Week Summary

This week we will see the economic aspects in light of 3G technology deployment in India.

Growth in Subscribers

India is expected to exceed over 100 million subscribers by the end of 2006. This represents a remarkable rise in subscriber numbers, growing from only 5.5 million in 2001 to nearly 50 million by 2004. Quarterly subscriber growth is currently averaging at over 5 million net additions making it the fastest growing market behind China in the world. Over the next five years 180 million new subscribers are expected to enter the Indian market.

Study by India’s apex industry chamber Confederation of Indian Industry projects that India will have 21.3 million 3G users by 2010.

Not all subscribers would be interested such 3G services, but in my opinion large percent of subscribers would love to use those services if properly accompanied with reduced handset costs, and reuced tariffs and reliable service. "There is a demand for 3G services in India. We already see entertainment services picking up in the metros. Almost 50 percent of users in metro cities are looking for services beyond voice and texting," Campbell, the head of Ericsson India said

Decrease in Tariffs

• Lower interconnection tariffs combined with the continuing decline of the price of entry-level handsets have expanded India’s addressable market, helping encourage growth among the lower segments.
• With voice tariffs at a low level, operators are looking at the usage of value added services to boost their ARPU levels.
• Partly driven by the need to grab as many new users as a telecom company can lay its hands on, and partly getting pushed by the country's regulatory authority, the TRAI, to reduce telephone call rates, Indian telecom players are engaged in an open war over tariffs and subscribers that many experts fear may well spell problems for the sector.
• But the price of this explosive growth is that, the downward trend in ARPU is expected to continue for the next five years at the very least. Some even suggest that ARPU is set to fall even more to $5 which is currently $10 in India
• From 2000 through late 2003, the tariffs that Indian operators charged for contract service dropped as much as 90 percent, falling from Rs 4.00 ($0.089) per minute to Rs 0.40 ($0.009). Led by Reliance Infocomm, the same is now happening for prepaid service, as well.
• After deploying 3G technology and to be player in market, operators should maintain such tariffs to be in profit.

VAS as catalyst for 3G

• India’s ARPU (Average Revenue Per User) is on a decline and is one of the lowest in the world at $10.
• In a competitive market, VAS (Value Added Service) would be the key differentiator for an operator, which would realize profits and improve margins. India’s VAS is likely to be catalyzed by 3G. VAS like streaming videos, online games, high speed internet connection are possible with 3G services. Currently VAS is estimated to be $750mn of the total market worth $6bn. By 2009, it is estimated to contribute 30% to $10bn telecom service industry.
• The panelists believed that 3G would increase personal mobile Internet and mobile music. They believed that the video streaming market would contribute 51% to the $3.7bn mobile TV market in 2010, which is currently worth $136mn.

GSMA To Accelerate Development Of Mass-market 3G Handsets

• The board of the GSM Association (at New Delhi, India), the global trade association for mobile operators, approved a "3G for all" programme to bring 3G multimedia services and mobile Internet access to many more people in both the developed and the developing worlds
• Under the initiative, which builds on the success of the GSMA's Emerging Market Handset programme, mobile phone suppliers will compete to design a 3G handset that meets the operators' common requirements. The GSMA will endorse the winning handset, which will be widely deployed by operators participating in the program

In my opinion such program will play major role in competition and reduction of tariff.

Licensing of 3G Spectrum

The Telecom Regulatory Authority of India recommended allocation of 3G spectrum in IMT 2000 band without any upfront license fee for the existing mobile service providers and allocation to the new players at the fourth cellular operator's entry fee equivalent to about Rs 1,600 crore (16 Billion Indian Rupee) for all India coverage. There is debate on licensing and some points and arguments regarding this license fees are outlined here

• Licence fee determined through auction is traditionally seen as the efficient mechanism for putting an economic value on spectrum and allocating it to the firm that uses it most efficiently
• High licence fees could either force the exit of some firms as happened in some cases in India or signal post-entry collusion. If firms exit, competition reduces and prices may increase. High licence fees can also affect the speed of infrastructure development.
• On the other hand, lower licence fees lead to a larger number of viable operators with no collusive behaviour. This will lead to lower prices and higher market growth.

Regulator vs Operators

• One key factor is that revenues for operators from voice calls are dipping considerably. According to a study by the Telecom Regulatory Authority of India (TRAI), tariffs for voice calls have dropped by more than 60 per cent over the last quarter. This has brought the average revenue per user (ARPU) to about Rs 400 a month.
• Though the telecom regulator feels this is still on the higher side and tariffs should fall further, operators are looking to make up for the dipping revenues through data services.
• But so far, even with EDGE deployments, operators have not been able to rake in much revenue from non-voice applications, except for the good old short messaging services (SMS).
• While EDGE and GPRS (2.5G) are good enough to act as catalysts for data users, they do not have the speeds required to provide a complete user experience. Operators are, therefore, looking to bring in 3G which will enhance the experience multiple times.