Telcos offer freebies for 3G takeoff

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Dec 2 2011, 05:09am hrs
Mobile telephony companies have started bundling voice and data with cheaper devices to lure subscribers as new third generation service (3G) fails to draw critical numbers.

The new offers could lead to price war, but analysts say a part of the discounts will be shared by handset makers.

Indias largest mobile telephony company by revenue and subscribers Bharti Airtel on Tuesday joined its rivals Reliance Communications (RCom) and Idea Cellular to offer its subscribers more data on same tariffs.

Some schemes allow subscribers to double or even triple its data usage. A subscriber who chose to pay R450 a month to use 600 mega bytes data can now double its data usage.

These promotional offers are meant for just two or three months and not a headway towards price cuts in 3G services, says a chief marketing officer of a mobile telephony firm. Such offers are intended to get 2G data users try 3G services.

Mobile telephony companies have been able to add only anywhere between 10-12 million 3G subscribers after it launched its services last year. The 2G service added 800 million subscribers in 16 years helped by affordable tariffs as low as one paisa per minute, coupled with cheaper handsets.

The combination of lower tariffs and declining handset prices does lower the total cost of ownership and this should improve 3G migration and 3G data usage, says Rajiv Sharma, an analyst at HSBC Securities, a foreign broker.

Some companies say prices of no-frills 3G-enabled smart phones will fall from an average of R6,000 now, while others say these are half-hearted attempts to woo customers.

In the year 2000, what handsets did to 2G voice, smartphones will do to adoption of 3G services, says Himanshu Kapania, managing director, Idea Cellular. These are poor attempts to take 3G to the masses, said Deepak Gulati, president, Tata Docomo. Operators must understand what consumers really want and what content can add value. We believe in simplifying the entire ecosystem for the user, he added.

Bundled data offerings could significantly hurt Indian operators if financed by them completely, says analysts. We believe that a large part of the cost of those freebies will be financed by the vendor, says Sharma of HSBC. The incentive for the vendor would lie in getting a higher share of network investments and promoting its handset brands.

Last week, Idea Cellular joined hands with Chinese handset makers Huawei and ZTE to sell smartphones bundled with data to make it affordable to the masses, while its rivals Bharti Airtel and RCom had launched tablets to attract premium subscribers.

Private mobile telephony companies paid the government R67,719 crore to purchase 3G licenses in April last year.

Desperate attempts to get 3G subscribers might trigger a price war which will be negative for operators as 2G business has stabilised, says Mahesh Uppal, director at Com First India, a consultant.

It will take some more time for revenues to start showing up from 3G services because only a fraction of the population is aware of these services.

Some consultants say companies need to push for more sachet data packs, data cards and cut handsets prices, while others prefer companies to price on market economics.

Devices average selling price needs to come down further and operators should try more small 3G data packs and push 3G data cards,says Shiv Putcha, principal analyst, emerging markets, at consulting firm Ovum Telecoms.

Analysts feel that just a drop in prices will not immediately make the services more attractive. Any pricing decisions on data services will continue to be made on the basis of the economics of that market, says Mohammad Chowdhury, executive director, telecoms industry leader, PricewaterhouseCoopers India. Subscribers who have registered for 3G services are all smartphone users at the top end of the pyramid, and unlikely to be price-sensitive.