Affordability is the key to a bright future for Indian 3G

Tuesday, 28 June 2011 11:10  |  James Barton

The Indian telecom market has seen an average growth rate of 30% for the past many years, and today the number of mobile phone subscribers in the country stands at almost 600 million. This means that nearly half of the country’s population subscribes to cellular services – and according to Research & Markets, it was this growth that caused some telecom firms to bid as much as INR102.7 crore in the recently concluded 3G and BWA (Broadband Wireless Access) auctions.

While the 2G market in India is one of the fastest-growing mobile services markets in the world in terms of subscriber growth, the country reached the next stage in its progress towards advanced telecommunications technologies with the completion of the 3G spectrum auctions in May 2010 - admittedly after more than a year of delay. Out of the nine bidders, six private companies have won the 22 different circles. With no private company winning a PAN-India license, the market’s potential will be determined by the strategies likely to be adopted by the telecom service providers (TSPs).

The tariff levels in India are among the lowest in the world, and this is the primary reason for the wide adoption of mobile services in the country. The mobile penetration rate is forecast to reach 97 percent by 2015, with the rural population expected to adopt mobile services.

By 2012, within three years of launch, 3G services in India are projected to reach 50 million subscribers. After the recently-concluded 3G spectrum auction, key telecom operators in the country including Bharti Airtel, Reliance Communications, Idea Cellular, Tata Teleservices and Vodafone Essar are preparing to usher in the next-generation communication, content and entertainment experience for telecom subscribers.

3G services are likely to be launched primarily in the urban regions, where consumers have shown a higher preference for data services and have better affordability. Recently, the prices of the 3G-enabled handsets have started declining, and this is expected to accelerate 3G adoption in the Indian market. However, rural India is firmly on the radar of many operators as the future growth market due to saturation in the urban markets. Financial inclusion and Internet adoption would be an opportunity for rural penetration.

Reliance Communications has already announced the roll out of its 3G services, MobileNet Plan- providing unlimited Internet access, multimedia content download, instant messaging, chat services, and access to social networking sites and email to pre-paid and post-paid subscribers at an affordable Rs 99 per month. This is an early indicator of how the 3G technology is set to alter, surely and rapidly, the market dynamics in telecom and beyond.

In recent years, telecom operators in India have faced the challenge of driving profitable growth. Declining ARPUs (Average Revenue per User) and MPU (Margin per User) on voice services have brought call charges to as low as half a paisa per second, or even lower for certain operators, putting a question mark on the sustainability of a voice-dependent business model. Amidst this scenario, VAS is emerging as the long-term saviour for telecom players. 3G, with its technological advancements, will significantly enhance the telecom operators' data carrying capacity, allowing them to roll out speedier data-intensive and unobstructed multimedia streaming services.

Innovative 3G applications and services targeted at different customer segments are expected to drive the revenues of the TSPs from 3G services. Elite subscribers in the high-spending tech-savvy segment are likely to shift from 2G to 3G services and drive a higher growth with uptake of data-intensive applications. The growing popularity of mobile entertainment is a significant growth factor as access to mobile games and video-based content would need high speed. This would result in increased adoption of 3G services.

The average revenue per user (ARPU) for 3G services will be low in the initial stage. Security concerns raised by the Government on the telecom equipment imported into India have affected TSPs' network expansion and 3G rollout plans. However, the ban on importing equipment from Chinese vendors was recently lifted and this will likely improve the situation.

Success of 3G in India depends on factors such as availability of 3G handsets at affordable prices, attractive pricing schemes to suit the needs of Indian consumers, and innovation and localisation of mobile content. Telecom service providers would need to deploy innovative 3G applications and build a comprehensive value proposition to target consumers.

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