3G is gradually coming of age in India as operators are witnessing growth in their data subscriber base and volumes, which is also reflecting in revenue growth. The segment, however, still faces several challenges, such as lack of adequate spectrum and coverage. Industry experts share their views on the key trends, operator strategies and challenges as well as the way forward for the 3G industry in India…

How has the 3G landscape evolved in the country? What have been the key trends in this space?

Rahul Agarwal

While advanced technologies like 3G (HSPA) and 3.5G (EVDO/HSPA+) were introduced in India in 2010, the uptake was nowhere close to industry expectations. The initial euphoria evaporated quickly as the response was subdued owing to high tariffs, expensive 3G handsets and coverage issues. Indian consumers and the market in general are price conscious. Besides, 3G services initially suffered network/coverage issues due to which services could not take off. However, recent developments have been encouraging as operators have slashed tariffs leading to an increase in the subscriber base as well as data volumes. According to the Nokia MBiT Index, 3G usage witnessed more than 100 per cent growth in 2014. This was owing to better coverage, increased affordability, availability of 3G handsets and initiatives by operators to reduce tariffs significantly. The market can expect widespread adoption of these services now that the prerequisites are in place in terms of network coverage, pricing and content.

Kunal Bajaj

In the past one year, data consumption has gone up significantly. A number of operators have reported higher data usage and data revenues in their recently announced quarterly results. Data usage in the country is doubling every nine months but how much of it is 2G and how much is 3G differs from operator to operator. Clearly, data consumption, particularly 3G, is coming of age in India. In order to stay ahead, it is important for operators to have a strong 3G data strategy in place. In fact, leading operators including Bharti Airtel bought 3G spectrum in the previous round of spectrum auctions. Investments in 3G are becoming mainstream, with operators looking to expand their 3G footprint.

Bharat Bhargava

The Indian telecom industry’s 3G journey began in 2010 with a high intensity spectrum auction for which operators invested a staggering Rs 677.19 billion to acquire airwaves, clearly demonstrating their strategy to focus on data for driving the next phase of growth. Four years after 3G service launch, the massive upswing in data services has led to a considerable increase in demand for 3G. While voice continues to retain a considerable share in revenues, the growth in data services has been manyfold. Currently, nearly 93 per cent of the 254 million internet subscribers in the country access the internet via mobile devices, while the total mobile broadband connections in India stand at 97.4 million. This gap highlights the latent potential for the future growth of mobile broadband.

The 3G subscriber base of the top four operators doubled to 63.1 million in the third quarter of 2014-15 from 31 million in the third quarter of 2013-14. Riding on this data wave, telecom operators registered high earnings before interest, taxes, depreciation and amortisation (EBITDA) margins of about 70 per cent on 3G data, one of the largest contributors to EBITDA uplift over the past two years.

One aspect of the 2010 auction was that no single operator received pan-Indian spectrum. Therefore, operators entered into intra-circle roaming agreements to offer 3G services to customers. Since then, operators have participated in other auctions and expanded their 3G footprint. This has further increased the availability of 3G services. Going forward, the increased demand for content, coupled with the rising popularity of over-the-top (OTT) services will drive growth further.

Hemant Joshi

The current 3G coverage in India is between 30 per cent and 50 per cent of the 2G coverage, depending on the circle. So far, 3G uptake has been slow with adoption being witnessed mainly in Tier I cities and metros. This is not only due to the slow speeds being provided, but also the lack of relevant applications and regional content. According to a recent MBiT Index study by Nokia, which analyses mobile broadband performance in India, there was an increase of 74 per cent in mobile data traffic generated by both 2G and 3G mobile broadband services at the end of 2014. Smartphone prices have been consistently coming down and this has, to some extent, helped in the uptake of 3G services. However, lower tariffs and lack of pan-Indian coverage have been major hindrances.

Ashish Khanna and Priyabrata Das

A significant number of subscribers across India are switching to smartphones. Consequently, there has been huge data consumption by mobile subscribers over the past few years, supported by declining data prices. This growth trajectory of data consumption has been primarily driven by 3G. In fact, the total number of 3G subscribers in India is estimated to be in the range of about 70 million (2014). This translates into a 3G adoption rate of less than 10 per cent.

The drivers of 3G consumption are primarily OTT services such as chat, audio and video downloads as well as gaming. Further, the increasing usage, availability and affordability of smartphones are resulting in a remarkable growth in mobile data traffic. With PC penetration still hovering around single digits, smartphones are becoming the de facto device for accessing data and video services. In addition, growth and interest in popular mobile applications are driving the demand for 3G services. Most Indians access the internet via their phones; in fact, a significant portion of e-commerce transactions is taking place through smartphones. This will potentially take operators’ data strategy to the next level and pave the way for new opportunities and business models. Going forward, it is expected that subscriber and revenue growth will be spearheaded by data. No doubt, this is also contingent on subscribers making investments in 3G-enabled smartphones to access high-end data services, enhanced affordability and availability of cheaper smartphones.

What can operators do to increase 3G uptake in the country?

