The response to 3G services, which were expected to improve the experience of mobile users, has not been encouraging. High tariffs, limited coverage, non-availability of ?killer? 3G applications and the uncertain regulatory environment have resulted in subdued interest in these services. This can be gauged from the fact that currently only 2-3 per cent of the country?s 900 million wireless subscribers have opted for these services.
State-owned operators Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited started offering 3G services following the allocation of 3G spectrum by the government in 2009, ahead of the 3G spectrum auction in 2010. However, these operators failed to capitalise on their first-mover advantage in this space. The lack of smartphone availability, consumer awareness and value-added service (VAS) content were a damper for 3G service uptake.
In late 2010, private operators started offering 3G services following the allocation of spectrum after the auction. Having made large investments in 3G spectrum, operators initially focused on service roll-outs in high-revenue circles. Consequently, the first phase of 3G network roll-out focused on metros and Category A circles as users were already accustomed to internet-based services and were expected to opt for 3G, which would help in revenue generation.
Even after two years, service adoption continues to be sluggish. However, these services have gained some traction in the last six months of 2012, when operators started taking corrective measures to drive the demand.
In mid-2012, operators took a big step to increase adoption by reducing tariffs by 70-80 per cent. The 3G subscriber base has since witnessed growth. For instance, between June and September 2012, Bharti Airtel?s 3G subscriber base grew from 3.71 million to 4.04 million, while that of Reliance Communications (RCOM) increased to 4.8 million from 4 million. Idea Cellular also witnessed subscriber growth from 3.1 million to 3.7 million.
Operators have also launched application stores to improve their customer relationship. Airtel has launched App Central, which offers over 100,000 applications, while RCOM has introduced the Reliance App World, which offers over 41,000 applications. Similarly, TATA DOCOMO?s Market Place, Aircel?s Pocketapps store, Vodafone India?s App Store and Idea Cellular?s Idea Mall have been launched to promote 3G services.
Some operators have also been successful in addressing bill shock complaints. For instance, Bharti Airtel has started operating the entire billing and subscription system in-house. Its new billing system does not allow users to access services that are priced at more than their account balance. Aircel has launched unlimited data plans, albeit at low speeds of 3.2 Mbps, to address issues related to high bills. RCOM has launched unlimited data plans, including My Best Plan, which offer high speeds. These plans are available for data card users.
Challenges
Even as operators push for 3G services, their current subscriber numbers are way below expectations. Moreover, 3G user growth in the last six months of 2012 is yet to translate into revenues for operators, whose ARPUs stand at only over Rs 100 per month. Analysts believe that a tariff reduction requires higher subscriber volumes to sustain revenues, which is not evident in India.
?The number of 3G subscribers has increased (after the tariff reduction), but the user base is still below expectations. It has not reached the numbers we had originally targeted,? says Viswanathan Ramaswamy, senior vice-president, technology, strategy and architecture, Vodafone India.
A key challenge in 3G service uptake is the limited availability of spectrum with each operator. This impacts the operator?s ability to provide high speed data services. No single operator won 3G spectrum in all the 22 circles, and as a result, these players entered into 3G roaming agreements to provide seamless coverage. However, with the Department of Telecommunications opposing such deals, operators will have to rework their strategies to drive 3G services. This is because in the absence of such agreements, users will be charged roaming tariffs outside the licensed areas of their operators. This will increase their 3G bills, thereby resulting in a decline in service adoption.
Meanwhile, operators? intra-circle 3G coverage has also been limited. This has been attributed to limited 3G sites per circle as compared to 2G sites. Moreover, bandwidth constraints related to 3G spectrum have not allowed operators to augment their 3G networks.
Stagnant voice tariffs and declining data tariffs have impacted operators? profitability and consequently, investments in 3G networks have taken a hit. Companies had to shelve their 3G investment plans due to the uncertain regulatory environment. Issues related to one-time spectrum charges, the 2G spectrum auction and spectrum refarming in the 900 MHz band have also limited operators? ability to augment their 3G networks.
Another roadblock in the adoption of 3G services is the current revenue sharing model used by operators. In India, most operators share only 30 per cent of the 3G revenues with VAS content providers, aggregators and technology providers. Vodafone India is the only operator to share 70 per cent of its 3G revenues with its VAS partners ? applicable only for direct-to-consumer services in which only billing integration is undertaken by the operator. In contrast, content providers and aggregators get a major share of 3G revenues (70-80 per cent) in developed markets. This allows VAS content providers to channelise their resources towards research and development and building innovative products. Moreover, the Telecom Regulatory Authority of India?s mandate of seeking user consent before activating VAS will increase the cost of acquiring such customers, further limiting operators? ability to drive 3G uptake.
Overall, the slow development of the 3G ecosystem is affecting the segment?s growth in the country. While there are several smartphone devices and tablets in the market, their high price is a deterrent. For widespread uptake of 3G services, smartphones and tablets will have to become affordable for the masses. Besides, retailers and distributors that sell mobile services to customers are not informed about the benefits of 3G services and, therefore, do not encourage users to opt for these services.
Also, 3G tariffs are still very high as compared to those for EDGE/GPRS services, while both services offer a similar internet experience. At present, most customers utilise services such as internet browsing, email and social networking, and are, therefore, satisfied with their EDGE/ GPRS service plans. However, as the demand for video content and killer applications increases, customers are likely to opt for 3G services for a better experience.
The way forward
Though 2012 did not witness any major breakthrough in 3G services, operators are confident that 3G and data services will drive revenues in the near future. Operators say that developed markets such as Japan and the US also witnessed mass adoption of 3G only after four-five years of service launch.
A supportive regulatory environment and a developed 3G ecosystem would provide an impetus to investments in the sector, thereby increasing 3G network coverage across circles and resulting in an improved 3G experience.
Besides, the demand for higher speeds for accessing the internet and social networking sites will drive 3G uptake. Unavailability of fixed wireline broadband connectivity in rural areas would encourage customers in these areas to opt for basic 3G services. Moreover, 3G services would facilitate the rural reach of the health care industry, educational institutions, financial and development institutions, among others.
Market experts believe it is important to educate all stakeholders about the benefits of 3G services to ensure their higher uptake. Operators should focus on providing education on the 3G ecosystem to retailers and distributors, which could act as a big channel for spreading awareness about these services.
Looking ahead, the industry is positive about the segment?s growth. Analysts say that 3G coverage will increase as 4G networks will not be ubiquitous in the near future. This will help 3G services to drive sector growth in the next five years. Besides, the sector is likely to witness consolidation following the completion of the 2G spectrum auction in March 2013. This will enable operators to rework their go-to-market strategies and focus on their targeted consumer segment.
