Poor adoption of 3G will push operators to cut prices, growth likely to be back-ended
The noise around voice is finally settling. The irrational pricing in the voice segment seems to be ending, with several operators testing the waters with price increases. Month-on-month (m-o-m) subscriber additions also seem to be falling. May saw GSM subscriber additions fall 14 per cent (m-o-m) to 9.5 million, after a decline of 23 per cent in April. Compared to the peak of 17.2 million additions in November 2010, this growth is down 44 per cent.
According to HSBC Global Research, this is a positive, as it suggests operators are moving away from promoting multiple SIMs and bringing down their subscriber acquisition costs.
With hyper-competitiveness settling, operators will need to boost data traffic to get the juice back into their books. That brings to the fore the big question on adoption rates of 3G. Citi conducted a dipstick survey in Mumbai and Pune to assess the rate of adoption and what is assisting or constraining its growth. While awareness of 3G is high, showed the survey, the adoption rate is not. Merely 10 per cent have adopted it. Nearly 30 per cent of the non-users said they don’t have need for data connectivity, 30 per cent are satisfied with usage at work/college and 23 per cent are using dongles.
While people would like to browse the web on phones, get entertainment updates and visit social networking sites, data pricing seems a big restraint. Clearly, this indicates a second round of price war is round the corner. Given the adoption is not as high as expected, operators will probably have to cut prices to penetrate deeper. Also, while availability and awareness are high, prices remain a big drawback. Operators will also have to come up with reverse handset subsidies, which is in practice but the focus is on the top-end.
All this suggests the upfront costs are likely to be high, and near-term adoption low, compared with the best-case scenario. While most of the market is positive in the long term, returns are likely to be back-ended, as ramp-up will take two to three years. Near term, operators will likely need to make adjustments to increase penetration through price cuts and cheaper handsets.
