Few people want to read more about 3G in India. It has been such a long undulating path of hope, expectation and despair over the last 4 years that 3G has become something of a mirage for waiting consumers. We can also be reasonably sure that our average mobile consumer does not know what exactly to expect from 3G. Will it really transform his currently aggravating user experience of trying to complete a voice call without any drops or allow him to find a mobile game, which he likes without repeatedly initiating the download and getting billed for it each time? Will he really be able to make those video calls being promoted by nubile celebrities, will that new mobile health application really help him get rid of the years of excess, or will he be able to watch that YouTube clip on his mobile browser?
It?s widely accepted that unless telcos really work on developing an ecosystem around 3G services, just having access to spectrum will not change much in the lives of an average mobile consumer or in the topline of telcos. The key reason for this market structure is the difference between 3G and the earlier generations of communication technologies. When GSM and CDMA technologies were introduced, their value proposition of mobility over a fixed line connection was crystal clear, and as soon as the price points came down, the market hit the tipping point. However, from 2G to 3G, the key difference is the ability of the newer technologies to support higher data speeds, which on its own is a clear use case for only a niche section of the population.
The first beneficiary of the higher data speed will be the mobile broadband market (dongles, embedded devices and modems). CDMA operators have had a real first mover advantage in this market, with their launch of EVDO dongles and they are already adding about 2 million subscribers per annum. This market can grow for EVDO operators, but for 3G (HSPA) operators, the amount of allocated spectrum (5 MHz) very quickly starts becoming a bottleneck. One way for the 3G operators to address this issue is to increase the contention ratio (number of simultaneous users), but then the end user experience starts mimicking its current experience with 2G and the additional $3.64 billion paid for pan-India 3G spectrum starts going down the drain.
The other challenge is the limited growth in PC sales among residential users. Unlike some of the developed markets like the US where telcos are subsidising embedded 3G netbooks, in India the telcos are not going to assume inventory risk. This means the customers should not expect fancy netbooks at Rs 4,000 with the launch of 3G, as the credit risk is very high and there is a constraint on the 3G data cards that can be supported in the limited spectrum. We expect this market to grow to about 17.3 million data cards by 2014.
The other use of better access speed is in enhancing the user experience in browsing and content download. This is where device vendors, content companies and the ecosystem starts becoming very important. Unlike in dongles, where the ecosystem has limited differentiators that it can offer (e.g., mobile TV services bundled with a 3G dongle), in handset-based browsing, the entire user experience and hence revenue upside is dependent on seamless content consumption, hence requiring strong device-service integration.
The reason why 50% of global mobile Internet data over smartphones goes through Apple devices, although they account for only 14.4% of the total smartphone base, is Apple?s control over the end-to-end content consumption value chain. It may not be advisable for Indian telcos to try to replicate the Apple model, but all the ecosystem elements have to be in place to enhance end user experience and drive value out of 3G.
In the current scenario of telcos with stretched balance sheets, mobile device subsidy by telcos can also be ruled out. With the not-so-subtle and repeated hints coming from major telcos about 3G being a premium service, the content and monthly data plans may also be at a premium, at least in the initial year of 3G?s introduction.
If an average user cannot afford a mobile device that supports the actual 3G experience, cannot afford the monthly data plan charges and does not have the flexibility to experiment with content to find what he likes due to premium pricing, then the user base will be limited to a few early adopters and the current bunch of premium users. The average user may then have to wait for that elusive enhanced 3G experience, at least for the coming one year. We expect that the mass market will begin to come into the 3G fold with dropping device and service prices by some time in 2012, and the total 3G user base (excluding dongles) will reach about 77 million users by 2014.
However, the wait for 3G will be worth it, at least for the 6-8% premium customers in India who will have a greater choice of devices, content, applications and services, and a step change in user experience. To make sure this finally happens, telcos will need a lot more focus on partnerships, product and service innovation, pricing and device service integration than ever before.
?The author is associate director in the New Delhi office of Analysys Mason, a global telecom, media and technology consultancy