Third-gen mobile tech becomes worst-gen

Last Updated: Sun, Oct 06, 2013 06:38 hrs

About 19 months back, when telcos started rolling out 3G services, Kolkata-based S Ganguly, a media professional-turned-entrepreneur, was one of those who migrated to the service, hoping to experience data on mobile platform. "3G is a mess for any consumer. Every time I need to make a call, I need to step out of the four walls, otherwise there's almost no connectivity. So is the case for data connectivity. It's slow and only works outside the four walls, except a few selected areas of the city. Moreover, tariffs are really high," says Ganguly.

The experience of most of the 28 million 3G customers across the country is similar.

The main reason behind these connectivity issues is that companies have not made enough investments in building infrastructure for 3G. According to an executive of a telecom tower company, just about 60,000 towers, or 16 per cent of the 375,000 towers in India, have 3G base stations. Considering the fact that 3G is more of urban-centric, about 40 per cent of the 150,000 towers located in the urban areas are 3G-enabled.

"Just 3.2 per cent of the country's total mobile subscribers avail 3G. So, the return on investment is very low," said an analyst with a management consulting firm. Companies have invested the hefty amount of Rs 67,000 crore in acquiring the spectrum for 3G. "Investments in infrastructure for 3G is a bit slow as the service did not take off fast. But as data revenue increases and the number of 3G customers rise, companies will invest in building infrastructure. On the other hand, there is time for the telcos to meet the roll-out obligation norms set by the government," he added.

One of the key challenges with 3G is speed and the availability of proper network. Besides the issue of enough number of 3G-enabled towers, companies need to invest in a robust fibre optic backbone linking the towers within the city to support high bandwidth. In reality, most towers do not have fibre optic backbone, and connect through microwave links. According to an executive of a tower company, just about 30,000 towers have fibre optic backbone, eight per cent of the total towers.

Also, companies need to have about 2.5 to three times more base stations for 3G services, compared with what they need for 2G.

Vodafone had said it would invest $500 million (more than Rs 3,000 crore) in 3G networks and Idea had plans to invest Rs 4,200 crore.

Though few months ago, all 3G service providers reduced 3G rates by almost 80 per cent, rates are still high.

While 1GB of data is available for Rs 123, a 3G subscriber needs to pay about Rs 492 for 4GB data, and it is Rs 1,000 to Rs 1,500 for 10 GB of data. This means, to download a HD quality movie (about 4GB) would require about Rs 400-600, and the normal versions (about 1GB) would take about Rs 150. This is too expensive considering that one can watch the movie at a theatre for much less, and DVDs are far cheaper.

Using YouTube or any live streaming site for half an hour to one hour every day would finish the 10 GB, priced at about Rs 1,000-1,500. A direct-to-home or a cable connection, which offers hundreds of channels, would cost much less.

"Yes, high rates is one of the key issues why 3G did not take off. But it has come down significantly in the past few months. This also has showed results as average revenue per user (ARPU) for data has gone up in recent months," said Mritunjay Kapur, managing director of Protiviti India, a management consulting firm.

On the other hand, said Kapur, companies do take a cluster-based approach for 3G. A particular business area, for instance, the Cyber City area in Gurgaon, would get better 3G connectivity, because companies have more corporate customers, potential high users of data during the day. But the same customer may not get proper 3G data connection while at home in another part of the city.

Limited spectrum
Another key issue is companies have limited spectrum for 3G. Just 5 MHz of spectrum is not enough for 3G services. In the US and Europe, the spectrum offered to the operators is four times of what Indian operators get for 3G.

The department of telecommunications (DoT), however, is now working on a deal with the defence ministry to swap 15 MHz of spectrum in 2,100 MHz (with the defence forces) with a similar quantity in 1,900 MHz. This will make space for more operators in each circle from three to four now. According to Rajan Mathew, director general, Cellular Operators Association of India (COAI), the deal, if goes through, will help operators establish pan-India presence, from limited markets, and would help in better service.

According to a recent research report by Morgan Stanley, the three listed telecom operators - Bharti Airtel, Idea Cellular and Reliance Communications (RCom) - are expected to reach a break-even in the 3G business in 2015-16. It also says Bharti Airtel's 3G business is expected to break even only in FY16, while Reliance Communications will reach the point a year earlier.

According to the report, purely 3G revenues have negative incremental returns. However, the silver lining is data volumes have picked up sequentially, by 20-25 per cent in the past three quarters, it noted. The report estimated non-voice revenue would contribute 18-24 per cent of the revenues by FY16. "The fall in data rates and cheaper handsets have been inching up their 2G data rates, while 3G data rates have remained largely stable over the past six months but have come down almost seven times since the beginning of 2012," it said.

However, the government's decision to impose a penalty of Rs 50 crore for each circle on Airtel, Vodafone and Idea for intra-circle roaming pacts might delay 3G break-even. This would also dampen growth in customer acquisition without intra-circle roaming. No operators would be able to offer 3G services pan-India.

"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," said Kapur. And, operators will only invest if they see good returns in this business," he added.

3G to grow
According to an analysis by PhilipCapital, India's 3G subscriber base is expected to double to about 56 million this financial year. The study added by March 2015, the subscriber base was estimated to exceed 96 million. While RCom had the most 3G subscribers in FY13, the analysis predicted by March 2014, Airtel would emerge as the leader, with about 14 million subscribers. It added the number was expected to double the following year. The sharp rise in 3G subscriber base will be driven by affordable 3G handsets.

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