It has been over a year since 3G services were launched in the country. The segment has progressed despite a slow service uptake. In 2011, these services were made available in most circles where operators had 3G licences.

Going forward, the 3G segment is expected to witness a shift in operator focus from vanilla voice services to data services. This is important for operators as data services present a major revenue opportunity, given the current situation of declining average revenue per user (ARPUs) and profit margins. Also, these applications can be seen as a means to increase internet penetration as 3G service provision on low-cost handsets can counterbalance the high cost of customer premises equipment required for broadband services.

While there is no doubt that the proliferation of 3G services will be the way forward for the telecom industry, operators will need to adopt sharp strategies to increase service uptake. This will be a challenge considering the disagreement between service providers and the Department of Telecommunications (DoT) over roaming agreements.

tele.net looks at the key developments in the 3G segment in the past year...

In September 2010, the government awarded 3G spectrum licences to seven private operators – Bharti Airtel, Vodafone Essar, Idea Cellular, Reliance Communications (RCOM), Tata Teleservices Limited (TTSL), Aircel and S Tel – following the auctions in May 2010. The 3G auctions were a key milestone for both the government and the Indian telecom industry. The auctions for pan-Indian 3G licences added Rs 677.2 billion to the central exchequer, which is much higher than the estimated amount.

TTSL was the first operator to launch 3G services, in November 2010, followed by RCOM in December 2010. Bharti Airtel rolled out services in early 2011 and was followed by Aircel, Idea Cellular and Vodafone. Currently, S Tel is the only operator with a 3G licence that has not launched services. As of December 2011, India’s estimated 3G subscriber base stood at over 17 million.

State-owned operators Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) were awarded pan-Indian 3G spectrum two years before the private operators. Both companies launched these services in 2008-09, but have not been able to make much progress in terms of adding subscribers.

Key players

MTNL was the first operator to launch 3G services (on December 11, 2008). These services were initially launched in the Delhi circle, followed by Mumbai in March 2009. The company, which had around 750 base transceiver stations (BTSs) in Delhi and 720 in Mumbai as of March 2009, has upgraded most of its sites to offer 3G services.

BSNL, which has 3G licences for 20 circles, was the second operator to launch these services, starting with Chennai in February 2009. BSNL soon expanded its 3G footprint across 10 cities in north India. As of December  2011, the operator had extended its services to 829 cities and towns.

TATA DOCOMO, the GSM arm of TTSL, was the first Indian private operator to launch 3G services in India (in November 2010) across all its nine licensed telecom circles – Karnataka, Kerala, Madhya Pradesh and Chhattisgarh, Rajasthan, Gujarat, Uttar Pradesh (West), Punjab, Haryana and Maharashtra. TATA DOCOMO’s 3G services were being used by 15 per cent of its data users as of March 2011. The operator has witnessed a 30-50 per cent increase in data volumes on a month-on-month basis since its service launch.

Bharti Airtel made its 3G debut in Karnataka, its highest revenue generating circle, on January 24, 2011. Currently, Airtel’s 3G services are available in all Tier I cities and towns including Bangalore, Kolkata, Mumbai, Chennai, Coimbatore and Mysore. Airtel has 3G licences in 13 cities and it plans to cover over 1,500 cities by March 2012. The operator has also entered into roaming agreements with Vodafone and Idea to offer services in seven other circles. However, these deals are under the DoT scanner.

Idea won 3G spectrum in 11 circles, which account for 75 per cent of its existing revenue base and half of its national mobile revenues. It launched 3G services in March 2011. As on  December 31, 2011, the operator’s 3G footprint covered around 2,300 towns. Apart from its 11 circles, Idea has launched services in eight new circles through roaming pacts with Airtel and Vodafone.

The company plans to increase its 3G coverage to 3,000 towns by March 2012. To meet this target, the company adopted a strategy of launching 3G in 10 towns per day, for 365 days starting from the day of launch). The operator is aiming at 6,989 3G sites, which comprise 22 per cent of its current tower portfolio.

Vodafone introduced 3G services in February 2011 and has covered all its 10 licensed circles – Delhi, Mumbai, Chennai, Kolkata, Maharashtra, Gujarat, Tamil Nadu, Haryana, Uttar Pradesh (East) and West Bengal. The operator’s 3G services are available in over 200 cities.

By end-June 2011, RCOM had launched 3G services in all circles where it had licences, covering 333 towns. RCOM’s 3G network has been designed to offer blanket coverage, with all 3G sites connected through IP backhaul to provide maximum download speeds. The operator has installed 11,000 3G BTSs in 13 circles.

Beginning with the Chennai and Tamil Nadu circles, Aircel expanded its 3G coverage to Kochi, Chennai, Hyderabad, Kerala and Srinagar by March 2011. As of October 2011, Aircel’s 3G services were available in all circles except Mumbai, Delhi and Himachal Pradesh. In six circles – Maharashtra and Goa, Gujarat, Haryana, Uttar Pradesh (West), Rajasthan, and Madhya Pradesh and Chhattisgarh – Aircel has launched services through roaming agreements with TATA DOCOMO.

Operator plans and strategies

Initially, most 3G licensees rolled out services in Tier I and Tier II cities. Given that the majority of high-end users are concentrated in urban pockets, the focus is likely to be on urban areas for about two years, after which operators would expand coverage to rural areas.

