Is India 3G Ready?
Industry experts discuss key issues

What is the 3G Potential in India?

Mohit Saraf
The success of mobile telephony in India has had all the “formulas of success” built into it – competition, development of technology, availability of affordable instruments and, the biggest of all, the great Indian middle class. The success of 2G services (30 million to 50 million mobile users in the last fiscal year) has proved that the Indian market is an extremely price-sensitive market and only when tariffs are really affordable, can a technology be said to have achieved mass success. Therefore, while 3G is significantly higher in quality and can improve the way India communicates, its potential (read: commercial success) would only be a result of its adaptability to the Indian masses.

The regulators have taken the first step in the right direction by opening up spectrum, with a more technology-neutral approach and doing away with a fixed cost of spectrum. Though there may be arguments to the effect that 3G may be unsuitable for the Indian masses, the growth of the mobile telephony market cannot be overlooked. It is still in its early stages and poised to grow manifold in the next few years. Therefore, the market signals are right for the growth of 3G services in India. At the same time, it would require adaptability of the instruments and existing technology to the new set-up. It would also require massive additional investments on the part of the operators.

Archana Sasan
Keeping in mind the cost of rolling out 3G networks, which includes the proposed entry fee for 3G spectrum (which could be high), the cost of upgrading handsets, etc. and the requirement of providing cost-effective 3G services thereafter, 3G currently has limited potential in India. Though some service providers have indicated a desire to provide 3G services and have offered to pay high entry fees for 3G spectrum and upgrade their existing network, the process of providing 3G services could be tedious, time-consuming and not very cost efficient.

Rajat Sharma
The demand for mobile telephony is visible and this clubbed with the Indian appetite for new wireless technologies and handsets shows bright potential for 3G. Further, 3G’s ability to carry higher voice traffic and provide “true” high speed data networks can help benefit both urban and rural initiatives by deploying relevant applications like telemedicine, e-education and e-governance. 3G has more to offer than just a fancy handset and if looked at seriously, it is one tool that can help India accelerate its economic growth as telecom is the lifeline of a country.

Prashant Singhal
It is well known that India is poised for an explosive growth in wireless consumers. The subscriber base has shot up from 15.5 million in May 2003 to 53 million in 2005, and we are adding 1.5 million to 2 million mobile subscribers every month. It is certain that India will possess an addressable market of 300 million people by 2010. One can take a cue from these numbers for the 3G potential in India.

3G will provide four-five times higher voice capacity than the present 2G. Higher bandwidth will support the government’s various social initiatives as well as commercial applications like radio surveillance, mobile banking, mobile trading, e-wallet, e-credit card, transaction authentication, ticketing and push-and-pull ads. Content-rich experience will enable trade and business opportunities for urban and rural prosperity.

3G technology promises quality, speed of deployment and reach. 3G/WCDMA is the most cost-effective voice technology. Together such features appear attractive to the essentially price sensitive Indian market.

Added to this, globally, prices of 3G handsets are declining and by 2008 the price of 3G-compatible handsets is expected to be halved. Thus, the 3G potential of the Indian market is immense.

In its recent recommendations, TRAI has also suggested that both GSM and CDMA operators be given additional spectrum in the 2000 MHz band (meant for 3G services) as an extension of their existing 2G services.

Waiving the entry fee on 3G spectrum and charging only an additional revenue share of 4 per cent (down from 6 per cent) would help a large set of consumers enjoy premium 3G services at low tariffs over a period. This is keeping in mind that the government targets raising the mobile subscriber base to 200 million by 2007.

As and when the regulatory situation is addressed, what kind of products and services can be expected?

Mohit Saraf
As and when the regulatory situation is clearer, especially on spectrum-related issues, one can expect a host of services and products, which could enable faster flow of data and voice. With developments in technology, only products and services that provide a wider range of choices and higher adaptability to the consumer’s requirements would be the most likely output. As a result, the carriers who operate on both the GSM and the CDMA platform and can combine the upgradation of both platforms, would be the best off. This would also mean that single-platform operators might introduce new technologies that are far superior than 3G technology (viz., HSDPA). Another significant factor would be the availability of compatible equipment.

