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Evolving Ecosystem: Overview of 3G uptake in India

June 10, 2013
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The 3G landscape in India has evolved since these services were first launched in the country in 2010. While the 3G subscriber base is still modest – a mere 4-5 per cent of the total telecom subscriber base in India – much has changed in terms of service provisioning and ecosystem development. Operators have slashed 3G tariffs, service coverage has been enhanced, and the availability and affordability of 3G devices have improved. Further, consumer awareness with regard to these services has grown.


As per Nokia Siemens Networks’ (NSN) MBit Index (based on network data from December 2011 to June 2012), 3G traffic in India grew by 78 per cent as against 47 per cent growth in 2G traffic. Also, the share of 3G traffic in the total traffic increased from 20 per cent to 25 per cent during the period under consideration. Moreover, 3G users consumed four times more data (397 MB per month) than 2G users (95 MB per month). Nevertheless, there is still time before 3G achieves mass adoption in the country.

Analysts had been expecting positive activity in the 3G domain during 2012. However, major regulatory and policy moves such as licence cancellations; subsequent reauction of vacated spectrum; the launch of the National Telecom Policy, 2012; uncertainty around the one-time spectrum fee; and the resurfacing of the 3G roaming issue kept operators from dedicating sufficient time, interest and capital towards the promotion of these services in a big way. Though operators’ attempts at increasing service uptake by reducing tariffs enhanced service usage on their networks, it failed to translate into strong revenue growth. Not surprisingly, operators continue to carry huge debt on their books and are witnessing continuous profit declines.

Further, 3G deployments in the allocated 2100 MHz band require substantial infrastructure roll-outs (a higher number of towers in particular) which, in turn, entail heavy capital outflow. However, the capex guidance of most operators during 2013-14 suggests that they are not ready to make such major investments. As per market reports, Indian telecom operators have planned a capex of $5 billion-$6 billion, which, besides being significantly low as compared to other Asian operators, will also impact 3G and 4G growth in India in the coming years. The limited availability of localised content has been a key reason for the slow penetration of 3G services. Government initiatives in this regard have also been limited. Consequently, 3G networks continue to be underutilised.

That said, there exists a significant demand for data services in the country. Given the lack of a ubiquitous nationwide wireline infrastructure, this demand for high speed access can be fulfilled only through wireless (3G and 4G) networks. Moreover, the rural population offers significant opportunities for the mobile broadband market. Mobiles are the primary and only mode of accessing data services for most consumers in rural areas.  Services like m-healthcare and m-education will pave the way for higher 3G uptake in these areas due to the lack of physical infrastructure for provision of these facilities.

A look at the status of 3G in India, the experience so far and the way forward...

Evolving landscape and industry initiatives

Initially, operators focused on rolling out networks and improving coverage in Category A circles and metros. Having made large investments in acquiring spectrum, operators focused on these high revenue circles. However, over the past two years, the coverage has been extended to Category B and C circles as well. In fact, Category B circles present a significant market opportunity for 3G services as they have a huge demand for data services. As per NSN’s MBit Index, demand for mobile broadband is the strongest in Category B circles. 3G data consumption in these circles grew by over 80 per cent between December 2011 and June 2012.

Interestingly, while none of the operators was able to win pan-Indian spectrum during the 2010 3G auctions, the majority of them have achieved fairly large coverage owing to intra-circle roaming (ICR) agreements. Currently, Idea Cellular, Bharti Airtel and Vodafone India provide pan-Indian 3G services through a combination of their respective home networks and roaming agreements. However, these ICR agreements have been under the Department of Telecommunications’ (DoT) scanner since December 2011. DoT and the Telecom Regulatory Authority of India (TRAI) had deemed such arrangements illegal as they violated the licence terms. The authorities argued that roaming is a temporary service available to subscribers when they travel between circles, whereas the way these 3G agreements are being used is quite different. Operators without a local licence are providing full 3G services to resident customers within a given circle through a roaming agreement with a local licence holder. According to TRAI, such a pact amounts to spectrum sharing or a mobile virtual network operation-like arrangement – neither of which is allowed under the current terms of mobile permits in India. Operators, particularly Idea Cellular, Bharti Airtel and Vodafone India, strongly opposed the government’s view as these pacts, if cancelled, would cost them dearly. Meanwhile, other operators such as Aircel and Tata Teleservices Limited withdrew their roaming pacts with each other in early 2012, post the government’s objection to such deals. Thus, these operators and Reliance Communications (RCOM) provide services only in their respective licensed circles.

The 3G roaming issue resurfaced recently, with the government directing Idea Cellular, Bharti Airtel and Vodafone India to not add new subscribers to circles where services are being provided through roaming. A final decision in this regard is still awaited. The withdrawal of these roaming services is likely to have a major impact on operators’ businesses. For instance, a subscriber may not wish to continue with Airtel once 3G services are withdrawn in the Punjab circle, where the operator does not have a 3G licence. Currently, Airtel has 3G spectrum in 13 circles, which implies that the operator’s data-intensive subscribers (high-ARPU customers) in the remaining nine circles will probably shift to other service providers. Although Airtel stands a good chance of acquiring data users of other operators in its own 3G circles, the net outcome may vary from operator to operator. Further, this may disrupt market dynamics and competitive placement of players in each circle.

