While India is still several million subscribers away from its projected 100 million 3G users by 2013, significant developments in the past one year have led to growing uptake of these services in the country. Operators’ 3G subscriber base has almost doubled between March 2013 and March 2014

on account of several initiatives to develop the overall 3G service ecosystem. The key amongst these initiatives has been the massive reduction in 3G tariffs across the board to make these services affordable for users. In most cases, the tariffs have been slashed to a level as low as 2G data tariffs to encourage adoption. Evidently, the move has paid off, as operators are now witnessing a steady growth in the number of 3G subscribers, who account for 20-35 per cent of their total data user base.

Further, the tariff reduction has not only helped operators in widening their 3G user base, but also resulted in a sharp increase in data usage and traffic on their networks. For instance, Idea Cellular witnessed a growth of 150 per cent in 3G data volumes on its networks from 5,231 million MB during the quarter ended March 2013 to 13,084 million MB during the corresponding quarter in 2014. The 3G data usage per subscriber grew from about 385 MB to about 462 MB during the same period. While operators such as Bharti Airtel and Reliance Communications (RCOM) do not publish information related to 3G data volumes, the overall data volumes generated by these operators have also doubled in the past one year. At an industry-wide level too, 3G growth during 2013 was noteworthy. According to Nokia Solutions and Networks’ (NSN) MBit Index, 3G data traffic grew by 143 per cent in 2013, which is much higher than the world average mobile broadband data growth. Further, 3G now accounts for half of the mobile data traffic in the metros.

On the supply side, operators have increased their service reach substantially and have rolled out several 3G sites to meet their coverage and capacity requirements. For instance, Idea Cellular had a total of 17,140 operational 3G sites as of March 2013; these grew to 21,381 by March 2014. Similarly, Bharti Airtel expanded its 3G sites from 24,573 to 31,301 during the same period. Vodafone India added 2,000 new 3G sites during October-December 2013. Network upgrades and expansion have also resulted in a significant improvement by operators across various 3G quality of service (QoS) parameters.

The recent Telecom Disputes Settlement and Appellate Tribunal order allowing intra-circle roaming (ICR) amongst 3G licensees will allow operators to provide pan-Indian services again. In fact, operators such as Bharti Airtel, Idea Cellular and Vodafone India have already revived their roaming pacts with each other and have started offering services in several of their unlicensed circles. These operators had originally entered into ICR pacts during 2010 and 2011. Airtel accessed Vodafone India’s 3G network in four service areas – Maharashtra, Kolkata, Haryana and Uttar Pradesh (East); Vodafone India sought access to Airtel’s 3G spectrum in Assam, Bihar, Karnataka, the Northeast, Rajasthan and Uttar Pradesh (West) and to Idea Cellular’s in Andhra Pradesh, Himachal Pradesh, Jammu & Kashmir, Kerala, Madhya Pradesh, Uttar Pradesh (West) and Punjab. Idea Cellular secured the right to provide 3G services using Vodafone’s network in Delhi, Tamil Nadu, Chennai and Kolkata. However, the relief may be short-lived if the Department of Telecommunications (DoT) reapproaches the Supreme Court in this regard.

Over a medium-term horizon, the government’s move to liberalise spectrum will give a strong boost to the 3G coverage and capacity of operators, as they are most likely to use spectrum in the 900 MHz band for providing these services. For instance, Idea Cellular picked up spectrum in this band in the Delhi circle during the February 2014 auction and plans to launch 3G services using this spectrum in Delhi by early 2015. Recently, DoT approached the Telecom Regulatory Authority of India seeking its recommendations on auctioning spectrum in the 1800 MHz and 900 MHz bands, in 18 more circles where several licences are set to expire in 2015 and 2016 after their 20-year term. Six licences of Vodafone India, four of Bharti Airtel and seven each of Idea Cellular and RCOM will expire in December 2015, while two licences each of Bharti Airtel and Idea Cellular will come up for renewal in April 2016. These licences together account for about 198 MHz of spectrum, of which about 172 MHz is in the 900 MHz band and the remaining is in the 1800 MHz band.