Archana Sasan
Globally, 3G CDMA devices have already been commercially introduced. These include sleek new mobile phones with high resolution colour displays, megapixel and video cameras, 3D graphics and music players, smartphones, wireless personal digital assistants (PDAs) and high speed wireless modems. As regards the services provided to the end-user, the same would be related to high speed circuit switched data (HSCSD), general packet radio service (GPRS) and enhanced data for GSM evolution (EDGE). However, real-time information would be the most valuable service to the end-user. There is a likelihood that the initial applications may be related to retail, for example, product comparisons and transactions. Consequently, there may be development of mobile-commerce. Also, the increased capacity for handling large amounts of data will facilitate the delivery of graphics-rich information.

Rajat Sharma
For making money, operators would offer products and services which should result in volume play (voice-very high capacity available), multimedia play and wireless access (data volume). It would mean wideband through 3G data card for corporate/SMEs/roamers, etc. for e-mail, portal-based services, video telephony, video/audio streaming and, above all, voice will still remain dominant and will fully exploit 3G’s capability of delivering very high capacity “voice” services.

Prashant Singhal
Successful rollout of 3G services depends on a host of variables that include licensing terms, spectrum allocation, competitive pricing, market players and access networks. Similarly, its feasibility as a business proposition will depend on the models of revenue generation adopted by the players in future. However, once these issues are addressed, 3G could be serviced to allow high speed mobile broadband access at a pace ranging from 386 kbps to 2 Mbps. Based on new radio spectrum frequencies, it would offer connection speeds up to 200 times faster than the current rates (up to 2 Mbps), enabling mobile phones to download data much faster.

It also promises greater bandwidth and bigger data pipes for faster multimedia delivery, not to mention high-resolution colour displays and the sought-after built-in video cameras. We could easily expect 3G technologies to transform phones and other devices into complete multimedia players, making it possible to stream music and video clips in a digital format over a range of frequencies.

If voice was the killer application for 2G, video is the killer application for 3G. Unlike one-dimensional telephony services, 3G enables streaming audio and video content or applications over the air, including multimedia games, music and sports highlights, offering a complete range of video entertainment services.

In essence, the entire ecosystem around 3G services and content would enable rural applications like e-learning, telemedicine and video communications. And corporate uses like video messaging, multimedia content, and video conferencing, credit payments with infrared from phones, electronic tickets, location-specific information, and games-services messaging.

What network upgradation will be required to provide such services? What sort of investment will this entail?

Mohit Saraf
Network upgradation for 3G services would mean large investments. Internationally, players like Hutchison have invested close to $20 billion for the development of 3G mobile phones, most of which has been spent on technological upgradation. Any Indian telecom operator keen on providing 3G services would have to undertake substantial network upgradation, which would require significant investments. The developments in technology may also spin off investments in the manufacturing of mobile phones. With a growing demand for new equipment that is technologically compatible for 3G services, more and more equipment vendors may want to set up a manufacturing base in India, which would also involve substantial investment.

However, there may be other factors that can influence investments in technological upgradation. Based on TRAI’s recommendations, GSM operators may get additional spectrum for 3G services in phased manner till December 2006, while CDMA operators would be allotted the additional spectrum within a month. A significant time lay may, therefore, be caused between the operators, which can create artificial market barriers and may even hamper investments by GSM operators.

Archana Sasan
The network upgradation required to provide 3G services would require substantial investments and could be very extensive. This is evident from the fact that Bharti Tele Ventures proposes to invest approximately $1 billion on upgrading its network to make it 3G compatible.

