3G More Idle than Ideal

Ends should justify the means. This is no different for 3G. As
operators prepare to pump in billions of rupees to be 3G ready, it is time to
rethink on 3G's success as a business model to reach the mass and not just the
class.

Operators need to consider the following aspects before going
full throttle on 3G.

How fast can 3G show returns of investment following huge
investments?

Can 3G make an impact as big as 2G and 2.5G has on the psyche of
the average Indian subscribers?

Are there better options besides 3G to facilitate quality of
service in rural telephony and wireless data services?

Will 3G succeed where 2G failed in impacting the rural
teledensity?

3G technology promises quality, speed of deployment and reach,
but the question now dogging the industry is not "when 3G will happen"
but, "how to monetise 3G." Behind closed doors of the boardrooms and
in several discussion forums, debate over an appropriate 3G business model has
reached inconclusive end.

It is fair to assume that 3G is for the elite subscriber base
who can afford the expensive 3G handsets that are priced over Rs 15,000. Of the
total 157 mn mobile subscribers in India, 13% are metro subscribers and 34%
reside in 'A' circle. This indicates that the potential 3G subscribers in
India will only be 10-15% of the given mobile subscribers.

An overwhelming majority of India's mobile subscribers will be
unfazed by 3G. Should operators invest in a technology to serve only a few
privileged?

Also, countries that have 3G networks for some years are already
talking of deploying 3.5G or 4G standards, and WiMax respectively. It is not a
remote possibility for India too to leapfrog like China that has opted for 4G
over 3G.

Money-spinner or money-loser?

Looking west, mobile operators in Europe spent a staggering $129 bn to buy
licenses for 3G networks. Seven years since then, most (95%) people continue to
use their mobile phones just as they did in 2000-to make calls; thus
underplaying the case for 3G which was to change the way one uses mobile
handsets.

3G take-up has been modest but slow across continents. As of
February this year, 444 mn 3G subscribers (CDMA2000, 1X EV-DO & WCDMA) are
registered. Japan and Korea lead the way.

In EU, an early adopter of 3G, of the nearly 478.4 mn mobile
subscribers, 3G accounts for less than 10% as of April, 2007. This marginal
growth has not justified the massive costs put in by operators over seven years
ago.

In many countries 3G has fallen out of favour with the
operators. For instance, in Finland, home of leading 3G equipment maker Nokia,
operators persuaded lawmakers to let them subsidize the sales of 3G cellphones.
Normally this practice is not allowed for ordinary GSM mobile phones. Last year,
Vodafone scrapped its 3G network in the Czech Republic, citing the technology's
excessive costs. Vodafone's Czech subsidiary spent $87.7 mn on a 3G license in
February 2005.

Yet 3G investments have not dropped completely. According to a
new study from ABI Research, network operators globally will invest a total of
almost $18 bn in Long Term Evolution (LTE) capital infrastructure over the
period to 2014.

One base station in a 3G network can take 80 calls as against 17
calls per base station in 2G. Also, 3G spectrum offers around 4-5 times the
voice capacity of 2G spectrum and 3G could thus be a cost-effective tool to
deliver voice and drive tele-density in rural India.

Money-spinners will be closely watching 3G's potential to
increase non-voice revenue. Currently the non-voice revenue is less than 10% of
the overall mobile communications revenue in case of India. Non-voice services
promise a huge scope for industry growth and 3G is expected to boost this to a
large extent. But the winners and losers (operators) will be determined by the
ways they can market 3G services successfully.

Indian telecom operators see good business sense in 3G
investment as long as the return on investments are realized. Most national
operators have completed 3G trials.

As of now, BSNL is ahead in the pack with a commitment of
deploying 3G network in 250 towns. On the other hand, Reliance Communications,
Bharti and Idea Cellular are keen on launching 3G only in the top 10-20 cities
in the first phase. The likes of Aircel and MTNL who have lagged in the GSM
market, expect 3G to give them a first-mover advantage in the metros.

