The 3G spectrum auction, held in 2010, was hailed as the most successful auction ever for the government. It added Rs 67,000 crore to its coffers. However, the operators who participated in the auction are farther than ever from making money.
Tata Docomo rolled out the services in November 2010, followed by Reliance Communications. Both the operators and the users were excited about the new possibilities enabled by 3G technology: faster downloads, live TV and video chat. But the buzz failed to translate into usage.
To start with, prices played spoilsport. At around 10 paise per kilobyte, the rate was about five times higher than the average 2G Internet prices. To push sales, operators had to change their strategy. From the earlier plan to price 3G as a premium service, unlike 2G services and voice calls, they decided to be more in tune with the requirements of the price-sensitive Indian customer. Last year, industry leader Bharti Airtel
announced a 70 per cent cut in 3G tariffs. Soon Vodafone India, Idea Cellular
, Reliance Communications and Tata Docomo followed suit.
The gains were quick. According a report by Care Research, 3G traffic grew 200 per cent last year, predominantly after the massive tariff cuts in May 2012. "The data usage for 3G stands at around 400 MB per user per month, which is around four times that of a 2G data user," the report says. Adoption has also increased and, currently, 6.8 million Bharti Airtel subscribers use 3G services. For Vodafone, the number stands at 2.5 million and for Idea, it's 2.6 million.
However, some recent events could put a spanner in this nascent growth. The government's move to regulate roaming pacts between the top three players-Bharti Airtel, Vodafone and Idea - to share spectrum in circles where they do not own spectrum in order to offer pan-India 3G services could hurt their future plans.
The Delhi High Court had, last month, directed Airtel to stop adding new subscribers in seven circles where it does not have the licence. Vodafone and Idea might face the same fate as cases against them are pending. Vodafone provides 3G services in 11 circles without a licence, and Idea in six. Add to this the scare of a possible penalty of Rs 50 crore per circle. Experts say this move could all but negate the positive impact of reduced prices.
"To some extent, this will push back the break-even targets for 3G investments. If operators cannot service subscribers via roaming, it will have an impact on 3G additions," says Mritunjay Kapur, managing director of Protiviti India, a consulting firm. "The 3G assets will be amortised. They are not earning commensurate revenues from spectrum investments," adds Alok Shende, principal analyst and co-founder of Ascentius Consulting.
Apart from licence fee, companies have invested heavily in network infrastructure. Vodafone had said that it would invest $500 million (around Rs 2,700 crore) in 3G networks. And Idea had plans to invest Rs 4,200 crore.
"The issue (roaming pact cancellation) will hurt 3G operators, especially since they need to service a rather huge debt for 3G spectrum," says Mahesh Uppal, director of Comfirst India, a telecom consultancy.
Any regulation of roaming pacts could also lead to loss of subscribers as with mobile number portability switching subscribers has become much easier. "There will be losses to incumbents (Airtel, Vodafone and Idea). One set of population will go to competitors, while many others will say no to the service after which utilisation as a size of the total market will come down," says Shende. There might be losses for subscribers as well. If the competition in 3G eases, service providers may not cut prices again.
However, the future of 3G in the country is not dependent on the roaming pact alone. Experts say its takeoff has also been tethered by the tardy pace of the broadband revolution. Shende says there is a general lack of interest in data in the country, which also prevented the success of CDMA-based mobile telephony in India.
"There are lessons to be learnt from CDMA," he says. CDMA technology is data-centric and did not result in many subscribers. Subscribers preferred GSM-based services which offered a wider range of handsets. "The entire broadband economy has failed," rues Shende.
The next trigger for increase in 3G use could now come from a nationwide launch of 4G services supported by the broadband wireless access (BWA) spectrum. "The increase in off-take after BWA comes in might make data a big play," says Kapur.