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Is there a market for 3G services in India?
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January 10, 2007

With even the Airtel chief saying 3G isn't as hot as it was some years ago, Indian telcos will have to follow a different
route to make it work.

T V Ramachandran, General Secretary, COAI

"3G can be instrumental in alleviating the severe spectrum crunch, especially in the metros, where there is simply not enough 2G spectrum to fuel the aggressive growth in services".

The 3G technology is the natural evolution of 2G services as it will facilitate higher speed and data throughputs enabling
the delivery of a wide range of multimedia services such as video streaming, movie downloads, mobile TV and so on. 3G will also facilitate the implementation of important e-initiatives such as e-governance, e-education, tele-medicine and so on.

It is a well known fact that broadband penetration is very low in India and that the rollout of wired broadband will entail
humongous costs. Under these circumstances, 3G is the most cost effective route to deliver mobile broadband to the
masses. It is expected that 3G will single-handedly achieve far more in terms of bridging the digital divide than any other
measure or policy introduced by the government.

President Kalam, in his inaugural address at the recent India Telecom Summit, correctly summed up the power of the
mobile phone when he stated, "Today's cell phone epitomises the convergence of many applications. For instance, the
cell phone today can be used as a simple phone for voice. It has a camera and the storage for an address book. It can be
used for exchanging and viewing video, browsing the Web and downloading data and email. It is multilingual and can be
used as an MP3 music player and a radio. Above all, it can be used as an authentication mechanism for mobile
e-commerce and banking. It can understand speech and record conversations, text and video. This convergent device is becoming smarter by the day and soon would be able to understand even gestures and would present a natural interface to interact in a human-like fashion."

3G will be bigger, better and faster than 2G and because of that, will enable the delivery of many more applications than are presently possible on 2G.

3G can also be instrumental in alleviating the severe spectrum crunch being faced by many operators, especially in the
metros and big cities, where there is simply not enough 2G spectrum to fuel the aggressive growth in services. 3G
spectrum has a four-five times higher voice capacity than 2G spectrum, which could play a crucial role in overcoming the limited availability of 2G spectrum and thus help achieve national telecom targets of 250 million by 2007 and 500 million by 2010.

Because of its higher voice capacity, 3G could also facilitate the delivery of far more cost-effective voice services. However, this will happen only if operators do not have to pay exorbitant prices for 3G spectrum. An auction of 3G spectrum could lead to irresponsible bidding resulting in high costs and tariffs, which would completely negate the tremendous capacity advantage that 3G has to offer.

Auctions also have another downside - by their very nature, they entail a selection amongst bidders, which would result
in discrimination between existing cellular operators as it would deny some operators their legitimate expectation of
evolving to 3G. Also, it would not be in the national interest if the 3G policy ended up being disruptive, creating
uncertainties, leaving the survivors with the winners' curse and others with the prospect of gradual collapse of businesses.

Therefore, the answer to the question raised is that, yes, 3G has a future in India and that it is relevant and important, but the key to the success of 3G will lie in its price, that is, if it has to become a mass service. 3G did not take off in the west because of the exorbitant prices attached to its spectrum, which made the service unaffordable and restricted to a niche market.

The Indian consumer is highly price sensitive, as has been amply demonstrated in the case of 2G services, where exponential growth took place as competition increased and tariffs dropped.   The same principles will hold good for 3G as well. Affordability of 3G services and an equally competitive market will thus be critical factors in the success of 3G in India.

Rajesh Chharia, President, ISPAI

"Spectrum continues to be a costly entity, which coupled with the cost of deploying infrastructure, requirement of closure towers and change of handsets, will escalate the price factor manifold".

Whenever we wish to introduce a new technology in our country, rather than taking steps for fast deployment, we lose
time in needless discussion, and after a long time when we finally agree to deploy the same, it has already been tried,
tested and even perhaps, turned obsolete in developed countries.

A similar thing appears to be happening with the deployment of 3G services in India. For the last many months, this
technology has been the point of discussion, even as developed countries are deploying 3.5G and already considering
4G. Consider, for instance, Japan and South Korea, where 3G was introduced in 2002 and was fully functional by 2005.

Now these countries are in the process of deploying 4G but let us not forget, the success of 3G has been due largely to
their governments prioritising technological infrastructure development and minimising spectrum licensing fees.

The failure of 3G in European countries is attributable to the very high cost of spectrum. In Germany and the UK, the
astronomical price of 3G spectrum resulted in little money remaining for the infrastructure that then needed to be built up to provide the services. If 3G auctions, whenever they happen, result in astronomical bids, then you can expect a similar result to get repeated here in India as well.

In comparison to the prevalent technology in India, we would need a lot of additional spectrum for implementing 3G, and spectrum, as we know, is an extremely precious and scarce resource. Spectrum continues to be a costly entity, which coupled with the cost of deploying infrastructure, requirement of closure towers for transferring the signal and change of handsets, will escalate the price factor manifold.

Not only are 3G phones expensive and bulky, the lack of 2G mobile user buy-in for 3G wireless service will also guide user choice. The Indian public being extremely price sensitive, I don't think this technology can possibly be our future.

In our country, only those technologies can work which are reasonably priced and which the common man understands,
and this applies to the rural folk, who are increasingly going to drive the telecom market in the years to come now that
several urban markets, especially in the larger cities, are quite saturated. Granted that 3G may be an attractive proposition in some of the high-revenue generating urban areas, but if it fails to tap the rural market, as seems likely, it cannot be the way of the future, given how 70 per cent of our population lives in these areas.

The advantage of 3G technology over the existing 2G technology is the speed of data transfer, and the killer application
here is really video telephony. Considering the present scenario in India, video telephony looks like a far-off application.
Even in the metros, we have been unable to provide good-quality service. Poor signals and calls dropping are common in the major cities, let alone in mofussil towns and villages - so instead of improving this telephony which is what the
common man uses, we're talking of introducing upmarket video telephony! If we seriously wish to deploy 3G,
stakeholders and the licensor need to do a lot more homework. Stakeholders need to plan their business model in such a way that the rates are reasonable enough to result in a higher usage by the masses, and so are able to cover their costs.

Secondly, and more important, for the technology to be of use, the licensor should keep spectrum charges to a minimum in view of the fact that the new technology shall be adopted in the rural areas too, indeed there should be a mandatory
provision to use this in rural areas.

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