Will 3G make biz sense ?

DECCAN HERALD : 16th March 2009 , Economy and Business Telecom Tech : The next wave in mobility will change the game

Will 3G make biz sense ?

G Krishna Kumar and Dr V Sridhar

Though India is far behind in launching 3G services, it will be a distruptive technology when it becomes an accepted standard.

Though incessantly delayed, the 3G auctions hopefully will take place by March as promised by the Minister, and the network rollout will happen by third quarter of 2009. With BSNL and MTNL soft launching their 3G services in many cities, we hope that the government operators are not given undue first-mover advantage compared to the private operators. However, the nagging questions the operators have are: will 3G fly in India? Is it worth bidding high prices (now that reserve prices are expected to be much higher than originally conceived) for the 3G spectrum? Or will Voice - the ubiquitous killer application - continue even over sophisticated handsets and networks? India is still a growing market despite the economic meltdown taking place all over the world. Indian mobile subscriber base has crossed 350 million and continues to grow to achieve the expected subscriber base of about 500 millions by 2010. Indians enjoy talking over phone. The average talk time in India is more than 500 minutes per month while in China it is about 300 minutes and in Finland, the country which first launched mobile services in the world, is about 200 minutes. Though India is a voice centric market, it has been attractive to handset vendors and even to international operators due to its sheer size and potential for future growth. Non-voice on raise ARPU (Average Revenue per user) is one of the key performance indicators of operators worldwide. ARPU in Indian Metros and Category A circles is about Rs 274 per month. Out of this, data services contribute roughly 12 per cent. SMS constitutes to about 50 per cent of non-voice revenue of the operators. An informal survey conducted by us revealed that less than 1 per cent of software/IT professionals (considered as the Tech Savvy) use any of the Non-SMS data services. Even in an advanced market like USA, non-voice contributes only for about 16 per cent of the overall ARPU of operators. It is expected that worldwide 3.3 trillion SMSs will be sent in the year 2009. The only exceptions being Japanese and South Korean markets which have data ARPU contributing to more than 40 per cent. However, it is well known that Japanese and Korean markets lead the rest of the world markets of the world in terms of advanced mobile services by 2 to 3 years. Will 3G bring a disruptive change in the Indian mobile market? Benefits of 3GThe average 2G spectrum available for Indian operators is much less than the international average. Though most of the spectrum starved incumbents might be looking at 3G license and spectrum for enhanced voice offerings, the competition amongst the licensees will force them to look for alternative revenue streams including high-speed Internet services and other value added data services as well. Operators are expected to focus their 3G services on cities as it helps in increasing the ARPU since cities account for maximum post paid connections. The 3G spectrum will definitely benefit the operators to pack-in more subscribers (more than 2.5 times /MHz compared to 2G) with enhanced voice quality by using the 3G infrastructure. Even amongst the 3G subscribers, voice will continue to dominate as a percentage of total ARPU in the near term. Operators could potentially migrate the existing post paid subscribers with average monthly bills exceeding, say Rs 1,000 to 3G by providing a bundled offering to the subscribers such as subsidised 3G phone and mobile broadband. This will free-up spectrum in 2G and also provide for growth in 3G services. One more option is to use the advertisement model pioneered by the likes of Google. By offering multimedia rich advertisements (akin to TV ads) on the go, the operators can earn additional revenue. This can be used to subsidise the usage/ rental charges of their 3G services so that the operators can garner as many initial adopters as possible in a shorter time frame. Though we see new models of handsets with functionalities such as Global Positioning System, rich media capabilities, enhanced email and search engines, being released by handset vendors every day, these can be of use to subscribers only if services using these functionalities are made available. This requires active collaboration between the operators and Mobile Value Added Service (MVAS) providers. The walled garden approach used by the operators is cited as one of the primary reasons for MVAS not picking up. 3G data cards With suitable regulatory intervention as pointed out in the recent draft recommendations on MVAS by TRAI, and proactive collaboration between the operators, MVAS technology providers, MVAS service providers and handset vendors as witnessed in Japan that spun off world leading mobile services such as iMode and FOMA, we can only hope for our MVAS industry to grow faster. Bundled offerings for 3G data cards may also become popular in cities for high-speed Internet connectivity and multimedia downloads. Apple’s iPhone, provided a different user experience especially in multimedia applications. It encourages end users to download applications by using the data services. With smartphone penetration increasing in India, it is expected that a certain proportion of high ARPU post-paid subscribers will use advanced 3G data services. GPS based Navigation software and associated applications, Mobile TV /streaming applications, m-commerce and mobile gaming are also potential applications and services for smartphone users. Gaming applications, which are extremely popular application among youth could be a significant revenue generation stream for the operators if attractively priced. Using the above strategies, the operators' aim should be to build the critical mass required as soon as possible so that they can sustain their 3G offerings. With Mobile Number Portability (MNP) in the horizon, the operators have to prepare for the battlefield by offering an optimal combination of price and quality of services, for acquiring and retaining subscribers. Data and multimedia services using 3G technologies seems to be one of the options the operators have, to attain competitive edge.    G Krishna Kumar is the Director - Engineering, Teleca and Dr V Sridhar is Visiting Research Fellow, Sasken Communication Technologies. E-mail: krishna.kumar@teleca.com