As the Department of Telecommunications, Government of India, finetunes its policy for the auction of third generation or 3G as well as broadband wireless access or WiMAX spectrum, one thing is clear: India is finally taking the big leap into the future. The presence of multiple telecommunication platforms implies that the market is slowly but steadily maturing. Customers want more and telecom companies are gearing up to provide it.

Of the lot, it?s 3G, however, that holds the most promise. Telcos are particularly excited about it even as they look at WiMAX , which is a competing wireless technology compatible with laptops and personal computers (fixed WiMAX) as well as mobile phones (mobile WiMAX). But there are issues with WiMAX, especially, the mobile version, say experts, which leaves 3G alone as the most viable, front-end option for customers as well as operators.

For one, mobile WiMAX is not a known technology and it is far more expensive than 3G. Fixed WiMAX, in contrast, is cheaper than mobile WiMAX and 3G. It also has more capacity than the two, but is viewed more as a backend option. Explains S Ramani Iyer, formerly chief executive of Mahanagar Telephone Nigam Ltd, Mumbai, and now a telecom analyst based in the city, ?Telcos need something to catch the attention of consumers. 3G allows them to do that.?

What 3G will do is to permit an operator to help customers graduate to the next level of usage. It will enable them to increase their usage of data services even as they continue to avail of voice services on the platform. This way the average revenue per user will go up.

Some reckon the increase in

ARPUs would be about 20-25% on account of increase in usage of data services. But the adoption of data services, say observers, in a predominantly voice market is likely to be slow in the initial years.

?One would have to wait and see to what extent these services are taken up,? says Romal Shetty, executive director and head, telecom practice, KPMG. Prashant Singhal, national telecom industry leader, Ernst & Young, says, ?Data usage abroad is at least 1.5 to 2 times more than voice. It?s not so here. But I do see an improvement in the data to voice skew going forward.? That is what telcos are counting on as they grapple with low tariff levels currently.

Existing second generation or 2G GSM (global system for mobile communications) tariffs are in the range of about Rs 280-300 per subscriber while 2G CDMA (code division multiple access) tariffs are about Rs 160-320 per user. ?These are undoubtedly very low figures,? says Mahesh Uppal, director of Com First, a telecom consultancy based out of Delhi.

And as new users get added to the 300-million-strong mobile subscriber base in the country, the entry barriers are coming down further. People with the purchasing power have been targeted, say observers. The ones lower down the pyramid are stepping in now. In such a scenario, it becomes imperative for telcos to be able to get the ones who have the money to spend more. In other words, it?s a case of vertical expansion rather than horizontal. This is because the Indian market is likely to saturate by 2011-12 as the next 250-300 million subscribers are added. Therefore, penetrating deeper becomes a must.

3G in such an environment is helpful because consumers can migrate to a higher level of usage with it. That?s what the existing telcos wish to do as they look to take some portion of their 2G subscribers and hook them onto 3G. But the holders of new telecom licenses are also not far behind in their plans to set up 3G networks. Many are said to be contemplating to bid for spectrum in partnership with foreign firms.

Venugopal Dhoot, chairman and managing director, Videocon Industries, whose subsidiary Datacom Solutions has been given the go-ahead to operate telecom networks across the country, says, he will bid for 3G spectrum. He doesn?t, however, indicate who his foreign partner will be. ?3G,? he says, ?takes telecommunications to the next level. Who would want to miss out on it??

Shyam Telelink, the joint venture company of Shyam Telecom and Sistema, which, like Videocon, also has a universal access service license (UASL), is said to be equally serious about 3G but is cautious when commenting about it. ?We haven?t arrived at a decision yet,? says Alok Tandon, managing director, Shyam Group. ?We have appointed consultants who are making presentations to the management. The management will then make presentations to the board. A decision possibly will be made closer to the auction date.?

As private-sector players firm up plans to get into the 3G domain, public sector units MTNL and BSNL have a headstart already by virtue of allocation of spectrum to them by the DoT recently. MTNL has been given 3G spectrum in Mumbai and Delhi while BSNL has spectrum in allied circles. Both are keen to take full advantage of this by moving in quickly with their respective services. Says RSP Sinha, chairman & managing director, MTNL, ?We are launching 3G on an experimental basis in Delhi this month. By November-December, we should be launching full-fledged services in both Mumbai and Delhi.? Kuldeep Goyal, chairman & managing director, BSNL, says, ?We have commissioned a trial run in Pune. 3G will be rolled out in some cities in the north and east shortly. By mid next year, we will complete the rollout process across markets.?

All of this indicates one thing: 3G is not a flash in the pan. It is a known technology, tried and tested in a number of markets. Secondly, 3G handsets though not as many and cheap as 2G devices, are still there, much more than WiMAX devices are. Thirdly, a 3G subscription allows a user to do a lot more than a 2G subscription does. As Sanjay Kapoor, president, mobile services, Bharti Airtel, says, ?High-end voice and access to the internet are the stickiest applications worldwide on 3G. I don?t see the trend any different in India.?

This is, however, just part of it. Applications such as mobile TV, video streaming, high-speed internet downloads and gaming are all possible on 3G and telcos are keen to take advantage of this as the market for value-added services (VAS) steadily expands in India. From Rs 6,170 crore in 2007-08, the VAS market is slated to go up to about Rs 55,020 crore by 2014-15. Operator revenues will be impacted by this.

At the moment, the non-voice or VAS component contributes about 8-10% to an operator?s overall revenues. This will go up to about 20-25% in the next few years. What will drive this growth will be 3G. Says Sourabh Kaushal, industry manager, ICT practice, Frost & Sullivan, South Asia & Middle East, ?3G will be a key contributor to the growth of value added services in India.? People who will adopt these services include the youth and upwardly mobile executives – a segment that telcos have been targeting for some time.

Even as the young and upwardly mobile remain obvious targets for 3G, there is a potentially larger group of people waiting to be tapped. They are the ones who have no access to proper net facilities on account of the poor penetration of broadband the internet in India.

For the record, there are just about 4.6 million subscribers of broadband internet in India, though the dial-up numbers are higher at about 10-12 million at the moment. In comparison, subscribers who access the internet over mobile phones is about 50-60 million. What?s more? This segment is growing fast. Naturally the case for mobile or wireless broadband gets stronger with 3G, even WiMAX, say observers. Kapoor of Airtel says, ?I am bullish about wireless broadband. It can help bridge the urban-rural divide.?

But there are issues here. Critics say that 3G can be best provided at about 10-15 megahertz of spectrum, not 5 megahertz, as indicated by the government in its policy. Then there is the issue of sharing of spectrum between data and voice services. If better voice services are provided, there will be not much room left for data services.

An even bigger problem is the price at which these services will be available to consumers. Telcos argue that it is natural for a premium to be placed on these services. ?I see a differential tariff system, one for 2G and one for 3G,? says an executive with a telecom company. This then would imply that the number of subscribers for 3G is likely to be limited, at least to begin with.

Telcos say that the best way out of this is a proliferation of handsets at affordable prices. ?Aspiration levels will go up as a result of this, driving volumes and hence compelling telcos to bring down tariffs. This is how 2G moved in India,? says a source. ?Competition to acquire subscribers plus the availability of myriad handsets ensured that tariff levels came down substantially. Telcos backed this up with innovative schemes to try and mop up numbers,? he says. All of this, of course, was given a further boost by favourable telecom policy that played its part in driving 2G penetration into India. How fast 3G will move, only time will tell.