Welcome to ZenUnwired; a blog dedicated to tracking developments in technology and strategy, and to deciphering the impact of these developments on wired and wireless ISP's, device manufacturers, OS and application developers, and most importantly - you.

Monday, March 8, 2010

What is the business case for 3G/4G in India?

The 3G saga in India has become increasingly frustrating over recent months. Bogged down by controversies, defence ministry related delays, etc. the process stalled over the past three years. Although the process seems to be moving forward of late, there has been a consistent push from government ministries to increase the base price for the 3G spectrum auction to gain additional revenue. But due to waning investor appetite and heightened risk perceptions, it is widely believed now that the Indian government will not be able to reach its Rs 35,000 Crore target from the auction of 3G and broadband wireless access (BWA) licences.

As issues related to the 3G spectrum auction continues, TRAI has stated that they are starting the 4G spectrum auction process and will come out with a consultation paper looking into various issues relating to 4G service shortly. Apparently, the paper will examine various aspects, including spectrum band to be allotted for 4G service and quantum and modes of spectrum allotment to wireless operators. Since by definition, 4G is superior to 3G, do operators skip the 3G process entirely and go directly to 4G? Or do they ignore TRAI’s initial 4G approaches, recognize that in India government processes take forever, and bet on 3G? (This approach makes more sense, especially given the current state of data-demand in India, and the 3G upgrades that can be made to a carriers network.)

To add to this uncertain climate, it is not clear right now how wireless carriers will monetize their 3G/4G spectrum assets. Let us be clear – 3G and 4G is all about data. If BSNL and MTNL’s 3G/4G sales numbers are anything to go by, the Indian wireless customers’ desire for data access isn’t obvious. BSNL is currently aiming for 250,000 WiMax subscribers by the end of 2010, but has barely made a dent. Additionally, in India only 7 per cent of mobile users have 3G phones. So where is the demand?

In typical telecom fashion, it looks like wireless operators in India will have to pursue a “build it and they will come” strategy. But this alone isn’t enough. Wireless operators will have to encourage the growth of data usage much like how they grew SMS usage in the late 1990’s; and herein lies the problem. How do wireless operators grow the demand for data? While apps, free “limited-time” data offers, etc. are the obvious short-term choices, the longer-term answers aren’t clear. In other words, the current business case for 3G/4G in India is based on the hypothetical. While 3G (and now 4G) has grown exponentially all over the developed world, wireless carriers must recognize that India is a vastly different market, and must develop their offerings instead of just approaching it with a ‘one size fits all’ strategy.