No 3G in Small Towns?

The impending 3G rollouts in India by the private operators have brought the market in the global spotlight. Even before the spectrum for the third generation technology was auctioned, a slew of market research projections had been reflecting great deal of optimism around 3G and its potential to transform the rural communication systems. However, the Indian telecom industry says the subscribers at the bottom of the pyramid will have to queue up for the services for another 2-3 years.

Going rural has been the mantra for several telecom operators in the past 24 months. But operators are going to deny 3G services to rural masses in the next 24 months. The next generation services are considered to be economy boosters. But, denying the services to a large of section of the country will slowdown the GDP growth in a bandwidth hungry country.

Going Rural - When?

The revolution that 3G promises to bring in the rural market will have to wait.
“One doesn't expect any substantial 3G rollouts to happen in rural areas until 2012. The government and education segment will drive some of early rollouts in pockets of rural India,” says, ICT market reseacher & consultant, Deepak Kumar.

AK Bhargava, GM, wireless, at the state-run MTNL that launched 3G services in the country in December 2008, says rollouts-physically and logistically-will take more time. “However, operators will be compelled to go for mass deployment as you can't confine a user to a particular geography.”
MTNL took time to cover Delhi alone, it first started 3G services in the NDMC area, followed by parts of South Delhi, and gradually it covered other pockets.

Besides, it is the high ARPU user, who is going to taste the 3G services first. It then is all the more important to provide a seamless connectivity to that user, else poor experience is likely put the consumer off.

Rural India is still grappling to become successful beyond voice, with dearth of good content and ease of use of VAS still missing.

“Let us get real, there is no immediate plan in place with a focus on rural India at the moment, besides, there are no coverage guidelines as such,” says Romal Shetty, head of the telecom practice at consulting firm KPMG.

He also says, “There are certain applications that can make a big difference to those living in the far flung places. For example, there is a small distribution company that uses mobile phones to update its sale numbers over the phone at present, without any 3G.”

Things will move once the service providers design their apps around ,m-commerce UID, and rural health. Innovative usage models will have to be cracked, says Shetty.

They will have to respond to the consumer demand and pour in more investments for rollouts. They can't afford to lock up their money. They will follow a cautious targeted coverage plan. The uptake of 3G will be a function of what can a particular technology can do for a customer, coverage and capacity, says Nokia Siemens Networks spokeswoman Kanika Atri, adding that tech is ready, operators will have explore innovative models.

RCom's fully integrated 3G Innovation Lab with end-to-end wireless network infrastructure is one such move. The Lab will be an integral part of RCom's 3G operations, offering real-time product developmental capabilities and time-to-market equation benefits to Rcom.

3G Innovation Lab will drive all 3G innovations for mobile as well as other platforms. It will aid in demystifying 3G technology and make it simpler for adoption amongst cross-section of customer groups. The Lab is a move towards the 'Open Platforms' architecture which encompass open systems, open networks, and democratic framework for partners and consumers for availability of the best products based on the consumer's usage.

Kunal Bajaj, India director, Analysys Mason, says the operators will definitely roll out in spurts, to begin with top 25 cities. “They will take some time in stabilizing their working models and get a sense of market sentiment, but we will not see long gaps as India is already late in entering the 3G game. We don't see rural 3G growth before next 3 years.”

Competitive intensity will force operators take up strategies to go one up against each other, and mass coverage will in the long run prove to critical tactic. If the government is serious about its plan to connect Gram Panchayats, it will have to thrust on district rollouts.

Current Plan: Tap Top Cities

Under the Department of Telecommunication's lens over security reasons, the vendors are busy discussing deals with existing and potential customers. The industry experts peg investments in equipment for the first phase of rollout between $2-3 bn and that will cover about 5% of subscribers.
According to Romal Shetty, in the first phase of deployments, the operators will focus on high revenue generating geographies, and will be able to cover around 30-50 mn subscribers, but that may not result into an equivalent uptake.

This is an investment phase, and no operator would like to sit idle. With launch of 3G services, operators will be able to capture some percentage of high ARPU subscribers; there will be hardly an operator, who would like to lose that opportunity. The good part is that today the scenario is not the same as it was about 2 years back, now there are 3G handsets available within `4000 price bracket, he says.

“A majority of early 3G adopters will come from among the existing base of 2.5G and 2.75G subscribers. A realistic assessment pegs the 3G subscriber base at 10-12 mn by 2011,” says Deepak Kumar.

Kunal Bajaj of Analysys Mason agrees. He says, to begin with the cellular operators will concentrate on top 25 cities; in the next phase they will expand to about top 100 cities; and, for at least one year the rollouts are not likely to go beyond this number.

“The operators will swot these regions on usage, pricing, and ease of use patterns. A section of the urban subscriber base reacts similarly to global peers. We have seen them latch on to Tata photon and Netconnect and other EVDO services,” he explains.

