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.

Wednesday, September 28, 2011

3G fails to gather speed in India [ZDNet Asia]

INDIA--Introduced by private telcos nearly 10 months ago, 3G services in the country have failed to garner adoption amid customer complaints about slow speeds and patchy connectivity.

Udayan Bhatt, a manager with an IT firm in Mumbai and Airtel subscriber, signed up for 3G services but expressed his disappointment about the weak voice signal.

He told ZDNet Asia in a phone interview that he has yet to experience faster speed while browsing the Web on his mobile. "It's almost as good or bad as the GPRS [on 2G]," Bhatt said.

He noted, however, that the experience improves when watching videos. "And I do see better download speed when I am downloading apps on my phone," he said.

Kamlesh Bhatia, research director at Gartner, said in a phone interview: "Most consumers have found the 3G coverage to be patchy and the 3G experience, [especially with regard to entertainment and infotainment], to be inconsistent,".

Subscribers have also noted that lack of 3G coverage in some pockets within the city, even after 10 months since 3G services were introduced. The installation process has yet to be completed, with many major towns still lacking 3G network coverage.

According to CyberMedia Research (CMR) estimates, as of Jun. 30, 2011, the number of 3G subscribers in India was approximately 10 million.

"It's a sluggish start, but is expected to improve in the coming quarters as 3G services are rolled out by operators in new cities and towns," Naveen Mishra, CMR's lead telecoms analyst, told ZDNet Asia.

Stats from the Telecom Regulatory Authority of India revealed there were 851.7 million mobile subscribers in the country in June 2011.

Operators paid a whopping US$14.6 billion in May last year to secure 3G spectrum.

"This has constrained operators' ability to invest in upgrading their networks," Mishra said in an e-mail, adding that this has resulted in low speeds, poor network quality and high pricing, and led to the slow takeoff of 3G services.

"In fact, some subscribers have reportedly moved back to 2G services due to the poor experience on 3G networks," he said. Other irritants slowing down 3G adoption include frequent call drops, the lack of network coverage in smaller cities and towns, low penetration of smartphones and fast battery drainout, the analyst added.

Cautious rollout over limited spectrum
According to Bhatia, the 3G auction last year had helped create curiosity about the technology. "Everyone was curious to know whether it can usher in a new experience to the user or not," he said.

Most of the operators started by offering free service subscription and starter packs to their subscribers. 
Simultaneously, they rolled out their networks, carried out testing and optimization on the network.

They also adopted phased implementation, for instance, calling Delhi a 3G-enabled area. However, doing so did not necessarily mean every corner of the Indian city would have access to 3G services. "Such an experience is detrimental to the value proposition of 3G," Bhatia noted.

More importantly, spectrum remains very limited in India, he added. "That's why operators have been cautious in rolling out value-added services," Bhatia said.

Romal Shetty, executive director and head of telecom at KPMG, told ZDNet Asia in a phone interview: "In India, the networks are getting choked so the operators are first focusing on voice."

He added that curiosity over 3G could only help telecom companies to a certain point. "The consumers see their signals change from 3G to EDGE network. They are not getting a consistent experience. Therefore, the excitement has not been there," he said.

Poor data traffic
To drive 3G usage, operators need to encourage more intensive data consumption, Shetty said. However, even in the case of 2G services, the ratio for subscriber consumption between data and voice is 8:92. "Content never really picked up in India," he added.

In comparison, the split between data and voice is nearly 60:40 in Europe, 35:65 in the US, and 40:60 in Japan and Korea, he noted.

Shetty believes India's data-voice ratio can reach 20:80, adding that this will help improve the margins of operators. "But here, we are [still] trying to implement 3G while giving 2G services," he said.

In addition, the industry has not really developed any killer app for 3G, the Gartner analyst said, urging operators to partner relevant content developers to introduce new mobile apps.

"In my view, 3G will pick up after two to three years," Shetty said, noting that worldwide, 3G service is also not known to fetch high returns for operators.

Mishra concurred: "Although a good number of apps are available, it will take some more time for a full range of value-added services to become available in India."

According to the CMR analyst, operators and content providers would do well to develop apps for video-driven content based on specific religious, socio-cultural and sporting events, which are very popular among large sections of Indian society.

And while the country's adoption of smartphones is currently low, Mishra said when demand does pick up, it will drive 3G usage which would further feed the development of new apps. "[This] leads to a virtuous cycle of increased adoption, higher usage and new apps in the medium to long term," he said.

However, Shetty noted that such innovations have yet to take place because there is little incentive for content providers to do so. "In Europe, the content provider gets 70 percent of the revenue from value-added services and mobile content, while the operator gets 30 percent.

"In India, the operator gets to keep 80 percent of the revenue, while 20 percent goes to the content firm. In some cases, the content provider gets only 12.5 percent," he revealed.

Uncertainty over network investment
The bigger question concerning Indian operators involves investment. 3G is a capital-intensive business that requires incremental investments, but operators here are unsure whether they should first roll out 3G service nationwide or wait for subscribers to come onboard.

As such, many have adopted the phased approach and the low service adoption has resulted in disillusionment among the early birds.

"The fear of broadband wireless access (BWA) lurks large over 3G operators," Bhatia said, noting that there has been talk of unified licensing in this market segment. The government may also allow voice over BWA in future, he added.

"Under such circumstances, can 3G compete with BWA?" Bhatia posed.

Ultimately, though, India's networks are clogged and operators need to make the investments, even when they remain skeptical about pumping further investments as their profits are slumping.

Shetty said: "There is pressure from the shareholders to reverse that trend."

