The Indian telecom sector, with a wireless subscriber base of over 320 million and growing exponentially, is now gearing up for the rollout of 3G networks. At the recently held 3G India Forum, industry experts including the communications and IT minister, representatives of leading telecom operators, handset vendors and content providers discussed the opportunities and challenges the sector will face as it embarks on its next phase of growth with the launch of 3G services in 2009. The key takeaways from the event are as follows...

With the much-anticipated 3G and Wi-Max spectrum auction process expected to kick off, the wait and watch game for 3G seems to be coming to an end. Wi-Max and 3G spectrum auctions have been scheduled for January 2009.

With the reserve price for a pan-India block of spectrum fixed at Rs 22 billion and five blocks of 3G spectrum expected to be auctioned, the government is expecting to mop up more than Rs 400 billion through the process. About four blocks of broadband spectrum will be auctioned, each with a reserve price of Rs 11 billion.

Many international and national telecom companies are expected to bid aggressively for the licences, especially the licences for coveted metros like Mumbai and Delhi. "Both Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) have already been allotted 3G and Wi-Max spectrum. While MTNL is expected to launch 3G services in Delhi in December 2008, BSNL will do so in Chennai in January 2009. Introduction of 3G services will undoubtedly catapult the Indian telecom sector to new heights at par with developed markets," said A. Raja, communications and IT minister.

3G opportunities
The launch of 3G services in India is being viewed as the biggest thing to happen in Indian telecom since the New Telecom Policy, 1999.

"3G is not just a technical platform, it is a complete new communications system and a sea-change from analog, 1G and 2G," said T.V. Ramachandran, director general, Cellular Operators Association of India (COAI).

Globally, 3G has been a phenomenal success with 260 million 3G/HSPA subscribers and 221 networks. While it is clearly a superior technology for mobile telephony, it is the other diverse uses that 3G can be deployed for that give rise to a whole new ecosystem.

For instance, mobile broadband has grown at a rapid rate and mobile broadband users have exceeded fixed line broadband users in global markets. India is expected to take the same route. There is a clear growth path for mobile broadband whereby GSM subscribers migrate first to 3G/HSPA and then to long-term evolution (LTE).

Most operators the world over have witnessed an increase in their average revenue per user (ARPU). For instance, for Hutchison 3 in the UK, data ARPU has grown nearly 100 per cent since the launch of 3G services.

In addition, according to Anssi Vanjoki, executive vice-president, markets, Nokia, 3G/HSPA helps to bring down the cost per bit, which reduces with the increase in traffic. The technology also has a faster investment cycle.

3G will play a key role in increasing broadband penetration in the country, which is currently languishing at a little over 5 million and has been a key focus area of the government for a long time. It will also address last mile connectivity issues. In fact, wireless internet access is already a trend in India. "More internet users are added every year on the mobile in India than the cumulative wired base till date," said Abhay Savargaonkar, senior vice-president, 3G and network quality, Bharti Airtel.

While in global markets, 3G is viewed as a service primarily for urban areas, in India, it will make an invaluable contribution to the rural areas. With higher data speeds, 3G will become the predominant platform to achieve the government's broadband objectives and to undertake key social initiatives such as e-education and telemedicine. "In India, the introduction to the web for some segments of the population will be via the mobile," Vanjoki observed.

For consumers, 3G would mean a better voice experience, ubiquitous connectivity and the convergence of mobility and the internet as it is a means of access to the internet and the content it offers.

3G is a viable alternative to some of the issues that operators are grappling with today. For instance, from a 2G standpoint, there will be a slowdown in growth in the urban areas with urban teledensity in metros exceeding 70 per cent. The country is already facing ARPU challenges with ARPUs currently at $7, which is approximately 18 per cent of the global ARPUs of $42-54. These ARPUs are going to further reduce as operators increase their rural coverage. This is because most of the subscriber additions will come from low income rural customers as growth rates in metros and category A circles are slowing down and the growth rate in Categroy C circles is the highest. The rural areas clearly hold the key to the next wave of growth.