Rahul Agarwal

Enhanced user experience, affordable devices, optimal pricing, content and awareness will help increase the adoption of 3G services in the long run. The focus of stakeholders must be on developing the overall ecosystem, which includes a robust network, access devices and dedicated applications. Going forward, many 2G subscribers will upgrade and switch to 3G services since the price differential between the two is expected to come down significantly.

Kunal Bajaj

To encourage the uptake of 3G in the country, operators need to concentrate on three areas. First, the industry needs to ensure that high quality 3G devices are available in the market. At present, 3G-enabled phones are available at various price points, but they fall short of providing a holistic user experience because of poor screen quality. Second, in terms of content, there have been encouraging developments in the application ecosystem; however, a lot still needs to be done in the vernacular ecosystem space. Third, rapid data uptake is taking place by word of mouth. However, to get more users to join data networks, the industry needs to educate people regarding the benefits of 3G over 2G.

Bharat Bhargava

The recent spectrum auction indicated operator’s data-centric strategy and their focus on mobile broadband acceleration. Around 78 million users access the internet through mobiles as against a total wireless subscriber base of 987 million. This clearly reflects the huge untapped potential in the market. Investments in the rural hinterland will be critical, especially in Tier II and Tier III cities. Currently, subscriber additions in rural areas are more than those in urban areas, and this is expected to increase over the next few years. Telecom operators will shift gears and bring in data services that cater to the needs of this segment. Leveraging the urban market data experience would be beneficial for increasing adoption in this segment.

Worldwide, 3G has witnessed a slow start in terms of network reach, handset ecosystem, service affordability and mass appeal. The Indian ecosystem is already in place with a robust 3G handset ecosystem and low cost of infrastructure. Operators now need to focus on bringing in the affordability factor to serve the price-sensitive Indian subscriber. Currently, there is a digital literacy gap with limited knowledge inhibiting the ability to use the applications and their features. Creating awareness of the benefits of data services can significantly increase demand. The expansion of coverage, including indoor coverage, will drive penetration and adoption. Certain operators are deploying 3G services using 900 MHz spectrum (spectrum refarming). The deployment of 3G services in lower frequency bands would improve the customer experience through better indoor coverage. While services and content are increasingly becoming available, operators can help with the promotion of vernacular content, thus improving 3G service adoption. Focus on education, health care and smart cities will play a key role in increasing the penetration of 2G, 3G as well as 4G services.

Hemant Joshi

Operators can increase 3G uptake through innovative data services with local and regional content, and low-cost smartphones ranging from Rs 5,000 to Rs 10,000. The key would be to provide relevant applications, higher speeds and a better user experience. Studies show that most users do not find any difference in the speed of 2G and 3G services.

Ashish Khanna and Priyabrata Das

While India has a sizeable number of 3G-capable devices, only about 70 million subscribers (2014) are active 3G users. This indicates a siginificant opportunity for further 3G penetration.

It is imperative for operators to realise that India is a diverse and varied market. The mobile broadband market is dynamic and evolving continuously. In fact, various subscriber segments have different requirements and preferences while using mobile broadband.

Industry observers believe that the barriers to 3G adoption are affordability of smartphones, lack of awareness and customers’ perception regarding the unavailability of value-for-money 3G tariff plans. Therefore, to overcome these hurdles, operators need to develop new pricing models that would allow subscribers to utilise 3G services more effectively.

What are the key challenges faced by telecom operators in the 3G domain?

Kunal Bajaj

In the 3G domain, operators are facing challenges related to lack of spectrum, inadequate infrastructure and low service pricing. For example, the pricing of 3G services in the country continues to be low and is not commensurate with data consumption. Therefore, operators need to strike a balance between pricing and the growing adoption of 3G data.

Bharat Bhargava

Spectrum availability continues to be low, which poses a challenge for most operators. In India, operators hold an average of 2x5 MHz spectrum in the 2100 MHz band, which is considerably low as compared to their global counterparts in Australia (2x60 MHz, 20 MHz unpaired) and Singapore (2x59.4 MHz, 15.1 MHz unpaired).  The current quantum of spectrum is insufficient to meet the demands of providing seamless connectivity. The existing networks are constrained in certain circles, thus impacting the quality of service. Operators have made huge investments in acquiring spectrum, which has put pressure on margins and strained balance sheets. With their recent spectrum acquisitions, operators will be looking to roll out 3G/4G-networks in a big way.

Regulatory uncertainties regarding spectrum-related issues including spectrum sharing and trading norms have also inhibited operators from planning their data strategy. While the government is yet to formally approve the guidelines, if accepted, the trading and sharing of spectrum can provide an alternative solution for operators to effectively plan their spectrum roadmap.

Hemant Joshi

The key challenge faced by operators in the 3G segment is the lack of spectrum in efficient bands. Moreover, low data tariffs are impacting the revenue of 3G service providers. Also, lack of awareness and limited coverage are hindrances in service uptake.