From consumers’ point of view, the cancellation of roaming pacts would result in an incoherent data usage experience as they switch from one circle to another. Besides, subscribers who wish to continue with their current service provider may give up 3G services altogether. In the long run, such subscribers would have an impact on the overall 3G uptake.

That said, over the past year, operators have witnessed increased data usage and the share of non-voice revenue in the total revenue has been on a continuous upswing. Currently, non-voice revenues account for 15-20 per cent of the total revenues for operators. While 2G data accounts for a major portion of the total non-voice revenues, the contribution of 3G services has also been growing. For instance, Vodafone India’s 3G volumes have overtaken its 2G data volumes, even though 3G coverage is limited as compared to 2G. Idea Cellular also believes that there exists a significant opportunity in the data segment and expects data growth to reach the mass market soon. The operator has been focusing on tapping the potential present in the small- to medium-sized data user segments. Consequently, the company reported 4.5 million incremental data users during the quarter ended March 2013, with almost 1 million being added in the 3G segment.

Reduction in tariffs was a key growth driver for 3G service uptake during 2012. Multiple rounds of 3G tariff cuts were introduced by operators between April and June 2012. Bharat Sanchar Nigam Limited (BSNL) slashed mobile data charges by 75 per cent for usage beyond the prescribed limit. Aircel reduced the charges for its pocket internet smart plans, which offered unlimited 3G data usage. Bharti Airtel and Idea Cellular reduced 3G tariffs by over 70 per cent while Vodafone India and RCOM introduced affordable 3G services. Consequently, overall 3G usage in the country has almost doubled after tariffs were reduced by 60-80 per cent in August 2012.

Besides service affordability, the 3G device ecosystem has also undergone a change. Devices are becoming increasingly affordable, which is evident from the fact that the 3G smartphone launch price has come down from Rs 25,000 in 2010 to about Rs 5,000 in 2012. Moreover, 3G has opened a new market for local handset manufacturers, which are now competing with global veterans in terms of features and affordability. Karbonn, Lava, Micromax, Spice and Fly Mobiles are some of the Indian brands that offer 3G-enabled handsets.

Another trend that has been gaining large-scale acceptance is operators entering into reverse bundling agreements with device manufacturers. State-owned BSNL and Mahanagar Telephone Nigam Limited have entered into such agreements with vendors  like Micromax, Linkwell (VisionTek), Seuji ASPL (SkyNet 3G), Teracom and Shyam Network (Winknet)  for 3G data cards and routers. As per the agreements, vendors supply devices that already have BSNL SIM cards installed in them and subscribers, upon activation of these connections, get incentives such as extra talktime or data usage. Private operators such as Bharti Airtel, TATA DOCOMO, Aircel, RCOM and Vodafone India are also offering voice and data plans bundled with handsets. Bharti Airtel and Aircel had launched iPhones with locked-in plans such as on the purchase of a handset at market price, operators offer a 50 per cent discount on monthly rental for two years. Another approach adopted by operators is the launch of their own branded devices. For instance, Idea Cellular has launched a range of 3G smartphones that are affordable and come loaded with lucrative offers.

Localised content and killer applications are other areas that have seen little progress as far as 3G services are concerned. To this end, it is essential to revisit the revenue sharing model between value-added service providers and telecom operators, which is currently skewed in favour of the latter (30:70). Based on technology interoperability and stickiness of applications, operators have begun reworking the model.

Besides, bill shock has also been responsible for slow 3G uptake in India. The price difference between bundled and unbundled usage is huge, and the moment subscribers exceed their prescribed usage limit, they are charged exorbitantly for these services. Operators are required to provide reports and notices so that customers can avoid a bill shock. Aircel has converted the majority of its 3G data plans to unlimited (with a cap on speed post a certain usage). RCOM also has unlimited plans and attractive unbundled pricing; but these are limited to its data card users. Meanwhile, other operators are also working on implementing similar models.

The way forward

The number of 3G subscribers in the country at present is different from what was expected three years ago. However, any new technology takes time to evolve and garner interest. The cost of 3G services has come down recently, and the availability and affordability of devices have improved. Operators are making concerted efforts to increase the coverage of these services as they are yet to achieve 100 per cent penetration in their licensed circles. As per DoT, they have time till August 31, 2015 to meet their 3G roll-out obligations.

Going forward, the data service segment will be the key revenue driver for the telecom industry. Voice demand is slowly saturating and falling ARPUs have compelled operators to look for alternative revenue streams. Globally, mobile data has become the new revenue source for operators.

However, in India mass adoption of data services will take time as the 3G ecosystem is still evolving. Improving network quality and content would be crucial to operators’ success in tapping this new revenue opportunity.

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