 "3G means low connectivity at higher price for consumers")
Not just Ganguly, experience of any of the 28 million 3G customers across the country is similar.
Infrastructure issue
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The reason why there is connectivity issue is that companies have not invested in building infrastructure for 3G as much required. According to an executive of a telecom tower company, just about 60,000 towers, or 16% of the 3,75,000 towers in India, have 3G base stations. Considering the fact that 3G is more of urban centric, about 40% of the 1,50,000 towers located in the urban areas are 3G enabled (hypothetically believing that all 3G enabled towers are situated only in the urban areas).
“Just 3.2% of the country’s total mobile subscribers avail 3G. So, the return on investment is very low,” said an analyst with a management consulting firm. Companies have invested the hefty amount of Rs 67,000 crore in acquiring the spectrum for 3G. “Investments in infrastructure for 3G is a bit slow as the service did not take off fast. But, as data revenue increases and number of 3G customers rise, companies will invest in building infrastructure. On the other hand, there is time for the telcos to meet the roll out obligation norms set by the Government,” he added.
One of the key challenges with 3G is speed and the availability of proper network. Besides the issue of enough number of 3G enabled towers, companies need to invest in a robust fibre optic backbone linking the towers within the city to support high bandwidth. In reality, most of the towers does not have fibre optic backbone, and connect through microwave links. According to an executive of a tower company, just about 30,000 towers have fibre optic backbone, which is just 8% of the total number of towers.
Also, companies need to have about 2.5 to 3 times more number of base stations for 3G services as compared to what they need for 2G.
Meanwhile, Vodafone had said it would invest USD 500 million (more than Rs 3,000 crore) in 3G networks and Idea had plans to invest Rs 4,200 crore.
Tariff issue
Few months ago, all the 3G service providers have reduced 3G tariffs by almost 80% to make it affordable. But, still, it is very high.
While 1GB of data is available for Rs 123, a 3G subscriber need to pay about Rs 492 for 4GB data, and it is Rs 1,000 to Rs 1,500 for 10GB of data. This means, to download a HD quality movie (about 4GB in size) would require about Rs 400-600, and the normal quality versions (about 1GB) would take about Rs 150. This is too expensive considering the fact that one can watch the movie at a thretre at a much lesser cost, and the DVDs are available at a far lower price.
If one is using YouTube or any live streaming site, just half an hour to one hour every day would finish the 10GB quota, which is priced at about Rs 1000-1500. A DTH or a cable connection, which offers hundreds of channels, would cost much less.
“Yes, high tariff is one of the key issues why 3G did not take off. But, it has come down significantly in the past few months. This, also has showed results as average revenue per user (ARPU) for data has gone up in the recent months,” said Mritunjay Kapur, managing director of Protiviti India, a management consulting firm.
On the other hand, said Kapur, companies do take a cluster-based approach for 3G. A particular business area, for instance the Cyber City area in Gurgaon, would get a better 3G connectivity because companies have more corporate customers, who are potential high users of data, during the day. But, the same customer may not get proper 3G data connection while he is at home which is in another part of the city.
Spectrum issue
Another key issue is that companies have limited spectrum for 3G. Just 5MHz of spectrum is not enough for 3G services. And, in developed countries, like US and Europe, the quantum of spectrum offered to the operators is four times of what Indian operators get for 3G.
The Department of Telecommunications (DoT), however, is now working on a deal with the Defence Ministry to swap 15MHz of spectrum in 2100MHz (which is with Defence) with a similar quantity in 1900MHz. This will make space for more operators in each circle from the present level of three to four. According to Rajan Mathew, director general, Cellular Operators Association of India (COAI), the deal, if goes through, will help the operators to have more spectrum to establish pan India presence, from limited markets, and would help in better service.
Low return on investment
According to a recent research report by Morgan Stanley analysts, the three listed telecom operators — Bharti Airtel, Idea Cellular and Reliance Communications (RCom) are expected to reach break-even point in 3G business in fiscal year 2015 and 2016.
According to the estimates of Morgan Stanley analysts, Bharti Airtel’s 3G business is expected to break-even only in FY16, while RCom will reach the point a year earlier.
According to the Morgan Stanley analysis, purely 3G revenues have negative incremental returns. However, the silver lining is data volumes have picked up sequentially, by 20-25% in the past three quarters, it noted.
The analysis also estimated non-voice revenue would contribute 18% to 24% of the companies’ revenues by fiscal year 2016.
“The fall in data tariffs and cheaper handsets have been inching up their 2G data tariffs, while 3G data tariffs have remained largely stable over the past six months but have come down almost seven times since the beginning of 2012,” noted the analysts.
Roaming issue
However, the government’s decision to impose a penalty of Rs 50 crore per circle on Bharti Airtel, Vodafone and Idea Cellular for the intra-circle roaming pacts might delay the break-even of 3G services further. This would also dampen the growth in customer acquisition without intra-circle roaming, no operators would be able to offer 3G services pan-India.
“To some extent, this will push back the break-even targets for 3G investments. If operators cannot service subscribers via roaming, it will have an impact on 3G additions,” said Kapur. And, operators will only invest if they see good returns in this business,” he added.
3G to grow
According to a recent analysis by PhilipCapital, India’s 3G subscriber base is expected to double to about 56 million this financial year. The study also added by March 2015, the subscriber base was estimated to exceed 96 million.
While RCom had the most 3G subscribers in FY13, the analysis predicted by March 2014, Bharti Airtel would emerge as the leader, with about 14 million subscribers. It added the number was expected to double the following year.
The sharp rise in 3G subscriber base will be driven by affordable 3G handsets The sharp rise in the 3G subscriber base would be driven by affordable 3G handsets and smartphones, a decline in 3G rates and aggressive marketing by telecom companies, according to an analyst with a management consulting firm.
As of March-end, Anil Ambani-led RCom (which has 3G spectrum in 13 circles) had 7.2 million 3G customers, while Bharti Airtel (3G spectrum in 13 circles) had just 6.3 million subscribers, according to the company’s fourth quarter result statement. The country’s second-largest telecom operator by subscriber base, Vodafone (3G spectrum in nine circles), had 3.3 million subscribers, while Idea Cellular (3G spectrum in 11 circles) had 4.1 million subscribers. During the April-June quarter, Vodafone’s 3G subscriber rose to 3.7 million.
According to the Morgan Stanley analysis, purely 3G revenues have negative incremental returns. However, the silver lining is data volumes have picked up sequentially (20-25%) in the past three quarters.