3G More Idle than Ideal

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Ends should justify the means. This is no different for 3G. As operators prepare to pump in billions of rupees to be 3G ready, it is time to rethink on 3G's success as a business model to reach the mass and not just the class.

Operators need to consider the following aspects before going full throttle on 3G.

How fast can 3G show returns of investment following huge investments?

Can 3G make an impact as big as 2G and 2.5G has on the psyche of the average Indian subscribers?

Are there better options besides 3G to facilitate quality of service in rural telephony and wireless data services?

Will 3G succeed where 2G failed in impacting the rural teledensity?

3G technology promises quality, speed of deployment and reach, but the question now dogging the industry is not "when 3G will happen" but, "how to monetise 3G." Behind closed doors of the boardrooms and in several discussion forums, debate over an appropriate 3G business model has reached inconclusive end.

It is fair to assume that 3G is for the elite subscriber base who can afford the expensive 3G handsets that are priced over Rs 15,000. Of the total 157 mn mobile subscribers in India, 13% are metro subscribers and 34% reside in 'A' circle. This indicates that the potential 3G subscribers in India will only be 10-15% of the given mobile subscribers.

An overwhelming majority of India's mobile subscribers will be unfazed by 3G. Should operators invest in a technology to serve only a few privileged?

Also, countries that have 3G networks for some years are already talking of deploying 3.5G or 4G standards, and WiMax respectively. It is not a remote possibility for India too to leapfrog like China that has opted for 4G over 3G.

Money-spinner or money-loser?
Looking west, mobile operators in Europe spent a staggering $129 bn to buy licenses for 3G networks. Seven years since then, most (95%) people continue to use their mobile phones just as they did in 2000-to make calls; thus underplaying the case for 3G which was to change the way one uses mobile handsets.

3G take-up has been modest but slow across continents. As of February this year, 444 mn 3G subscribers (CDMA2000, 1X EV-DO & WCDMA) are registered. Japan and Korea lead the way.

What makes 3G idle?

Steep 3G licenses can effect cost of service and burden the end subscriber
3G handsets are too expensive for a rural subscriber
In Europe, 3G growth has not justified the cost of investment for operators
3G will appeal to urban masses but not reach India's majority (90%) population, which is rural
For local content delivery, 3G has an uphill task against the deep penetration of cable TV content providers.
Alternative technologies-4G, 3.5G, WiMax, OFDM, can give 3G a run for its money
Possible for India to leapfrog to 4G

What makes 3G Ideal?

3G spectrum offers 4-5 times the voice capacity of 2G spectrum and thus 3G is a cost-effective tool to deliver voice
3G community is working on a $100 3G handset to make it affordable
In urban India, 3G facilitates faster data/voice connectivity enabling video on demand
In rural India, 3G can enable telemedicine, virtual marketplace and e-learning
Operators can ensure better quality of service and reduction of network congestion
Upgrading from 2.5G and CDMA to 3G is not a tough challenge compared to investing in WiMax
3G technology has wider deployments and is matured compared to WiMax and 4G

In EU, an early adopter of 3G, of the nearly 478.4 mn mobile subscribers, 3G accounts for less than 10% as of April, 2007. This marginal growth has not justified the massive costs put in by operators over seven years ago.

In many countries 3G has fallen out of favour with the operators. For instance, in Finland, home of leading 3G equipment maker Nokia, operators persuaded lawmakers to let them subsidize the sales of 3G cellphones. Normally this practice is not allowed for ordinary GSM mobile phones. Last year, Vodafone scrapped its 3G network in the Czech Republic, citing the technology's excessive costs. Vodafone's Czech subsidiary spent $87.7 mn on a 3G license in February 2005.

Yet 3G investments have not dropped completely. According to a new study from ABI Research, network operators globally will invest a total of almost $18 bn in Long Term Evolution (LTE) capital infrastructure over the period to 2014.

One base station in a 3G network can take 80 calls as against 17 calls per base station in 2G. Also, 3G spectrum offers around 4-5 times the voice capacity of 2G spectrum and 3G could thus be a cost-effective tool to deliver voice and drive tele-density in rural India.

Money-spinners will be closely watching 3G's potential to increase non-voice revenue. Currently the non-voice revenue is less than 10% of the overall mobile communications revenue in case of India. Non-voice services promise a huge scope for industry growth and 3G is expected to boost this to a large extent. But the winners and losers (operators) will be determined by the ways they can market 3G services successfully.

Indian telecom operators see good business sense in 3G investment as long as the return on investments are realized. Most national operators have completed 3G trials.

As of now, BSNL is ahead in the pack with a commitment of deploying 3G network in 250 towns. On the other hand, Reliance Communications, Bharti and Idea Cellular are keen on launching 3G only in the top 10-20 cities in the first phase. The likes of Aircel and MTNL who have lagged in the GSM market, expect 3G to give them a first-mover advantage in the metros.

Except for BSNL and MTNL, most other operators are tightlipped about investments in 3G till the policy is announced. But the broader picture still reveals that 3G roll out is metro focussed and no one is yet daring to enter the rural segment with 3G.