Except for BSNL and MTNL, most other operators are tightlipped
about investments in 3G till the policy is announced. But the broader picture
still reveals that 3G roll out is metro focussed and no one is yet daring to
enter the rural segment with 3G.

-Ashok Sud, president,
Corporate Affairs, Tata Teleservices (TTSL)

MTNL:
Although the operator has
presence only in Mumbai and Delhi, MTNL has decided to set up 2 mn lines
each for Delhi and Mumbai in two phases and the installation is in
process. MTNL is looking at 250,000 3G users in phase one and 500,000 3G
subscribers in phase two of the project. MTNL is looking for 5MHz spectrum
in each phase of 3G rolls out.

Idea
Cellular:Idea Cellular
plans will be 3G ready soon and plans to roll out 3G in top cities.

Can 3G go Rural?

Of the overall 16% tele-density, rural tele-density is a dismal 2% in India,
and the Government is keen on leaving no stone unturned to reach the solution.
Whether or not 3G can provide the answer it is looking for, is questionable.

The 3G technology has the potential to drive rural mobility.
However, 3G operators will have difficulty chalking out a business case for
making big masts on rural areas, with no idea of how they'll be getting money
back.

A few key factors-handset pricing, business model strategy and
rural content availability-will be decisive in seeing 3G finally getting into
the farmer's pocket.

The good news is that the 3G community has set the magical $100
figure as the benchmark for 3G handset costs. However, an affordable handset may
mean compromising on the 3G rich feature sets. A watered down version of the 3G
handset will completely go against the initial enthusiasm of pushing 3G in the
rural market.

Mere low cost handsets will not be sufficient for rural
consumers to start talking on 3G; it will need large-scale localized content to
enable m-commerce. As of now, m-commerce is yet to go upcountry on 2G and 2.5G,
so why think of 3G content?

Ashok Sud feels 3G can drive just the content that rural
subscriber needs. "The key application in 3G networks, especially in rural
and semi-urban areas, will be basic broadband access." He visualizes key
applications like e-learning, telemedicine and virtual marketplaces getting into
the pocket of the rural subscriber via 3G technology.

However, 3G is not the only preferred medium for content
delivery. "Cable TV is doing a fairly remarkable job of taking localized
content deep into the rural market," exclaims Sridhar. He points out that
when it comes to localized content in rural markets, 3G will face stiff
competition from the current market leader, the cable TV content provider.

"It's the case of comparing Pizza with Masala Dosa. Both
appeal to a different set of consumers and it doesn't make Masala Dosa
inferior to Pizza. In states like Tamil Nadu several local studios are
generating local content, which is interactive to a large extent. Can 3G beat
that?" Sridhar asks.

	"Cable TV is doing fairly well in delivering local content in rural India. 3G will face stiff competition from Cable TV content providers"
	-Sridhar S, head—IT, Hutch Essar South

Watch out for Risks

The Indian government and mobile operators are cognizant of the fact that
adopting 3G will entail huge capex in overhauling the telecom networks. The
technological advantages of 3G will be completely negated if a high upfront fee
is imposed, which can spike the cost of service and thus burdening the
subscriber.

3G also requires huge bandwidth. As much as 15-20 Mhz is
demanded by 3G while 2G services use a bandwidth of 30-200 KHz. Since many GSM
operators in India have already launched 2.75G (EDGE), 3G will only be
incremental in terms of the data speeds but will still mean a huge new
investment in technology.

This coupled with the cost of deploying infrastructure,
requirement of closure towers for transferring the signal and change of
handsets, will escalate the price factor manifold.

Sridhar opines that the infrastructure investments could be well
used in achieving the rural mobile targets on 2.5G instead of bootstrapping it
to make networks 3G-a service that is of interest mainly to a few high-end
users.

The Telecom Regulatory Authority of India (TRAI) has recommended
auctioning radio frequencies for 3G telecom services at a reserve price of Rs
10.5 bn to companies seeking to offer nationwide high-speed Internet and
streaming video. The base price for spectrum in cities like Mumbai and Delhi and
Category A telecom circles is Rs 800 mn; in cities like Chennai and Kolkata and
Category B circles Rs 400 mn; and in all other cities Rs 150 mn.

