3G service uptake in India has improved over the past one year, driven by declining data tariffs and improved service reach. However, challenges related to the lack of relevant content and applications, poor service quality and inadequate network coverage remain. A strong focus on developing the overall 3G ecosystem in terms of infrastructure, devices and applications will go a long way in increasing 3G adoption in the coming years. Industry experts share their views on key trends, challenges and the way forward for the segment in India…

How has the Indian 3G service market evolved in the past few years?

Bharat Bhargava

Spectrum in the 2100 MHz was auctioned in May 2010, and each winner was awarded 5 MHz of spectrum in September 2010. None of the single operators acquired pan-Indian spectrum and the strategy adopted by most operators was to acquire spectrum in circles where they are market leaders, to protect existing revenues.

Due to large investments in spectrum acquisition, the service roll-out was initially limited to major cities and even in these cities, the coverage was not ubiquitous. The operators also entered into intra-circle roaming (ICR) agreements to extend services beyond their licensed circles. However, the Department of Telecommunications (DoT) deemed such agreements illegal, imposed penalties and put a ban on new subscriber acquisitions through this route.

Recently, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) gave clearance to 3G ICR agreements signed between telecom operators. This move is expected to help operators drive 3G uptake and improve the monetisation of their spectrum assets.

Since the launch of 3G, the market for these services has evolved with a decline in tariffs (in 2012, operators reduced 3G tariffs by 70-80 per cent), increase in smartphone penetration with a drop in average selling prices and increased roll-out of 3G services beyond major cities.

The network coverage achieved by operators has been patchy, thereby affecting the quality of subscriber experience both for on-street network availability and indoor coverage.

Benoy C.S.

India made a move towards advanced technologies like 3G (HSPA) and 3.5G (EVDO/HSPA+) commercial services in 2010. However, 3G uptake has not been up to industry expectations. The response to these services was initially subdued because of issues related to high tariffs, expensive 3G handsets, etc. Price sensitivity in the Indian market, coupled with network coverage issues, has resulted in limited service take-off. However, recently, there have been positive developments with telecom operators reducing tariffs to a level where consumers are ready to get on board, resulting in a significant jump in data traffic as well.

Hemant Joshi

Even after three years of its launch, 3G has not taken off in India due to issues related to high data prices, disputes related to 3G ICR pacts and lack of local content. Also, operators have not been able to provide seamless 3G connectivity to users across the country as they do not have pan-Indian 3G licences at present.

Spokesperson, Protiviti

The initial response to 3G was subdued due to the lack of pan-Indian coverage, an absence of compelling applications requiring 3G speeds, insufficient low-cost 3G handsets and high subscription rates.

In recent years, 3G services have seen significant uptake due to improved coverage and major price cuts, mainly in May 2012 and July 2013, by the leading operators. In the past three to four years, the number of 3G users has grown to about 50 million. According to a recent study published by Nokia Solutions and Networks (NSN), 3G data traffic leapt by 146 per cent in India in 2013, surpassing the global average, which is roughly doubling every year. There is still no 3G carpet coverage across the expansive Indian geographical landscape. Most operators don’t have big capex disbursements to invest in telecom/IT infrastructure. High speeds are only available in stationary mode; while travelling, however, speed fluctuates considerably.

The overall perception of 3G quality needs to be improved so that users do not experience significant call drops as compared to 2G services. 3G requires focused investments in infrastructure to achieve the data performance that users demand. Better customer response can be achieved through a wider 3G roll-out as well as through selective introduction of long term evolution (LTE) technology and modernisation of the existing GSM networks.

What have been the key trends in the Indian 3G service market?

Bharat Bhargava

The industry is witnessing a shift from voice and SMS/value-added service (VAS) towards data services. At present, data contributes about 10 per cent of the revenues (up from about 5 per cent around 6 quarters back) for the top three telecom operators. Increasing 3G adoption has contributed to this growth, with 3G subscribers now comprising about 20 per cent of the cumulative subscriber base of leading telecom operators.

This growth has been driven by increasing smartphone penetration, which stands at about 10 per cent of the subscriber base for these operators. The increase in smartphone sales is on account of declining device prices and the growing adoption of social networking and video on mobile.

Operators have also taken various initiatives such as reduction in data tariffs, increasing awareness about internet services and expansion of 3G networks. 3G eNodeB’s penetration of leading operators has doubled to 20 per cent of the total base transceiver stations (BTSs) since the launch of the service.

Benoy C.S.

The recent developments have been encouraging as telecom operators have slashed tariffs leading to a growth in subscribers and usage. The segment’s growth, especially since in the past couple of years, has been encouraging. As per a study conducted by NSN, 3G data traffic increased by 196 per cent and 146 per cent in 2012 and 2013 respectively. This has been driven by a significant reduction in tariffs by operators in 2012-13. Operators are also taking measures to improve coverage and have already invested in adding more 3G BTSs. This will facilitate the widespread adoption of 3G services as the prerequisites in terms of network coverage, pricing and content are now in place.