Evolving ecosystem

The evolving 3G ecosystem has proven to be a key driver for strong traffic growth. Customer usage behaviour has improved drastically on account of the growing awareness of 3G benefits, larger availability of 3G applications and improved QoS by operators. Value-added service (VAS) providers have launched data-intensive content and applications to attract customers. Many of them are using their high capacity, high speed 3G networks to provide video-based services, especially in the field of mobile health care. Operators are also partnering with VAS players to make data browsing a high quality experience on mobile devices as many consumers in India today surf the internet, access social networking sites, and stream audio and video content when on the move.

The concept of bundling telecom services with handsets is gaining traction and can prove to be a game changer for service adoption. Several Indian handset manufacturers have earned strong customer loyalty as they offer feature-rich handsets at affordable prices. Bundling these handsets with attractive tariff plans from operators can attract the masses. For instance, TATA DOCOMO partnered with domestic handset player Micromax to give subscribers access to special 2G and 3G bundles using the latter’s devices. TATA DOCOMO customers using Micromax handsets purchased after October 1, 2013 can avail of offers such as 3 GB of free data for one month on subscribing to 3G services, and 6 GB of free data on recharges of Rs 95 and above. The bundled offerings differ depending on the circle and the customer profile. The offer is valid till June 30, 2014 and is available across the entire range of Micromax handsets.

Idea Cellular, which entered the handset segment a few years ago with a view to enhance its service uptake, has recently launched several 3G-enabled handsets bundled with its services. More such deals between service providers and handset manufacturers are expected in the future, which will further develop the ecosystem for data services in India.

Challenges remain

Despite strong traffic growth, the 3G segment faces several challenges. The lack of adequate spectrum continues to be a key problem for operators. During the 2010 spectrum auction, operators were allocated only 5 MHz of spectrum in the 2100 MHz band. This has proved to be largely insufficient for providing high speed data services such as video streaming or live television. The country is also awaiting the launch of a “killer application” that will directly shift 3G uptake to a high-growth trajectory. Affordability of 3G handsets has also been a major hurdle. Although 3G-enabled handset costs have come down over time and become affordable for urban customers, this is not the case for rural users.

Coverage of 3G services is another issue that persists. Although the efforts of operators in rolling out new sites and adding capacity at the existing sites are noteworthy, they are not adequate to ensure seamless and ubiquitous coverage. For instance, in metro circles, which are considered to be geographically best covered, users experience patchy service when 3G is handed over to 2G. According to the NSN MBit Index, on an average, an additional 15-20 per cent 3G sites are needed to provide the same coverage as 2G.

Another major issue is the lack of robust backhaul networks to support high speed data services. This can largely be attributed to complex right-of-way (RoW) clearance procedures. Telecom players that want to deploy backhaul based on optic fibre – which supports high broadband speeds – need to go through a long process of securing clearances from several state- and city-level government offices. RoW charges are exorbitant and vary across locations, adding to service providers’ challenges. For a city like Pune, the RoW charge for deploying a km of fibre stands at Rs 5 million, while in Mumbai it is about Rs 10 million.

Above all, there is still a long way to go before the growth in 3G subscriptions and service usage is significantly reflected in operators’ revenues. Although data revenues have been on an upswing across the board, their share in total service revenues is only in the range of 10-20 per cent. During the quarter ended March 2014, data accounted for 11.1 per cent of Bharti Airtel’s mobile revenues and 10.1 per cent of Idea Cellular’s service revenues. In comparison, the revenue contribution of data services in advanced economies is about 30 per cent.

Conclusion

So far, 3G service growth in India has occurred in fits and starts and has been limited to a few pockets. However, the dramatic growth in data volumes witnessed over the past one year shows that consumers have started taking to these services in a bigger way. Going forward, a collaborative approach between the operator, vendor, VAS provider, content developer and handset manufacturer communities will be the key for 3G services to reach the expected adoption levels in India.