Taking a leaf from the European experience with 3G, it is best
that the Government encourages a business model that has clicked in India. So
far, it has been based on usage and/or deferred revenues. It is best to adopt
the same approach for 3G as well, wherein the Government should look to earn
revenues as the sector grows.

Then comes the issue of handset pricing. "Mere 10% of
handsets in India are 3G compatible," informs Halder of Airtel.
"Though a few handset prices are starting at Rs 4,000 onwards, there are
currently no products available in the sub 4,000 range," he adds.

Other Aces up the Sleeve

It was two years ago when Union minister for communications and IT Dayanidhi
Maran said: "India aims to leapfrog to fourth-generation (4G) wireless
technology, skipping 3G technology as it has not been found
cost-effective." Juxtapose this with the government's delay in announcing
a 3G policy, and you may well start believing these words could be true.

The emerging technologies of 4G and WiMax are worthy contenders
in the game.

4G is projected to provide data at the rate of 20 megabits,
which is 2,000 times faster than current mobile data rates, and about 10 times
faster than top transmission rates projected for 3G broadband mobile.

Indian telecom operators recognize the potential of WiMax as a
suitable Broadband Wireless Access (BWA) technology option and have begun
investing in both 802.16d & 802.16e deployments. The opening of 2.3 and 2.5
MHz band will further boost Mobile WiMax.

	"India should leapfrog to WiMax and LTE as new technologies are delivering"
	-Prof Arogyaswami Paulraj, CTO and Co-founder, Beceem Communications

Mooting the potential of emerging technologies, Professor
Arogyaswami Paulraj, an industry veteran considered to be the father of WiMax,
told Voice&Data in a recent interview that 3G does not have a strong case in
India. "India should not be the ground for system builders to make some
profit. India should leapfrog to WiMax and LTE as new technologies are
delivering," he professed.

On the flip side, even though WiMax (802.16e) potentially can
deliver much more bandwidth than 3G, it will be 2008 to 2010 before WiMax
handsets appear in India. Also, will you need a WiMax handset in a market that
already has 3G and everything else coming through?

The answer is probably in the air. With Intel backing WiMax and
integrating WiMax chipsets into notebook PCs and handheld PC, it is expected
that mobile phone makers will soon follow suit, making it more lucrative and
easier for people to simply upgrade to WiMax. In addition, unless mobile
operators drastically reduce the cost of 3G, WiMax will edge it out.

In Search of a Safe Bet

How much spectrum, and to whom, the mobile operators will have some
sleepless nights over this, at least for a few more days to come. The spectrum
issue has considerably delayed the launch of 3G services in India while others
in the region, Sri Lanka and Pakistan have already set a clear roadmap.

"By delaying the imminent rollout of 3G services,
policy-makers are denying Indian businesses a crucial technological enabler to
compete globally," complains Sud of TTSL. "It is ironical that a
progressive and global economy like India is lagging behind many of its
conservative neighbors in offering 3G services."

Options like infrastructure sharing that has been mooted by TRAI
can benefit the operators in watering down its cost of operation for 3G by at
least 35%. Similarly initial subsidies for the 3G handsets, amiable spectrum
pricing, a killer application, and rapid influx of 3G content providers can also
play a vital role in pushing 3G forward.

What can make or break 3G in India-it is a question still wide
open for debate. The positives of migrating to 3G need to be strengthened.
Substantial investments in this direction could also result in better network
efficiencies and lowered total cost of operation for the networks. At the same
time, the investment decisions should be supported by a sound business model,
ability to differentiate their 3G services and having a clever mix of
technological choices.

The goal of achieving 180-200 million mobile subscribers by 2007
is not unachievable. But reaching the untapped 90% of India's population is a
tough ask. 3G or not, the momentum will not slow down.

Malovika Rao,

with inputs from BaburajanK


malovikar@cybermedia.co.in