Hemant Joshi

Mobile service providers are depending on data to drive revenue growth in the mid to long term. Since 3G services did not take off as expected, operators are reducing prices and introducing offers such as sachet packs in order to attract customers.

As per NSN’s MBit study, 3G data traffic in India grew by 146 per cent in 2013. Category A circles witnessed the highest data growth, accounting for half of the mobile data traffic. Further, smartphone prices are on a decline and customers are upgrading to smartphones from their feature phones which will, in turn, lead to increased data demand. Most operators now charge Re 0.15-Re 0.18 on each MB of data.

Spokesperson, Protiviti

Operators have changed their strategy from offering 3G as a premium service to a higher-income customer base to making it available to the masses by reducing prices. This initiative has resulted in a dramatic increase in data consumption in the past two years.

Another visible trend is that operators have decided to upgrade their networks to all-IP networks. Migration to all-IP networks is an important part of the operator strategy as it is the only way to increase ARPUs now that the era of vanilla voice services is done and dusted.

The introduction of 3G services has resulted in customers using their smartphones for a variety of multimedia services. Now, 40 per cent of searches on Google are originating from mobile devices, 30 per cent of Facebook users in India are mobile-only internet users and 30 per cent of new registrations are coming through mobiles. There has been an increase in data-based VAS, thus expanding the telecom ecosystem to include content and VAS providers, further driving the demand for content-based services.

Led by the phenomenal growth in 3G services, mobile data traffic in India grew by 87 per cent in 2013 from about 43 per cent in 2012. In major urban centres, the average data consumption per user is as high as 1 GB per month, indicating the rising popularity and uptake of 3G across the country. In addition, premium tariff reductions in 3G services in early 2013 have led to increasing migration of high-end 2G customers to 3G. In fact, large cities (Category A circles) accounted for the highest 3G traffic last year, driving half of all mobile data traffic in the country. Smaller towns (Category B) accounted for 31 per cent of the total traffic.

What steps should be taken by operators to drive 3G service adoption?

Bharat Bhargava

Operators should focus on increasing awareness of non-voice services over 3G through large-scale advertising. There is also a need for active collaboration between operators and content developers to provide relevant content to consumers across different verticals such as education, health care and entertainment. Vernacular content also needs to be made available for driving mass market adoption. In addition to this, extending network coverage to Tier II and Tier III cities is essential. In a country like India, where the majority of the population resides in rural areas, operators need to enhance their coverage beyond metros in order to expand their customer base.

While there is a trend towards reduction in smartphone prices, device bundling through appropriate offers can drive service adoption. Also, a further decline in 3G service prices would be required to increase affordability and boost uptake among mass market customers.

Benoy C.S.

Next-generation technologies like 3G and LTE are expected to result in a data deluge in the country and facilitate the adoption of data-intensive applications. Service providers will need to upgrade their infrastructure to provide improved connectivity and user experience, and counter unprecedented data traffic. Stakeholders must focus on developing the overall ecosystem, which includes a robust network, access devices and dedicated applications.

Hemant Joshi

Operators need to build an ecosystem, comprising devices, applications, etc., to attract customers. Pan-Indian coverage is also crucial for service providers. Other factors that could drive 3G service adoption are:

•Availability of relevant local applications

•Availability of local/regional content

•Reduction in data tariffs

•Bundled offers to attract users initially and increase adoption later

•Increasing awareness about the benefits of 3G services among rural and semi-urban consumers.

Spokesperson, Protiviti

There is a need for 3G network expansion in the country. Of the nearly 400,000 cell sites in the country, only 15-20 per cent are 3G sites. 3G devices need to be made available at a lower entry price. Bundled (service plus handset) contract-based offers will help in increasing 3G adoption. There is a dearth of customised applications, so service operators need to develop a competitive advantage by offering products that are innovative and meet customer demands satisfactorily. Areas such as health care, education, entertainment, banking and location-based services need to be tapped as these will also help in penetrating the rural market in India.

With mobile number portability (MNP) coming into effect, pricing and quality of service are the most influential factors in decision-making and service providers switching. Operators need to work out pricing and other marketing strategies to attract consumer interest.

The other critical factor is “customer engagement and customer experience”. While content, pricing and quality will remain the key drivers of the overall customer experience, operators need to think about improving end-user experience through proactive customer retention and loyalty measures.

Even as the market for 3G is evolving slowly and steadily, operators will have to come up with better strategies related to service affordability, coverage, content and experience long before they start getting returns on the investments made in 3G.

What are the key challenges impacting the growth of the 3G service market?