Ashish Khanna and Priyabrata Das

The affordability of smartphones and 3G tariff plans is a major bottleneck in large-scale mobile broadband adoption, especially in a market like India where various socio-economic factors impact price sensitivity and dictate buying decisions. A large number of Indian smartphone owners believe that mobile broadband is expensive. In addition, lack of awareness about the advantages of 3G services amongst consumers poses a big challenge. A significant proportion of smartphone users do not have adequate knowledge about applications and digital services. Moreover, the 3G network coverage needs to be strengthened in order to increase uptake. However, the challenge for telecom operators is to invest in 3G roll-outs, over and above the significant capital outlays that most operators have made in the recent spectrum auction.

What kind of tariff movement do you foresee in the 3G segment?

Rahul Agarwal

3G tariffs in India have already been slashed and any further discount in the near future does not seem likely. Since telecom operators have invested a lot of money in 3G spectrum, they need to increase their subscriber base significantly. Going forward, operators can increase their 2G tariffs and bring down the differential between 2G and 3G tariffs so as to encourage users to switch to 3G.

Kunal Bajaj

Undoubtedly, the industry would want 3G tariffs to go up. However, for players, it would be difficult to get more people on board with higher data pricing. As of now, operators will have to manage with the current level of tariffs for more people to connect to data networks.

Bharat Bhargava

The Indian telecom market is highly competitive and has one of the lowest tariffs in the world. Despite the high input costs, operators have always competitively positioned their 3G tariff plans to increase adoption. In fact, while the country is gearing up for the large-scale roll-out of 4G services, 4G tariffs are at par with 3G tariffs, and in some cases even lower. With the increased focus on 3G services, operators can reduce prices under promotional schemes in the short term, but in the long run, we do not expect prices to go downward. The commercial viability of reducing tariffs further would not be feasible.

Hemant Joshi

After the recent spectrum auction, we may see an upward trend in 3G data tariffs in order to sustain business, as the future of the telecom industry depends on data revenues.

What is the way forward for 3G in India, especially as operators draw up plans to launch 4G services in the future?

Rahul Agarwal

Frost & Sullivan expects 3G on handsets to grow significantly and lead the growth of mobile broadband in India going forward. As per Frost & Sullivan estimates, the number of 3G subscribers on handsets is expected to reach 232 million by 2018. The number of 3G subscribers through USB modems is expected to reach 135 million. Together, the two segments would account for close to 367 million subscribers. While 4G has been launched, it will take some time for this technology to gain widespread acceptance and, therefore, 3G will continue to be the dominant technology in the Indian market. Since telecom operators have invested heavily in 3G, they will look to monetise these investments.

Kunal Bajaj

In India, 3G will remain complementary as operators cannot let go of 3G, having made significant investments in it. Further, 3G coverage in India is always going to be better than 4G, which is largely being achieved through deployments in the 2300 MHz band. Unless and until operators deploy 4G in the 1800 MHz band they cannot expect to achieve superior coverage. For pushing optimal data consumption, operators will continue to focus on 3G networks. Moreover, voice on 4G networks is still work in progress and, therefore, the industry needs 3G networks to carry voice services.

Bharat Bhargava

Both 3G and 4G will have to coexist for us to reach the target of 600 million broadband connections by 2020. The 4G ecosystem on 2300 MHz is still in the development phase and only a few operators have commercially launched services. The 3G ecosystem is well positioned as compared to 4G and the adoption of 4G will be progressive. In the recent auction, operators acquired contiguous spectrum in the 1800 MHz band and will be looking to deploy 4G services in this band. The ecosystem in the 1800 MHz band is significantly more developed and will drive penetration. Given the multiple spectrum band options for the deployment of 4G services, this technology will be deployed by multiple (existing as well as new) operators. New operators would strive to ensure “massification” of these services. Healthy competition amongst technology options would lead to more roll-outs, thus improving adoption. Both 3G and 4G technologies will be critical for the digital India initiative and building a nationwide mobile broadband network.

Ashish Khanna and Priyabrata Das

In India, 4G is still at a nascent stage. While there are a few smartphones capable of supporting 4G networks, the number of subscribers using 4G on their smartphones is actually minuscule.

Nonetheless, it is widely believed that 4G will have a major impact on India’s telecom sector. Subsequent to the 2300 MHz broadband wireless access spectrum auction in 2010, some operators did launch 4G services in select circles and others are expected to do so across the country soon. Some players may reportedly offer 4G services at price points similar to those of 3G services. Therefore, 3G service providers need to consider this as part of their growth strategy.

4G is expected to deliver higher speeds than 3G and lower latency, thereby enabling users to download more content. The degree of impact of the launch of 4G on the 3G market will depend on 4G tariffs, the extent of 4G coverage in urban and rural areas, as well as the scale and nature of the 4G offerings. However, one must also keep in mind that while 3G offers reliable voice, 4G voice (say, VoLTE) is yet to be conclusively proven to be suitable for commercial and mass deployment in a country as vast as India. Overall, it is expected that 3G will be the mainstay for data consumption over the next two to three years.