The Indian telecom industry has undergone a radical change over the past decade. From a mere 5.07 million subscribers in 1991, the mobile subscriber base has ballooned to reach 826.25 million as of February 2011. Globally, there are currently about 6 billion mobile subscribers.

Over the past decade, operator revenues have mainly grown on the back of voice traffic. This trend is set to change with the rollout of 3G and broadband wireless access (BWA) services. The revenue growth for the next decade is expected to come from the uptake of data services, as has been the global experience.

Globally, the rapid deployment of 3G technology has pushed up data usage to unprecedented levels. Many new applications such as video streaming, mobile TV, corporate solutions and multimedia services have became popular over the past few years. The large-scale adoption of 3G in developed markets has also led to the evolution of advanced versions of the technology, with higher capabilities including high speed downlink packet access and femtocells.

However, unlike in other countries, in India, 3G has been rolled out only recently and is yet to gain momentum in terms of nationwide coverage. Operators offering 3G services based on HSPA technology have introduced services such as video calls, mobile TV, high definition gaming, high speed mobile internet browsing and application stores. The initial response to these services, however, has not been encouraging. One of the key reasons behind the limited success of 3G services is poor end-user experience on account of issues related to data download speeds and network coverage. But with time, this will hopefully change for the better.

With 3G, innovation is crucial. Since the technology allows mobile broadband access of several Mbps to smartphones and mobile modems in computers, bandwidth-consuming applications like games, music download, accessing social networking sites and mobile TV are possible. Over the next couple of years, the Indian telecom industry is expected to witness a surge in demand for a wide range of multimedia services that can be facilitated by high speed data throughputs. Going forward, the trend will be towards any time, anywhere connectivity with rich user experience. While music and gaming have emerged as the key growth drivers on 3G networks in Europe and Latin America, video is expected to be the game changer in terms of 3G services in India.

According to a recent study by Wireless Intelligence, the number of 3G subscribers in India will grow threefold between 2011 and 2015 to reach 400 million. This growth will be driven by the introduction of innovative technologies, decreasing prices of 3G/HSPA-enabled handsets and enhanced user experience.

Applications market set to explode 

In recent years, Indian telecom operators have faced challenges related to driving profitable growth only on the basis of a voice-dependent business model. Declining ARPUs on voice-based services have called into question the sustainability of a voice-dependent business model. In this scenario, value-added services (VAS) have been emerging as a key platform to enhance the revenue streams of telecom players in the long run. 3G, with its technological advancements, will significantly augment telecom operators’ data carrying capacity, which, in turn, will give VAS providers an opportunity to offer and experiment with a vast array of content-rich, speedier, data-intensive and unhindered multimedia streaming services.

According to a report by consultancy firm PricewaterhouseCoopers (PwC), with the rollout of 3G and BWA services, India’s mobile VAS industry is expected to generate revenues of over Rs 550 billion ($12.4 billion) in 2015. During the year, the total revenue from communication services is expected to cross Rs 200 billion, whereas that from entertainment services is likely to reach Rs 250 billion, with the information services vertical accounting for Rs 79 billion. Information-based VAS will experience increasing uptake as the demand for news updates and medical services over the phone grows over the next two-five years.

The PwC report also states that transactional VAS will have the potential to contribute nearly Rs 16 billion in 2015, provided operators and banks are able to successfully address user concerns with regard to data privacy, usability and language of the applications.

While the market for mobile TV is currently limited, accounting for less than 10 per cent of the global mobile user base, it is expected to grow at a compound annual growth rate of 45 per cent between 2009 and 2013 to reach around 450 million subscribers by end-2013. The Asia-Pacific region is expected to account for 67 per cent of this subscriber base, with India and China being the primary markets for mobile TV.

3G technology can be effectively utilised to channelise a significant portion of digital advertising to the mobile platform. It not only helps to load advertisements faster but also enables service providers to incorporate richer media and content, thereby leading to a better consumer experience. With greater interactivity, advertisers have a dedicated market to target, which enables them to deliver better services at lower prices. In India, 3G advertising has the potential to generate significant revenues for the industry, but its success will ultimately depend on the pricing and service strategies adopted by operators.