Bharat Bhargava

The high incremental capital investment for spectrum acquisition and network roll-out along with the corresponding opex has impacted operators’ finances and has constrained their ability to expand 3G coverage. Poor coverage in semi-urban and rural areas due to uncertainty related to the 3G ICR pacts has also impacted adoption. However, the recent TDSAT decision allowing ICR comes as a positive move for the telecom industry.

The exponential growth in data traffic has resulted in increased demand for backhaul capacity. Operators will have to augment network backhaul capacity by providing fibre-based infrastructure to the sites.

Also, the VAS market in India is largely driven by content. But the limited availability of content in the local language discourages its adoption by semi-urban and rural consumers that needs to be addressed through increased participation from content providers.

In addition, inadequate spectrum in the 2100 MHz band is one of the major concerns impacting the growth of 3G in India. Currently, each operator holds only 5 MHz of spectrum per circle, which is significantly lower as compared to other countries. For instance, operators across the Asia-Pacific region hold about 15 MHz of spectrum in the 2100 MHz band. The high price of spectrum along with limited availability can be potential stumbling blocks for growth.

Hemant Joshi

The dispute over 3G ICR roaming pacts is hindering the growth of these services. High data tariffs and lack of availability of local content and multimedia applications are other key challenges.

Spokesperson, Protiviti

The key challenges include the high capital required to build 3G infrastructure and roll out pan-Indian 3G services. For financially constrained operators, it will not be easy to upgrade from 2G infrastructure, thus preventing higher adoption and monetisation of the existing investment. Operators also need to work closely with handset manufacturers and content and application developers to build an ecosystem that is conducive to 3G service growth. Today, service providers are having a difficult time convincing certain customer segments of the incremental benefits of migrating from 2G to 3G.

Spectrum utilisation is another challenge. Spectrum is a valuable natural resource that needs to be used prudently. At present, approximately 60 per cent of the relevant spectrum is yet to be allocated and large blocks specifically identified for mobile are occupied by other sectors. To increase the efficiency of spectrum use, the government should clear the way for market-driven sharing and trading of spectrum resources. The government should also encourage lower spectrum reserve prices. It should start focusing on fostering public-private partnerships for the implementation of projects in rural areas and seek alternative funding sources rather than constraining industry development with ineffective financial mechanisms such as the Universal Service Obligation Fund levy. This will ensure that operators have the funds to invest in better networks and state-of-the-art technology.

A recent study found that 50 per cent of India’s smartphone users do not have a data connection, indicating a high untapped potential for data services. There is a need for an effective marketing mechanism to increase and highlight localised applications, content and services to enhance the demand for mobile data.

What is the future outlook for the Indian 3G service market?

Bharat Bhargava

3G is expected to be a significant contributor to incremental data growth in the next few years. The technology is expected to coexist with 4G and will continue to drive data growth given that the 4G device ecosystem and network coverage is still in a developmental phase.

Over the past few years, the price difference between 2G and 3G tariffs has reduced significantly and prices are likely to converge in the future. Operators have rolled out 3G services in all the circles where they hold licences and are expected to further expand their coverage.

With coverage expansion, rural penetration also needs to be increased, for which relevant and local-language content needs to be developed. Also, services like m-healthcare and m-education are expected to drive the demand for 3G in these areas.

Given the limited availability of wireline infrastructure, wireless will continue to drive broadband access in India. The 3G ecosystem across the world as well as in India is well developed to support this latent demand. With operators now choosing to deploy 3G services across additional bands (such as 900 MHz) and TDSAT’s decision to allow ICR, it is expected that operators will expand 3G networks in a cost-efficient manner.

Benoy C.S.

3G usage on handsets is expected to lead the growth of mobile broadband in India going forward. Optimal pricing and focus on end-user experience are likely to increase mobile broadband adoption in the long run. Since the average selling price of smartphones in India is expected to decline significantly, many 2G subscribers would also upgrade and switch to 3G services.

As per Frost & Sullivan estimates, the number of subscribers using 3G through handsets is expected to reach 232 million by 2018 while the number of subscribers using 3G through USB modems is expected to reach 135 million. Together, the two segments will account for close to 367 million subscribers.

3G services will continue to grow in the future. However, global developments indicate that the widespread adoption of these services would take some time. The availability of affordable devices, 3G applications and content along with a network that guarantees a superior user experience are some of the prerequisites for the same.

Hemant Joshi

Operators are undertaking a reduction in 3G data tariffs, which is expected to boost segment growth. Also, the TDSAT’s recent judgment on allowing 3G ICR pacts between operators is a positive development for the industry. There is high potential in the 3G service segment in India, which is waiting to be unleashed. Currently, only 4 per cent of India’s total subscribers use 3G services.

Spokesperson, Protiviti