Even as the industry waits for 4G to change the face of the Indian telecom sector, 3G continues to be a key propellant of mobile broadband growth. The usage and subscription numbers for 3G data over the past year indicate a flourishing market; a trend that is expected to become more prominent in 2015. As per the Nokia MBit Index, 3G data consumption grew at 114 per cent during 2014, with 52 per cent of the total data consumption in December 2014 attributed to 3G. This contribution is likely to go up to 62 per cent by the end of 2015.

A large part of this growth is due to the maturing Indian 3G ecosystem. Improved device availability and affordability, enhanced service coverage and capacity, and competitive price points have helped bring about a paradigm shift in user preferences from 2G to 3G services. The recently concluded auctions have made more spectrum available for 3G service provisioning in the 2100 MHz band, while policies like spectrum liberalisation now allow 3G services to be offered in the 900 MHz spectrum band as well.

A maturing ecosystem

The Indian 3G story has been one of great expectations, which have remained unmet time and again. Its level of adoption has been extremely disappointing during the initial few years since it was launched at the end of 2010. It is only in the past two years that 3G services have picked up, with India having close to 70 million active 3G subscribers by the end of 2014. Its adoption, however, continues to remain high only in select pockets across metros and Category A and Category B circles, while Category C users are warming up to these services. This is primarily because users in metro and Categories A and B circles have a better knowledge and understanding of high speed internet and the way it changes lives.

That said, total 3G data usage exceeded 2G data usage across all circles in 2014. As per the MBiT Index, an average 3G subscriber consumed over three times more data than his or her 2G counterpart. While 3G data usage has more than doubled across metros (120 per cent) and Category A (129 per cent) and Category B (107 per cent) circles during 2014, its growth in the Category C circle stood at 90 per cent during the year. In contrast, 2G data services have only grown modestly: 53 per cent in metros, 36 per cent in Category A circles, 33 per cent in Category B circles and 65 per cent in Category C circles. The data clearly indicates that 3G is surpassing 2G as the key platform for delivering mobile data in the country.

This paradigm shift from 2G data to 3G data services has been a result of multiple factors that are working simultaneously to push 3G services in a big way. To begin with, operators have made significant investments to upgrade their infrastructure and networks for enhancing 3G coverage and capacity, using the limited spectrum available to them. They have signed intra-circle roaming (ICR) agreements to reach out to customers in circles where they did not have spectrum. The situation will now improve as several 3G players have picked up more spectrum in the 2100 MHz band, and they also plan to launch 3G services in the more efficient 900 MHz band. Bharti Airtel has already announced the termination of its controversial 3G ICR agreements with Vodafone India and Idea Cellular in various circles across the country, except Kerala, by the end of 2015-16.

The second major push has come in the form of a developing 3G device ecosystem. As per the MBiT Index, India shipped a total of 258 million handsets, of which 56 million (about 22 per cent) were 3G-capable devices. Of the 77 million smartphones shipped during the year, over 70 per cent were 3G devices.

Tariffs have also been instrumental in bringing more users on board. India is a highly price-elastic market when it comes to telecom services, and by bringing 2G and 3G data tariffs at par to a great extent, operators have been able to encourage users to try the latter. In fact, Bharti Airtel is now using the same strategy to help its 3G users transition to 4G. Meanwhile, state-run Bharat Sanchar Nigam Limited has also announced its plans to slash 3G data rates by at least 50 per cent once its next phase of network expansion is completed.

The increased 3G uptake is reflected in operator revenues and profitability, both of which have improved remarkably over the past few quarters. For instance, data contributes nearly 17 per cent of Idea Cellular's service revenues. The number of 3G data subscribers has doubled from 7.2 million for the quarter ended March 2014 to 14.5 million for the quarter ended March 2015. The data ARPU for 3G services has also increased from Rs 164 to Rs 209 during the same period. Similarly, for Bharti Airtel, data contributes nearly 18 per cent of its service revenues. 3G data subscribers have grown by 90 per cent from 10.25 million during end-March 2014 to 19.4 million by end-March 2015. The data ARPU for 3G services has also increased from Rs 133 to Rs 176 during the same period.

3G vs 4G

4G has the capability to open up a new mobile broadband world to its users. It is expected to deliver speeds that are about 10 time faster than those offered by 3G, as well as promising faster connection times and assuring an always-on service experience. While several operators are set to join Bharti Airtel and Aircel on the 4G bandwagon, the commercialisation of these services is still a few years away in India. At present, there are less than a million 4G subscribers in the country, despite Bharti Airtel launching these services in early 2012.

In the medium term, 3G services will continue to coexist with 4G services. First, 3G coverage in the country is going to be better than 4G till deployments take place in the 2300 MHz band. It is only when they are launched in the 1800 MHz band that superior coverage can be expected. Moreover, since voice over 4G is still at a nascent stage, the industry will need 3G networks to carry voice.

Outlook

While the growth of the 3G segment over the past year has been commendable, there is still a long way to go for India to shine on the world map in terms of mobile data usage. A study by Facebook-led Internet.org that was released in early 2015 highlighted the fact that India stands at the lower end of global data usage. Only 13 per cent of subscribers in India are using 3G/4G networks, even though high speed mobile data services have been around for over two years.

Clearly, the service segment still has a huge potential for higher growth and penetration. Category C circles have a huge user base that is yet to adopt 3G data services in a big way. Moreover, India has about 130 million 3G-capable devices and only 69.9 million active 3G subscribers.

Another area that requires immediate attention is quality of service (QoS). While the reach of 3G services has improved significantly in the past couple of years, users still face call drops and patchy coverage. Interestingly, in the performance indicator report released by the Telecom Regulatory Authority of India (TRAI) every quarter, the parameters that show improvements in 3G QoS are always fewer than those showing deterioration. For instance, during the quarter ended September 2014 (as per latest information from TRAI), the point of interconnection congestion was the only parameter that registered an improvement. In contrast, the parameters that deteriorated include Node B's accumulated downtime, the worst-affected Node B's due to downtime, and the worst-affected cells having more than 3 per cent call drop and circuit switched voice drop rates.

Going forward, the outlook for 3G services in India is quite positive. Operators who have invested heavily in 3G infrastructure roll-outs will ensure that adoption picks up further. Tariffs are unlikely to be slashed further, and operators can increase 2G data tariffs to bring them at par with 3G. They might also consider increasing 3G tariffs slightly to compensate for the huge outgo on spectrum recently. The focus will mainly be on improving service quality and providing relevant content to improve user experience.