Rajat Sharma
Since 3G uses WCDMA technology at air interface, the network upgradation required would be in terms of new base stations along with new antennae, controllers, upgradation of servers, interoperability with 2/2.5G networks, etc., although the core networks remain the same. While the existing mobile networks will continue to provide the prevailing services (GPRS, EDGE which complement WCDMA), 3G is likely to be deployed as a premium service to cater to high rate data-c

entric products and services. To apportion and exact amount at this time would be difficult as investment is a function of regulatory costs, network volumes, existing relationship with vendors and other such factors.

Prashant Singhal
The standard 3G wireless technology can be achieved in two or three stages of upgradation, from the existing 2G systems to accommodate higher rate data transfer capability using packet switching technique and IP. All GSM networks (2G) can easily be transformed to 3G networks by implementation of GPRS and EDGE. However, it might not be desirable to allocate spectrum both in IMT-2000 and US PCS 1.9 GHz in a mixed manner to take care of the interference problem between both the bands, leading to poor service and high network upgrade costs.

TRAI’s latest recommendations suggest a minimum of 5 MHz radio frequency for 3G services apart from additional spectrum in the 1800 MHz, 900 MHz and 800 MHz bands for both GSM and CDMA operators. TRAI has also suggested opening up the 450 MHz band for use in semi-urban and rural areas. Additional spectrum would mean better quality of service.

It is difficult to predict the investment required for the services since network upgradation is dependent upon regulatory mandates. The entry fee and spectrum allocation charges could add to the bulk of the investment as well as per line costs, and 3G compatible handsets etc. are still contentious issues that need to be looked at by policy-makers.

Which consumer groups will be most interested in the new service?

Mohit Saraf
Mobile telephony’s growth in India was led by the middle class, which found it easier to pay a small margin as the price for mobility. Having used the technology at a moderate level, telephonic mobility has become an important aspect of business and everyday life, and these classes are now looking towards higher speeds and better service in terms of quality. Invariably, this section of society would be biggest protagonist for the growth of 3G services as well. However, a lot would depend upon policy and technological developments. While tariffs are a function of policy and regulatory changes, the affordability of other infrastructure like 3G-compatible mobile phones would depend upon the investments made and the incentives offered by the government. A favourable interplay of all these factors would decide the interest of these consumer groups in the new services.

Archana Sasan
Considering the huge investments involved in rolling out 3G services, it would be organizations such as retail merchants, IT companies, financial services institutions, entertainment companies, etc. who could be interested in 3G services.

Rajat Sharma
One can expect two sets of consumer groups to take up 3G. One will be the typical business user whose unquenchable thirst for higher bandwidth can now be fulfilled and for whom triple play brings immense value proposition. The other group will typically be the one which sees value in the new content and services offered on the 3G network and will be willing to diagnose these. Of course, where existing networks are overloaded, the high voice capacity of 3G can be provided to retail customers.

Prashant Singhal
3G has a huge potential amongst the young under-30 group just as it could have a following amongst corporate customers. The services and technological potential ensures that it appears interesting to a wide segment of developing markets. Whereas features such as voice, e-mail, video conferencing, digital postcards, stock quotes, news, addresses, traffic information and roadmap listings could appeal to a heterogeneous mix, commercial attributes like push-and-pull ads, mobile banking, mobile trading, gaming, e-wallet, e-credit card, transaction authentication and ticketing could tap into the urban corporate segment.

Then there is the entertainment dimension where sports scores, MP3 downloads, horoscopes, icons, ringtones, animated images, chatrooms, forums, interactive games and games for money could be appealing to city dwellers and the urban youth. Some telemetric services like meter reading, appliance monitoring, and corporate internet across could also cater to communications industry professionals.

Is there any relevant learning from the experience of foreign operators who have already rolled out 3G services?

