. This is a steep increase and will target only niche demographics, but in the coming three-four years the operators will see higher subscriber volumes and better operational efficiencies and consequently the prices will drop to attract a wider audience. The challenge for operators will be to offer wide coverage (including roaming), high quality service and attractive content in the initial years to sustain high-paying subscribers long enough to reach the tipping point of growth.”  

“Comviva’s solutions are largely 3G-enabled, so once 3G networks are rolled out in India, end subscribers will be able to benefit from the enhanced offerings. We will expand our video suite of offerings to include video mail, messaging, surveillance and advertising solutions. We are also working on an online mobile gaming solution which will enhance end user gaming experience with flexible pricing options,” explained Chowfla.  

Market opportunity 

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), in India, the 3G subscriber base is expected to hit 90 million by 2013, accounting for 12% of the overall wireless user base. By 2013, 3G service revenues are expected to generate $15.8 billion, accounting for a share of 46% in overall wireless service revenue. Due to the 52% contribution made by the replacement market, annual sales of 3G devices are projected to reach 81.3 million by 2013. Correspondingly, the annual 3G device revenues are expected to increase to $11.2 billion, with 59% coming from high-end handsets. 

There will also be an increase in the share of non-voice services, including data card access, and short messaging service. The Average Revenue Per User (ARPU) from these services will rise from the present 9% to nearly 23%.

For MTNL, the ARPU from voice revenue is presently around Rs 200 and with 3G, they are expecting this to increase. The broadband usage on mobile and other 3G VAS like Mobile TV is expected to fatten the ARPU. “We are expecting an exponential growth in non voice segment ARPU,” added Gopal.  

Krishna said that Frost & Sullivan does not see an immediate significant rise in non voice revenues. 3G would be initially deployed as a voice technology. The ARPU is not expected to rise significantly in the initial years. The overall ARPU has improved by 13% in countries like South Korea and Italy, whereas UK had a 15% increase. The analyst firm expects India to mirror South Korea and Italy.  

The impact of 3G on VAS usage should be positive, as users gain a richer and more engaging service experience, prompting them to use new multimedia services and use them for longer periods of time. However, the overall impact on ARPU will be determined by pricing/bundling strategies that operators adopt. In some markets, where 3G services have already been provided, operators have adopted a penetration pricing strategy, aimed at building a strong base of 3G users by pricing 3G services attractively.  

Demand for data-rich services  

There will be great demand for data-rich services. Indian mobile operators already generate significant revenues from non-SMS data services and 3G will see new, exciting data services available to the Indian public. It’s worth noting that India already has a dynamic mobile content industry.   

“The availability of high speed Internet will make the subscriber crave content delivered over a high speed connection. I foresee a lot of demand for entertainment, news snippets, streaming TV, stock portfolio management, etc., to be the initial growth drivers besides the obvious e-mail and corporate applications. From the device perspective, data cards should be the first and foremost product that every operator should be looking at having for providing high speed connectivity to consumers,” said Jain.  

However, some experts think that apart from data cards, there are no other killer applications in mobile data services. In the enterprise, e-mail may be a major driver for this market. As far as retail is concerned, video streaming could be a driver. This depends upon the pricing of video clips and the download speeds that 3G can guarantee.   

Meanwhile, the current prices for 3G data services are too high for Indian customers. 3G services are at a nascent phase with only state owned companies offering 3G services in limited pockets—so real price cuts cannot be seen. However, the industry expects price cuts in data services once private operators are given spectrum and they roll out their services.  

Getting subscribers on the 3G bandwagon

In urban regions, telecom carriers are facing declining service quality and decreasing margins per minute. With 9% of the subscribers contributing 45% of carriers’ margins and 29% of revenues, 3G will certainly enable the carriers to transfer high ARPU customers to the congestion-free 3G network.  

A combination of better services, innovative applications, and smart handset bundling coupled with right pricing can attract a large base of users to 3G. Besides, many Indian customers already have 3G-enabled devices. These people will be the first movers. 

In order for the customers to know and get the feel of 3G, MTNL is initially offering a trial pack for 15 days. The customer can get a first hand feel of exactly what 3G is all about. They can experience the service, and MTNL is sure that after getting the feel of the same the customers would not like to go back to 2/2.5G data services.  

Meanwhile, for its 3G network, MTNL has already migrated to a NGN IP based core network for mobile. Initially, it will have the capacity to handle 7,50,000 3G subscribers. Later, it will install a 700+ Node-B (3G BTS) to encompass Mumbai/Thane/Navi Mumbai.  

To improve overall service experience, operators will need to allocate spectrum for 3G to provide improved voice services. However, this is unlikely to impact the ability to provide richer VAS services. The eventual cost of deploying 3G networks may deter operators from rolling out 3G networks to the entire existing customer base, meaning that some segments will not have immediate access to 3G. The cost of deploying the networks may impact the pricing strategies for service packages offered to the market, with operators adopting different strategies to attract new subscribers and cover their investment costs.

nivedan.prakash@expressindia.com