Globally, mobile broadband has by far outpaced fixed line broadband. Malaysia is a case in point. Meanwhile, 3G mobile broadband has also witnessed tremendous uptake. It accounts for about 10 per cent of the overall broadband growth, with data revenues contributing significantly as a percentage of the total ARPU. The Indian telecom market is likely to follow a similar trajectory.

While financial services and mobile commerce using 3G networks have reached a new level of visibility around the world, they are only just beginning to emerge in India. 3G can help this industry take off in a big way and increase transaction volumes by making banking and payment solutions both convenient and secure. Face-to-face interactions between customers and bank officials through video calls increase the customer’s trust in the bank. For banks, online banking is cost effective as it enables them to reduce their opex significantly.

Meanwhile, the online gaming business, which is currently worth about Rs 1.5 billion in India, is expected to generate revenues worth Rs 6.7 billion by 2015. With 3G, at least 10 per cent more consumers are expected to download heavy data and content. The entertainment industry and social networking are also expected to witness an increase in uptake with the launch of 3G services. Other applications that have evolved on account of the availability of better technology include location-based services and physical security such as video surveillance across enterprises, large campuses and municipalities.

Moreover, 3G will be an effective tool for increasing rural penetration due to its ability to keep people connected at all times in a more advanced manner. It will act as a key enabler for undertaking social initiatives such as e-education and tele-medicine. In a country like India, where basic medical facilities have failed to reach isolated locations, 3G will provide a much-needed shot in the arm. Services ranging from medication reminders to remote diagnostics and monitoring services that have the potential to improve and extend life can be facilitated through videoconferencing and visually interactive mobile conferencing phones.

3G may well become the primary tool for achieving the government’s target of adding 20 million broadband users by end-2020. Rural banking infrastructure is also expected to receive a fillip with the remittance of funds through mobile phones becoming a possibility. Another interesting 3G application gaining momentum is e-education, wherein people can learn English through their mobile phones.

Further, as handset manufacturers enter the VAS ecosystem with powerful operating systems and associated application stores, the telecom industry is likely to witness both collaboration and competition among handset players, VAS vendors and service providers, as has been the case globally.

According to ABI Research’s estimate, mobile applications across the world continued to witness increasing uptake in 2010, with 7.9 billion applications downloaded in 2010. Apple’s iDevice ecosystem dominated the total applications download market worldwide, with a cumulative 5.6 billion applications downloaded in 2010, and the remaining 2.3 billion being downloaded by other operating systems. However, Apple is likely to face stiff competition in 2011 from both the Android market and Research In Motion (RIM).

Apple’s application store has over 350,000 applications and is available in 90 countries, while the Android market has over 130,000 applications with a presence in 48 countries. RIM has also been expanding its BlackBerry applications across the world, with its stores being set up in more than 100 markets. BlackBerry application downloads totalled approximately 1 billion as of December 2010 (according to ABI estimates).

In India, application downloads are catching on fast and to capitalise on the trend, more mobile network operators are considering an entry into the mobile applications market. Idea Cellular, for instance, has unveiled an online application store in 2011. Reliance Communications has also announced plans to launch its own application store this year. Other leading operators including Bharti airtel, Vodafone Essar and Aircel have already launched their application stores in 2010.

With operators adopting the application store concept and launching their own stores, the mobile content sector is set for considerable advancement as data consumption gains traction in the country.

Issues and challenges 

3G and its associated applications have their own set of challenges. These include strained networks owing to high mobile data traffic from extensive smartphone usage, which can impact the quality of service being offered by the operators. 3G networks are also likely to face issues related to network congestion as an increasing number of users subscribe to these services.

Another impediment to the adoption of 3G applications is related to malicious threats received by mobile devices, which necessitate mobile-specific security. Mobile devices containing large amounts of storage capacity are highly susceptible to similar threats affecting computers connected to the internet, but security tools used in these phones are not as advanced as those used in computers.

Going forward 

3G offers a great opportunity for companies to emerge as integrated telecom solution providers in the telecom market. Handset manufacturers, carriers and media companies need to identify the key growth segments and form partnerships with various players including content developers and technology platform enablers for delivering optimised service offerings to consumers. They also need to revamp their existing business models.