Mohit Saraf
Internationally, there are two significant trends for 3G services rollout. The first, regarding policy, concerns the technological neutrality of the policy. The policy for introduction of 3G services has rarely been technologically neutral. While US policy favoured 3G upgradation from the CDMA platform, European policy favoured it for the GSM platform. Second, the rollout of 3G services has not resulted in a significant reduction in the cost of instruments, which created negative externalities for the development of 3G markets. Big players across the world have found 3G to be a major drag on resources.

While Indian players have so far experienced a technologically neutral regulatory approach, they need to covert the introduction of 3G into a cost-effective proposition. Affordable equipment, customized tariffs, significant quality improvements can, therefore, be the mantras for 3G success.

Archana Sasan
There are several learnings for Indian service providers from the experiences of foreign service providers who have rolled out 3G services. The global environment with respect to 3G is presently not too encouraging due to the bulky investments made by service providers coupled with poor revenue visibility for their telecom operations. The provision of 3G services has been considerably delayed in the European market on account of these factors. Indian service providers should initially endeavour to upgrade from 2G to a 2.5G network as this is sufficient to provide most of the services contemplated by 3G. There is huge investment involved in upgradation of the existing networks to make them 3G compatible. Handset upgradation would also require additional investment. Indian service providers should evaluate whether 3G networks would be cost efficient to roll out. Economically, any service that requires extensive investment is not likely to be consumer friendly in terms of pricing.

India has yet to reach the teledensity targets laid down by the National Telecom Policy. Therefore, it may be appropriate for the Indian telecom industry to make investments in increasing coverage of their networks rather than upgrading their networks to make the same 3G compatible – a service that is of interest mainly to a few high-end users.

Based on the experience of the telecom industry globally, the key to success for service providers would be to ensure presence in the remotest corners of the country with high usage. Accordingly, the emphasis should be to make the acquisition of phones and their usage extremely affordable for the masses. Once this objective has been achieved or substantial investments have been made in this regard, they could look to upgrade their networks in order to provide high technology services to consumers.

Rajat Sharma
Spectrum-related issues should be created to first. Vision is required to sort out the spectrum-related issues that could crop up in the future. Also, 3G is perceived as a more superior network than the current 2.5G and 2G networks. Maintaining quality of service and good network coverage will be another area that needs to be taken care of. Moreover, we have seen that high 3G adoption in foreign countries is due to a special set of content and services, which encourage users to migrate to the 3G network and service.

Prashant Singhal
Globally, 3G has a dedicated legion. Let us take the example of Japan and South Korea, which have been the best-performing markets for 3G in terms of subscriber additions. DoCoMo (Japan) expects to convert its 2G subscribers to 3G (FOMA) during 2005-06. Video telephony is expected to be one of the key applications to increase operators’ ARPUs on 3G services.

Popular in other European countries, the Swedish mobile service provider ‘3’ has a subscriber base of 350,000 in Sweden and Denmark, and has added around 150,000 customers since mid-August. Today, commercial 3G networks can be seen across the globe. More than 50 per cent of the WCDMA (3GSM) licence holders globally have brought their 3G services to the market, with new commercial launches being announced regularly. At present, there are 64 WCDMA (3GSM) networks in commercial service in 31 countries, serving around 20 million subscribers.

However, there are some key learnings that we could draw from the 3G experience worldwide. First, the European 3G fiasco establishes that there can be no fixed fees for spectrum allocation. Impractical pricing models were one of the major reasons for the entire telecom industry landing in the doldrums. Thus, the licensing fee should be based on a reasonable balance of the operator’s revenue share percentage. Second, adoption of 3G technology will not lead to immediate jumps in subscriber base. The 3G game is factored on patience since it is a technological innovation that will spiral after a reasonable gestation period. Operators should be willing to accept that there is not going to be an immediate generation of cash flows and profits. Third, content will be the key to 3G adoption and thus operators will need to invest in superior mobile content and data features. And lastly, the cost of handsets has traditionally been a major deterrent in easy adoption of 3G. In a price-sensitive market like India, it becomes even more relevant and should be considered before rolling out ambitious 3G plans.