It has been several months since the conclusion of 3G auctions amidst much global attention and media hype. The government earned more than Rs. 67, 500 crores and the telcos ended up with huge debts on their balance sheet. Things, however, seem to have been a little silent off-late on the 3G front. In the next few paragraphs we will dig beneath the surface to understand what’s up with 3G in India.
So, what’s going on?
Since the auction several leading operators such as Bharti, RCom and TTSL have ramped up their existing infrastructure and signed contracts with leading vendors in order to support the launch of 3G services. While Huawei and ZTE are the vendor partners for RCom, TTSL has recently selected NSN as its 3G equipment vendor. Most operators are now waiting for the government to release the spectrum- which is slated to happen on the 1st of September 2010- in order to get their 3G radio network up and running. In all likelihood, customers can expect 3G services to be a reality in India by the end of this year or latest by early next year.
What to expect?
In the voice segment, falling ARPU’s (Average Revenue per User), high competition, and price wars have been the pain point for operators. VAS currently contributes only ~10% of the revenues of telcos, most of which comes from SMS. Operators are therefore increasingly looking at new non-voice services to boost their revenues. The advent of 3G is expected to drive this transition. Consumers can thus expect a host of high bandwidth consuming value added services (VAS), focused primarily on music and gaming, and high speed mobile broadband in the first leg.
Most operators in India are facing an acute spectrum crunch especially in the metros. The newly acquired 3G spectrum will enable telcos to decongest their existing 2G networks by creating more capacity for voice. Consumers are therefore likely to enjoy superior voice quality and fewer call drops.
The combined effect of 3G launch and mobile number portability (MNP) services, which are likely to be rolled out nationally by October 31st, will indeed make subscribers the king! Operators will endeavor to differentiate themselves by offering superior VAS, high quality voice calls, and improved customer service in order to poach subscribers (especially the high income post paid users) and earn incremental revenues. With their numbers not being tied to an operator anymore – thanks to MNP- it will be a win-win situation for customers.
What not to expect?
The 3G auction has cost the operators dearly and most of them have paid hefty prices to acquire the spectrum. As a result, telcos are likely to stay away from tariff wars. Customers should therefore not expect 3G services to be offered at extraordinarily cheap prices as operators will charge a premium for these services.
To begin with, mass rollout is also ruled out as not everybody will be willing to pay for high priced VAS and broadband. Operators will opt for a phased implementation of 3G services with the creamy layer in metros and the major cities being the primary target segment. Though the promise of 3G bringing mobile broadband to rural areas and small towns, where fixed lines have not yet reached, sounds encouraging, in reality this is unlikely to happen as it won’t contribute to an operator’s topline.
Services such as video calling and mobile TV which are being pegged by some to be the main drivers of 3G in India are likely to remain mere hype’s and buzzwords as the main focus of operators will be on segments such as music and gaming which generate high user traction and contribute significantly to operators VAS revenues. Even globally, video calling and mobile TV have failed to make a mark (barring the exception of few countries such as Japan) due to high cost of the service and poor user experience.
3G auctions in India created a lot of buzz globally followed by a phase of silent calm. But this silence is the precursor to the storm which can be expected with the launch of 3G services in India shortly!
What’s your opinion?
Also see: Price of 3G Services in India [Poll]
About the Author: Priyank Nandan is a telecom and media consultant based out of Mumbai, India (however the views expressed here are purely his own). Prior to his stint in Management Consulting, he worked for a global IT products company in various roles. Priyank is passionate about the converging telecom and media industry and closely follows this space. You can reach him at priyank.nandan@gmail.com or follow his blog at http://doorbhaash.blogspot.com
3G launch would probably kickstart a multitude of economic activity in the country. Think of all the advertising, all the new cell phones sold, new jobs created (?).
Priyank, any analysis on the multiplier effect of 3G launch on the Indian economy?
Thanks for your comment Himanshu.
Yes, 3G launch could have (and eventually would) kick-started a lot productive economic activity in the country had the auction price of the spectrum been a little less exorbitant. But atleast for the next couple of years, I see 3G acting as a driver for operators and VAS players in India to increase their revenues. From a consumer perspective, it will most likely enhance the user experience of existing high bandwidth value added services, usher a whole new range of VAS, and provide us with much needed on-the-go high speed broadband. 3G has a huge potential of having a positive multiplier effect on the Indian economy by bringing its benefits to many sectors such as Agriculture, Education, Healthcare etc. However, in reality, I believe there is still time before operators will actually look at 3G as a medium to solve some of our most crucial economic problems. BWA I think has a much stronger potential that way.
Interesting analysis. In my opinion, the 3G services business case in India does not look good unless supported strongly by uptake of wireless broadband through embedded devices, laptops, netbooks, smartphones and the like. The trick will lie in pricing – increase revenue yield while also increasing penetration. Seems like a tough one to crack. I see you have covered this point already. Again – here is an interesting piece of data from a business standard article – “Indian telcos generate about 30 per cent of their revenues, and 45 per cent of Ebitda margins from the top 10 per cent of their user base”.
Operators need to hold on to their top 10% (in MNP regime after October!) and also succeed in upselling to more users. Only then can they recoup investment from the exorbitant price of over $4/MHz/pop that they have paid (may be very much higher if we refine the definition of “pop” to only high paying users)
Absolutely Sushant, and that’s the whole point about poaching. In the MNP regime, there will be a lot of push from operators to have the top 10-20% of customers on their side. So operators need to hold on very tightly to their existing cash cows.
http://www.telecoms.com/files/2010/05/coleago-india.jpg
Aamchi mumbai beats the shit out of rest! Good luck to operators in making money out of this
Nicely written Priyank! Good time for us to come out with our concept of geo-browsing it seems
We are developing mobile apps that smartly remind you of nearby places you may need (say, to buy a hair dryer on your way home from that store with the best deal or to try this pani-puriwala coz ur friend liked it!) Its like information without searching.. How does it sound to you? Wish us good luck!
Interesting concept (of the app). WHy don’t you submit the same @Appnomy.com.
Pingback: I am Bulk SMS. And I will self destruct myself | Perspectives