Balancing Act

The world is getting mobile and connected. After a lot of hype, the mobile
broadband revolution has started to happen, and India is a crucial part of this
movement. Mobile networks have grown strong enough to give tough competition to
wireline offerings. The global advisory firm Ovum has recently released a
forecast showing that users accessing the Internet via mobile broadband enabled
laptops and handsets will generate revenues of $137 bn globally in 2014, over
450% more than the earnings in 2008. The consultancy firm estimates that there
will be over 2 bn mobile broadband users by 2014.

The report also suggests that the operators can expect a similar growth rate
for handset users of mobile broadband services starting from a larger existing
base. These estimates sound very promising as the largest growth prospects come
from emerging markets, where the unavailability of fixed broadband offers a big
opportunity to mobile broadband players.

Interestingly, 40% of the projected mobile broadband laptop users will come
from the Asia Pacific. With the advent of 3G in markets, including the world's
two most populous nations-India and China-Ovum says the large number of mobile
users and the lack of fixed line access will drive millions of people to seek
mobile web access in these countries. For many, Internet access will be through
the handset, the firm forecasts. In China, there will be 52.5 mn laptop users
versus 325 mn handset users. India adds more mobile subscribers each month than
it sells laptops annually.

This kind of explosion in mobile broadband space is quite realistic. And
India will be a key contributor to this phenomenon. The reason being that 3G
services have already been rolled out in India. MTNL, which currently offers 3G
services in Delhi, has managed to pull only 200-300 subscribers since the
services were launched earlier this year. It currently offers Jadoo 3G services
in limited parts of Delhi and plans to extend them to the whole city in a few
months.

BSNL has fared a little better with 3,000 customers in over 24 cities since
the commercial launch of its services. The picture looks grim at the moment as
private players are yet to take a plunge into the 3G war. By 2014, when
competition intensifies with the entry of more players on the turf, network
quality will have become an increasingly important service differentiator.

Introduction of 3G services in the country will fuel the touch-screen market
this year. Touch-screen phones are expected to grow by nearly 50%, to 12 lakh
units this year. A touch-screen handset offers a smoother Internet experience.

Most companies have started to manufacture 3G-enabled handsets months before
the services will be introduced by the telecom companies. Besides, in a country
like India, where the broadband penetration is bleak and with a subscriber base
of over 350 mn, consumers have started looking at a handset as a one-stop
solution for all their needs.

Operators will have to be very innovative with their VAS to make the best of
mobile Internet. Promoting activities like m-commerce, m-payment, etc, can play
a pivotal role in earning revenues.

The rate of growth for mobile broadband laptop and handset revenues between
2008 and 2014 is consistently below that of users. The ARPU erosion can be
attributed to factors like the adoption of mobile broadband laptop access into
increasingly less wealthy segments of emerging markets, introduction of prepaid
tariffs, and most importantly the increasing competition for mobile broadband
access,which will drive prices down.

India adds big numbers to its subscriber base every year and call tariffs are
the lowest in the world. We have already seen what competition has done to the
ARPUs that are on a continuous decline.

The fix for operators here is that ARPU from mobile broadband users will
decline at the same time as usage increases, both in terms of number of users
and the amount of data consumed per user. More data per user will need to be
carried on mobile operators' networks for less revenue.

In India, data consumption through mobile broadband is still minute. For
operators in India, the ARPUs will go up when data consumption increases.
According to TRAI, at present, data contributes only 0.5% to 2% of an operator's
revenue.

Besides, getting more subscribers to use mobile broadband, balancing both
sides of the equation is an essential skill for mobile operators in order to
make the best of this opportunity.

Heena Jhingan

heenaj@cybermedia.co.in