Lull after the Storm- What’s up with 3G Launch in India?

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