Another major issue that operators are contending with is the lack of 2G spectrum, particularly in bigger cities and congested areas, which results in poor quality of service. "The higher voice capacity of 3G will help alleviate the spectrum crunch in urban areas and deliver satisfactory quality of service to Indian consumers," noted Savargaonkar.

While 3G has clearly been a huge success in markets across the globe, its impact in markets closer to India like the AsiaPacific region has been studied in greater detail to determine the key learning for India. "After HSPA was launched in Singapore in the last quarter of 2006, its quarter-on-quarter growth rate has been as high as 83 per cent. Today, 3G mobile broadband accounts for 6 per cent of total broadband. Data revenues as a percentage of total ARPU have also increased significantly," said Savargaonkar.

In Malaysia, data revenues jumped from about 17 per cent to 25 per cent with the launch of 3G. This technology also helped sustain ARPUs. In Indonesia as well, a country similar to India in terms of its complicated terrain and poor fixed line infrastructure, the number of mobile broadband subscribers rose with the launch of 3G and both ARPU and revenue from value-added services (VAS) increased.

Going by these examples, the launch of 3G in India will clearly lead to a rise in data revenues and will also stem the fall in ARPUs. It will also help in decongesting the existing 2G networks as heavier users can be shifted to 3G networks.

Additional value-added services will be available to consumers and content will be key to 3G adoption. High quality transmission of TV channels, downloading music tracks and streaming video are likely to be the killer applications.

"3G is now beginning to get into third gear and the uptake in global markets has been fairly recent. Given the benefits of scale on the equipment side, India is poised to enter the 3G space at the right time from an equipment and technology standpoint," noted Rajat Mukarji, chief corporate affairs officer, Idea Cellular.

Key challenges
The lack of adequate spectrum will be the biggest challenge to 3G services in India. The government is going to allocate only one carrier of 5 MHz spectrum per operator for 3G services. "While this may suffice for the initial one to two years, as more users migrate to 3G networks, coverage and capacity issues will arise. The government needs to draw up a roadmap for spectrum allocation in the future," said Savargaonkar.

The cost of spectrum is another bottleneck. Currently, operators in India are expected to pay a price next only to Germany, Italy and the UK for much lesser spectrum. For instance, in the UK, initially 3G services were slow to take off and operators were saddled with debilitating debts, having spent over 22 billion GBP for 3G spectrum.

Moreover, rapid growth in the 3G space will not happen in the matter of a day. In Singapore, for instance, 3G penetration levels of 44 per cent took a while to be established.

A fundamental bottleneck will be handset prices. The Indian market is extremely price-sensitive. Mobile services witnessed rapid growth only after handsets were available at very low costs and there was a major reduction in tariffs. Likewise, 3G handsets need to be affordable with price-points starting at Rs 3,500 and device tariffs of Rs 500-550 per month. "By 2010, the industry expects handset prices to hover around $100 and this will be the point of inflection for 3G services in India. In other words, 3G services in India are likely to witness a hockey stick growth from 2010," Savargaonkar commented.

"3G is likely to be initially used as a network overlay and tool to carry traffic and then as a revenue growth driver," said Mukarji. This is because since India is primarily a voice market with non-voice revenues accounting for only 9-10 per cent of total revenues vis-à-vis the global average of 25-42 per cent, it may be argued that 3G is not relevant for the Indian market.

According to Mukarji, market positioning, the target market segment and locations, the preferred 3G services (audio and video streaming, MMS, video clips), the coverage strategy, the network architecture (centralised or decentralised core network, IP or ATM transmission, etc.) and the 3G business model are some challenges that all operators will face as they introduce this service.

Clearly, while 3G has been dogged by controversies and several rounds of postponement, it is the new paradigm that holds a lot of promise and potential and also has its own set of challenges. Whether India will be able to replicate the success it witnessed with 2G services and become the poster boy for 3G as well, remains to be seen. But for now, the country is getting ready to launch 3G in 2009.