Most service providers have not initiated large-scale 3G rollouts in semi-urban and rural areas as the device ecosystem is yet to develop in these regions. With declining handset prices, 3G-enabled mobile devices would become affordable for rural and semi-urban users in the near future, which would drive service growth in these areas.

Idea Cellular has been an exception to the general trend of service launch. It initiated 3G rollout in semi-urban areas and then moved to urban centres and metros. This is primarily due to the operator’s strong foothold in semi-urban and rural areas, unlike Airtel and Vodafone, which have a large presence in Tier I cities and towns.

Besides fast rollouts, content creation has emerged as a key focus area of operators to drive 3G growth. Several companies have launched application stores to attract new users to their networks and drive uptake among existing subscribers. For instance, Airtel has launched app central, which offers over 100,000 applications, while RCOM’s Reliance app world offers over 41,000 applications. Others include TATA DOCOMO’s Market Place, Aircel’s Pocketapps store, Vodafone’s app store and Idea’s Idea Mall.

Also, telecom companies have adopted various sales and marketing strategies to drive 3G uptake. Other operator initiatives in this regard include establishing service experience centres for users and providing free 3G applications to existing users on a trial basis.

So far, the 3G licensees have not adopted any aggressive tariff strategy. With minor alterations, the majority of licence holders are offering services at competitive prices. In fact, most operators believe that the 3G market is not likely to witness a price war in the near future as companies are focusing on the quality of services and relevant content, rather than low-priced services, to drive demand.

The various pricing strategies adopted by operators include packaging of 3G voice and data plans, and bundling these services with smartphones. The latter will help operators in creating a large permanent 3G user base.

Market share

As of June 2011, private players had a 74 per cent share in the 3G subscriber base, while 26 per cent was jointly held by MTNL and BSNL. At end-2011, the country’s total 3G subscriber base stood at 17.35 million. Among the operators, Bharti Airtel had the highest 3G subscriber base at 7 million subscribers.

Future growth drivers

It is estimated that India’s population in the 20-29 age group will cross 210 million by 2015. The current usage pattern shows that this population base would act as a key demand driver for 3G services. Further, 3G networks offer higher data download speeds as compared to 2G networks – 144 kbps-3.6 Mbps vis-à-vis 15-20 kbps. This factor will be a key driver for 3G service uptake.

The mobile subscriber base of over 850 million will be another important driver. Operators that have already launched 3G services are looking to convert their existing 2G subscriber base to 3G. Also, 3G-enabled handsets have become more affordable and will play a critical role in converting the existing subscribers in Tier I and Tier II cities into 3G users.

Content customised to the needs of the local market will be a major driver for 3G. Operators are gearing up to offer value-added services in local languages, which will increase adoption. The affordability of these services will be a deciding factor for growth in a price-sensitive market like India.

Going forward, 3G services are expected to reverse or at least halt the continuous decline in operator ARPUs. Also, given the large investments in 3G spectrum and licences, operators are looking at every possible measure to expedite service growth. Their marketing efforts are expected to result in rapid growth in service adoption.

Challenges

A major challenge for operators in expediting 3G growth has been the issue of roaming agreements. Telecom service providers signed 3G roaming agreements in early 2011. These tie-ups were a key strategy as none of the companies has a pan-Indian licence. Vodafone, Idea Cellular and Bharti Airtel were the first service providers to enter these agreements in order to provide seamless 3G services.

These operators, with their combined network coverage, have created the only nationwide 3G set-up apart from the combined reach of state-owned BSNL and MTNL. The deal has allowed them to achieve coverage across all circles except Orissa, where 3G spectrum is owned by Aircel, S Tel and RCOM. Another such alliance was formed by TATA DOCOMO and Aircel.

However, these agreements hit a roadblock in November 2011 with DoT and the Telecom Regulatory Authority of India (TRAI) stating that the operators had violated licence conditions by offering 3G services in areas where they do not have airwaves. This, according to TRAI, was akin to becoming a mobile virtual network operator, which is not permissible under the current policy. Also, DoT has pointed out the huge financial losses to the government resulting from these arrangements, which are being deemed equivalent to spectrum sharing, which is not allowed under the current guidelines.

Following these developments, TTSL and Aircel cancelled their agreement, while Idea, Vodafone and Airtel continued to oppose DoT’s stance stating that using each other’s airwaves was a key factor behind their selective 3G bidding strategy for key circles. These operators claimed that they had bid in the 3G auction after being cleared for entering roaming agreements. They even demanded a refund or re-auction if the roaming pacts were considered illegal. In December 2011, DoT directed operators to terminate their 3G roaming pacts. The move witnessed strong opposition from the industry, with both Vodafone and Airtel deeming it unreasonable and arbitrary. While the future of these agreements is uncertain, the issue has affected the pace of 3G service growth.

Conclusion

Despite these challenges, 3G is a key driver for the telecom industry’s next level of growth. With voice services reaching saturation in urban markets, operators are looking to capitalise on the 3G opportunity. However, to utilise 3G spectrum and facilitate adoption, they will need to strategically work on network quality, content offerings and pricing strategies.