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Both MTNL and BSNL are not competing with anyone in the 3G space, thanks to the government's delay in spectrum auctions for private players. But the industry is already seeing a substantial reduction in 3G tariffs across the country. Following the dip in prices, 3G is available at 2G rates.

After MTNL, BSNL has also substantially reduced its 3G prices to attract more customers to its network. The move comes following a weak response to its 3G services. BSNL has substantially reduced its 3G tariffs with the aim to improve the pace of providing 3G connections.

BSNL slashed its 3G SIM prices to Rs 59 from Rs 300. Migration from 2G services to 3G is free now as compared to the earlier charge of Rs 110. Prepaid activation can be done for Rs 120, and postpaid activation vouchers cost Rs 225 as compared to the previous rates of Rs 350 and Rs 500, respectively.

BSNL is providing some new services like video-on-demand, video screening, full track music downloads, and online multi-player games. The company claims that its 3G customer base has risen to close to 40,000.

Reduction in price is not a good sign for private operators who are readying their rollout plan and waiting for 3G auctions to happen. In order to ramp up 3G subscriber base, they would have to offer their 3G services at low prices. Price erosion, which will be a must to meet the price competition of the incumbent 3G players, would definitely affect their margins.

On the other side, it is imperative for BSNL and MTNL to utilize the first mover advantage and garner as much market share as possible, since private players have not yet entered the market. Incumbents realize that the competition will increase once private players enter the fray and they might not be able to get the market share. Thus, reducing the price of 3G services is more about survival than anything else.

In June, MTNL tried to create its 3G magic and attracted new subscribers through its '3G Jadoo' offer. MTNL slashed its 3G prices by offering lifetime validity at Rs 300, whereby customers can make local calls at Rs 1.8/min and data downloads at Rs 3/MB, so that customers should be able to avail latest 3G services at an affordable price. But the Jadoo of MTNL didn't work.

Undoubtedly, both MTNL and BSNL have failed to generate 3G uptake, though they are the first operators to launch these services. The incumbents had the advantage over private players and launched 3G services in January. However, they failed to cash in on their early bird advantage.

BSNL had started its 3G services on February 27, 2009, and it has roped in only 10,733 customers in these six months. Similarly, MTNL had launched its 3G services in December 2008. Initially, the service was provided free to MTNL subscribers. In the first six months of launching 3G services, MTNL managed to attract only 900 customers, which was surprising because it was the first company to launch 3G services, and except for BSNL, it does not have any big competitor.

Reviewing the current financial situation of BSNL and MTNL, some research reports and analysts tracking this sector have suggested that both the companies should not pursue 3G services. Firstly, because the response for their 3G services so far is very poor, and secondly, it will be a further strain on their already stretched financial conditions.

In a response to these kind of statements, a BSNL press release says, “There is absolutely no reason why BSNL-which is the second largest operator in the country-should not provide 3G services. Entry of BSNL in 2G services gave impetus to the rollout of mobile services, and brought down the tariffs significantly. Any attempt to keep BSNL out of 3G services would not be in the interest of the general public.”

Both the companies are taking different measures to boost their 3G market. They have also decided to go for a franchisee model, after the failure to get subscribers for their 3G services. They can definitely use the next few months of 'no competition' from private operators to create demand and thus, develop market for their newest offerings. But it remains to be seen whether these strategies will work and help them revamp their 3G platform.

Arpita Prem
arpitap@cybermedia.co.in

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