India's largest mobile operator, Bharti Airtel, last month announced a 28 percent fall in net profit, in its April-July 2011 quarter results, to US$252.8 million from US$349 million in the previous year. It attributed the drop to investments in 3G services and costs incurred in the acquisition of Africa's Zain Telecom.

"There is a lot of uncertainty in the market," Shetty said, noting that voice-over-IP today remains illegal in India. "If voice-over-BWA is allowed, everyone will be affected."

The country needs to overcome 2G scams and other regulatory uncertainties, and work toward a new telecom policy that eases merger-and-acquisition regulations for telcos, he added.

Concurred Bhatia: "We need more clarity on regulations."

Originally posted here: http://www.zdnetasia.com/3g-fails-to-gather-speed-in-india-62302268.htm

Friday, September 23, 2011

India’s mobile industry is magnificent but also a mess

 A very interesting article from the Economist that I thought I ABSOLUTELY had to re-post.


Happy customers, no profits

India’s mobile industry is magnificent but also a mess

IN A Vodafone shop in Mumbai earlier this year, you might have been forgiven for thinking that one of the great clichés about India wasn’t true. The national cricket team was playing Pakistan; the biggest grudge match in any sport, anywhere. Yet the mobile-phone store was still bustling, with customers debating calling plans, not leg-before-wicket decisions.

A visit the next day corrected the impression that Indians have lost interest in cricket. Without a match, the shop’s tempo had roared back to its normal level: that of a siege, with a mob baying for itemised billing and BlackBerrys.
India has almost 600m active mobile-phone subscribers—about one for every two people, including babies. It also has among the lowest prices anywhere, and a home-grown, world-class operator, Bharti Airtel. India’s mobile-phone industry inspires great hopes. Many see it as vital to the nation’s development: a way of bypassing obstructive bureaucrats and bringing services to the masses, from mobile banking to accurate crop prices. Already a third of subscribers are in rural areas. Mobiles bring the whole world to villages in Uttar Pradesh.
Yet frustration grips many mobile executives. After new 2G licence awards by the government in 2008 (now the subject of a huge corruption probe), India has more than ten operators in most of its 22 geographical licence areas. Most countries have only three to six. Indian firms must typically make do with slugs of spectrum half the size of those issued to peers in less crowded countries. As a result, claim executives and investors, returns on capital stink like the drains in Kolkata.

Nice for nattering nabobs
Hyper-competition is good for natterers, of course: prices have fallen to a level the poor can afford. Firms have become leaner, too. Bharti outsources furiously. Most companies share radio towers and have learned how to compress traffic.

Yet the industry is right to fret about returns. Only one of the big four firms was close to recouping its cost of capital last year (see chart 1), as the price war hit margins and an expensive 3G spectrum auction in 2010 bloated balance-sheets. Vodafone has a rich parent company but the others are now uncomfortably indebted. Middle-sized operators, meanwhile, are thought to be bleeding badly. Of the small fry, only two disclose figures: Uninor, run by Telenor, a Norwegian firm; and Russian-backed Sistema. Together they lost almost $2 billion of cashflow last year. Both say they are in India for the long haul.

Weak returns are bearable if the market grows and the rules are clear. Long-term growth seems certain, but India’s spectrum regime, once admired, is now an embarrassment. A roundtable with the new telecoms minister and mobile-phone executives in March revealed a fog of confusion about vital issues: the fees on existing spectrum, the terms on which old licences are renewed and corruptly awarded ones relinquished (if at all), new spectrum grants and the rules on mergers and acquisitions. It is also unclear whether non-voice 4G licences, originally intended for data only, some of which are in the hands of Mukesh Ambani, India’s richest man, will have their terms tweaked to allow voice services, creating even more new entrants into the mobile market.

The way India divvies up spectrum is unfair and erratic, which deters investment. It is also wasteful. About 30% of India’s granted spectrum used for GSM (the main flavour of 2G) is in the hands of operators with a collective market share (by revenue) of about 3%, reckons Deepti Chaturvedi of CLSA, a broker. With spectrum tight, big operators say they must build denser networks than they might otherwise. One boss thinks the extra cost for the industry is billions of dollars a year.

The auction of spectrum for 3G services in 2010 was clean and cleverly designed. However, it produced a stupid outcome. Four or five slots were sold in each geographic area—far fewer than the number of existing players. Only about 60% of existing 2G customers will be able to get 3G from their existing provider. If they want a fast data connection, they will have to dump their current operator or hope it can piggyback off a rival’s network. In short, India has encouraged lots of firms to enter the voice market and then ensured that many of them cannot offer the latest technology. At the same time, it makes it hard for the losers to sell up and get out.

If the market is too fragmented (see chart 2), consolidation is the only plausible cure. From Brazil to America, places with mosaics of technologies, operators and regional licences have cleaned themselves up. In India this process may not correct past injustices, but by allowing unviable firms and their spectrum to be acquired, a scarce resource could be allocated more efficiently and customers could be saved the annoyance of having their carrier go bust. Most executives expect a cull. After the scandal erupted last year, says one boss, banks cut off credit to the industry, making life hardest for the small firms that have yet to break even. The big operators have stepped back from price cuts, allowing industry revenues, which had stalled despite the boom in customers, to grow again.
But the industry cannot rationalise by itself: the state controls the supply of licences and spectrum. Will it enact sensible changes? Some worry that the 2G scandal could tar more executives and politicians, paralysing reform. That could damage the Indian economy. Still, the noises from Delhi are mildly encouraging. As the telecoms minister put it recently, using another cliché that happens to be true, “we cannot kill the goose that laid the golden egg.”

Originally posted here: http://www.economist.com/node/18836120