India's 3G Unlikely to Happen Soon

Inordinate delays in rolling out the service have frustrated telecom operators and consumers in this tech-savvy nation

While the world awaits the much-anticipated global launch of Apple's 3G-enabled iPhone on Jul. 11--and at a later launch date in some Asian markets--the news brings little meaning for the tech-savvy in India, which has yet to roll out 3G networks.

There have been inordinate delays in the launch of 3G services in India. Last year, the country's telecom and defense ministries reached an informal agreement under which the latter was to vacate about 25 MHz of 3G spectrum to meet the immediate requirements of telecom operators.

However, the spectrum issue "is far from resolved", Manesh Patel, partner, telecom advisory services at Ernst & Young India, told ZDNet Asia in a phone interview.

Minister of State for Defense M. M. Pallam Raju said at a news conference, held recently in Delhi, that the National Security Advisor (NSA) is currently examining all recommendations jointly made by the defense, communication and information technology ministries before releasing the radio frequencies, to ensure national security is not compromised.

Patel said: "It's a highly politicized issue. Even after the spectrum is vacated, there are various other issues pertaining to the formatting and execution of auctions that need to be looked into."

He noted that the deployment of 3G services could still be a year or two away. "Elections are due in 2009, and 3G may not be a priority for the policymakers," Patel said.

Research house Gartner, however, is more optimistic and expects the commercial launch of 3G services in India within the next six to nine months.

"The draft guidelines have been framed and we expect the rollout of 3G in the first quarter of 2009," Madhusudan Gupta, Gartner's Asia-Pacific senior research analyst, told ZDNet Asia in a phone interview.

Delay harmful for India

According to Patel, the repercussions of a delay in 3G services "can be huge".

"Companies that are waiting to be allotted 3G spectrum may delay investments in the 2G platform, even as more subscribers join the industry," he said.

At present, India has over 270 million mobile users and is adding over 8 million mobile users every month.

Other repercussions could emanate from the "pricing of the spectrum", Patel added.

The Indian government has proposed to issue fresh licenses to successful bidders in the auction for 3G spectrum. This move could pave the way for foreign and new players, besides existing 2G service providers such as Bharti, Vodafone and Idea, to participate in the bidding process. Over 340 aspirants, including AT&T, DLF and Deutsche Telecom-Moser Baer, that failed to get new telecom licenses in the previous round, may be able to resubmit bids for to launch 3G services.

"The Indian telecom market is the world's fastest growing market and players may bid very high for spectrum," Patel said. This may, in turn, push up the price of the spectrum, leading to a situation similar to what European markets experienced in 2001.

3G auctions in Europe helped fetch huge windfall taxes for the German and British governments but led to a telecom crash in these countries, thereby delaying the launch of 3G. Telecom operators in the region incurred huge debts and the industry took three years to recover.

Patel said: "It's a tricky situation. But we must learn our lessons from Europe."

Gartner's Gupta believes the launch of 3G services can solve two critical issues for mobile operators: falling average revenues per user (ARPUs), and low customer loyalty.

The local telecom industry is competitive with 14 players and offers call rates that are the lowest in the world--at around 1.5 US cents a minute. As a result, industry players have had to cope with falling ARPUs.

"The rollout of 3G situation can result in a win-win situation for both the subscribers as well as the operators," Gupta said.

India is driven by prepaid connections, which account for nearly 90 percent of the overall market. "As a result, the voluntary churn rate in India is quite high--at around 25 percent," Gupta explained, noting that this is where 3G and value added services (VAS) could play a role.

Gartner estimates VAS revenues will increase to US$5.5 billion by 2012, from US$1.5 billion in 2007. While the VAS industry will evolve with or without 3G, Gupta said revenue growth from this segment will gather momentum with the launch of 3G. "These services can also be leveraged to improve customer loyalty," he added.

However, Patel noted that mobile penetration in urban areas is already high and the next 100 million new subscribers will be low-ARPU customers.

"Their ability to pay more for VAS is extremely limited," he explained, noting instead that telecom operators "will be looking at the first 20 million mobile phone subscribers for additional revenues from 3G."

When mobile telephony was launched in India a decade ago, some subscribers were paying bills of nearly US$500 each month. Due to the drop in tariffs, their bills are now US$50 to US$75 a month.

Patel said: "Telecom operators are targeting these subscribers for their 3G services. They have the capacity to pay more."

China and Thailand are also experiencing lags in 3G services, also due in large to delays in the establishment of government policies.

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