Who knows it better than the vendors, who are spending hours negotiating deals to make the most of the biggest opportunity in the current calendar year?

Sethumadhavan Srinivasan, deputy director, marketing and strategy, Huawei, says it will be pre-mature the operator reach looking at their plans for current order-sizes as they are still finetuning their capex. A clear picture of their real strategy is still about 2-3 weeks away.

“Yet, we can't deny the fact that all operators will be looking at the creamy layer of the cake,” Srinivasan says.

Nokia Siemens Networks spokeswoman, Kanika Atri, encores. “Investments are surely happening but definitely not in a big bang approach. The capex will have to be looked at from a long term perspective of three to five years. It is going to be a volumes' game and the capex will tend to come down,” she says, adding that the rollouts will hit only select cities initially.

Srinivasan stresses that the strategy of the operators on date is a gradual rollout, and this is why they are taking up the managed capacity kind of models. In a model like this everything is incremental, as it is a model where you pay as you grow.

A big question is do operators intend to go in for pan-India coverage, Atri wonders. “It will be interesting watching what the players will do with the kind of spectrum allotments that have happened.”

The industry is already hearing whispers about Bharti Airtel exploring tie-ups with Vodafone and Airtel.Infrastructure sharing will play a critical role in the kind of inter-operator arrangements that happen for full coverage.

Purushothaman KG, associate director, Protiviti Consulting says there is a lot of talk in the industry as to what proportion of 3G can be passed on to passive infrastructure. There are passive infrastructure players such as Bharti Airtel and Indus Towers which will have an edge; especially a player like Indus which caters to Bharti Airtel, Idea Cellular, and Vodafone as a part of their main portfolio. So the deals that these service providers will be striking with Indus will be motivated by a strategy of a long term commitment.

“The deals that the operators will get into with passive infrastructure will be influenced by the benefits that they are likely to get in terms of cost they incur for passive infrastructure; the thought process is that since the operators will have to only put in a few additional equipments in the passive infrastructure place, he says.

Purushothaman explains, “The arrangements could be 'No cost' deals or marginal cost for renting out additional equipment for 3G in the passive infrastructure place. This will give the likes of Bharti, Vodafone, and Idea an advantage over the other operators who work with Viom Networks (formerly Quippo-WTTIL or American towers. This will be a differentiating factor for passive infrastructure and, here we are talking about a significant expenditure and there they will be playing a volumes' game.”

The 3G (Great) Expectations

 Third generation mobile subscriber base in India is expected to reach 90 mn by 2013

 Government borrowing could be lower by up to `350 billion ($7.6 billion) in the 2010/11 fiscal year from estimates of Rs 4.6 trillion ($99.3 bn) on higher-than-expected 3G mobile spectrum sale inflows

 According to Indian 3G Mobile Forecast to 2012 Research Report, 3G mobile subscribers is expected to grow at a CAGR of around 80% between 2011 and 2013 to around 55 mn by the end of the period

 Riding on 3G, IPTV likely to come in India by 2012

 Expected to lead the 3G market among emerging countries, according to research agency Strategy Analytics

 The mobile content market in India will be $830 mn in 2009 and will triple by 2013, says a report

Learning from the Neighbor

China rolled out 3G services in 2008, and received a mixed response from the home market. According to Digitimes Research, the number of 3G service subscribers in the China market is expected to top 44.8 mn by the end of 2010, an increase of 339% from the 10.2 mn recorded at the end of 2009.

Network infrastructure rollouts, an improvement in the availability of end-market devices, and subsidies offered by telecom carriers all contributed to the growing 3G market in China. As of end of June 2010, China Mobile led the 3G service market in China with a 42% share, followed by China Unicom at 30% and China Telecom at 28%.

The estimates hint, due to strong support from the government and an aggressive subsidy policy, China Mobile is expected to see the number of its 3G subscribers reach 18.8 mn by the end of 2010.

While the total number of the 3G subscribers in China is likely to surpass the 100 mn mark in 2012, the proportion of 3G users to the total number of mobile subscribers in China is growing slowly due to insufficient mobile application services, which have in turn, made the over 400 mn 2G subscribers reluctant to shift to 3G services. Competitive heat has obligated the three operators have adjusted their handset strategies to increase their subsidy levels - particularly for mid range and low end 3G mobile phones.

This will grow the market, but will impose a financial burden on the operators. Handset competition will also maintain pressure on vendors' margins, and customers will be the main beneficiaries.

In May this year, China Mobile's CEO Wang Jianzhou announced that China Mobile will increase its handset subsidy in 2010 to grow its 3G subscriber base.
Total subsidies are likely to reach $171.2 mn, most of which will be for 3G handsets. This subsidy level is significantly higher than in previous years.

Meanwhile, China Telecom has begun to implement a new handset subsidy policy in some provinces for its CDMA handsets, and China Unicom, which had always avoided implementing 3G handset subsidies, recently decided to join the bandwagon.

heenaj@cybermedia.co.in