Is 3G India's answer to broadband draught?

India is growing by leaps & bounds, not only in terms of economy, but cultural & politically as well. There is an urge of the nation (at least the government) to grow beyond the 7-8% GDP growth and to be a double digit growth economy. The telecom industry can contribute to this dream, by making internet of its avatar “broadband” more ubiquitous. India is a known laggard in internet & broadband services. Broadband services are not only necessary for the information age, but also it adds to the GDP growth (10% increase in broadband penetration leads to 1.2% of GDP growth), which is the increase needed to realize the double digit growth dream. Sadly, government has been indirectly responsible for the delay of broadband in India for long. First, it gave India a state monopoly which was never helped in proliferation of telecom services in India, even while sitting on the largest wired network in the country. Then, years of delay in 3G spectrum auction and finally a fiercely competitive auction, where the dearth of bandwidth (which in all case is temporary), made players bid huge amounts for spectrum, besides giving no one a PAN India footprint. Finally, a ban on video telephony on 3G, which further delayed the rollout of 3G services in India, but thankfully only 1-2 months. India is behind not only behind the west (Europe 2001-02), but even China (2008) in terms of 3G launch. Good news is that 3G is finally here to stay.

But, will 3G help in proliferation of broadband in India & give us the elusive double digit growth? The answer is yes, but the timeframe in which this will happen is a subject of debate. Hopefully, within 2 years, 3G has its effect in India. In order to put things in perspective, let us examine the reasons behind the low broadband penetration in India, which according to this author would be

· Lower reach of wired broadband,

· High prices of internet & broadband services, making it difficult for a price conscious Indian consumer to afford

· Lower awareness around internet & new age services

We need to examine how each of these is affected by launch of 3G services, in order to come to a final answer.

First, the “reach”, which is considered to be a major issue in broadband proliferation in India. BSNL broadband is available in 200+ cities and Bharti in ~100 cities. The EVDO broadband launched in there in 50+ cities (Tata & RCom). Considering, 5000+ urban & semi urban settlements in India, this is definitely not a good coverage. But is 3G going to reach more cities? Not in the near future. 3G is not going beyond 200 cities all over India by end of 2011. Further rollouts will depend on the initial uptake of the services, considering that the operators are strapped for cash after paying a huge amount for spectrum & capital equipments. However, recent Bharti’s announcement for launching 3G is 1500 cities by March 2012 is pretty exciting. If this happens, then there would be a viable broadband solution available to Indians soon. At least, this will prompt other players to be more aggressive in their 3G expansion plan. The expensive spectrum cost has a bright side as well, it creates a urge among private operators for faster monetization of their investments, which cannot be done without further rollouts. The international experiences have shown that this is the classic case of chicken-egg problem. The more geography operators cover, the more people are aware of the service and faster the uptake is. So, operators are expected to rollout out 3G services in more towns & cities in India, if not this year, then definitely soon. To sum up, 3G will definitely solve the “reach” issue, if not in 2011, then definitely by 2012-13.

Let us examine the second reason now: “Will higher prices deter 3G broadband adoptions?” The single biggest reason (more than the “reach”) for lower broadband penetration In India has been higher prices. If we look at big Indian cities, where both wired & wireless broadband has been present for 2-3 years, the broadband penetration is still lesser as compared to our peers. The fixed broadband penetration in cities like Delhi is 4-5%, which is lower than the 6-7% in China & Brazil. The reason behind this is the prices of these services. The broadband prices in India are comparable to West (as per market research firm Ovum), which means while the income levels here are 4-5 times lower, the prices Indians pay for broadband is the same! This makes broadband not out-rightly expensive in India, but it does makes it a premier service. 3G broadband is not going to be much affordable in India. The expensive 3G auction combined with higher capex rollout costs will not help. The windfall that the government reaped in 3G auctions is going to be paid by the end customer finally. The cheap 2G auctions ensured that operators could lower the prices of services to a very affordable level, but that would not be the case for 3G. After all, Operators are here to make a profit & they have their own set of shareholders that they are answerable to. Also, operators are in the strategy of milking the market – starting with higher prices and gradually lowering the prices. Eventually, prices will decline – either due to very high non-adoption forcing operators to cut costs (forcing operators to cut prices), intensive competition (new players lower prices to get more customers) or even some form of government relief to operators or end customers. The timeframe when this starts is a topic of debate. Nonetheless, we can safely conclude, that this will slow down the adoption of 3G and therefore broadband in India. Pricing issue will not be solved by 3G services in India in the near future.

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The last reason, “lower awareness level in India for internet”. If we make any comparison with the internet penetration or users with international standards, the difference is huge. India has 65-100 million internet users (which vary with any industry reports), which makes it 5-10% of population using internet. However, these numbers are slightly misleading. The penetration is low, simply because the base or population in India is huge. India is not a 1.2BN users market, sadly, a third of the section of the society do not participate in the economy of the country and therefore cannot be deemed to be the users of internet services in the near future. If we adjust this base the penetration stands at 8-15% of the population, placing us near the African average (not to mention almost half of Asian average) .For China this number is 25%-30%, US is almost 100%. However, if we look at the absolute number of internet users, India would be third overall 3^rd overall (China & US at top 2 slots). But no one can deny the fact that these numbers are still bad for a country like India. Henceforth, lower awareness is an issue with broadband penetration in India.

Can 3G help us here? Will people start using internet on mobile? Many experts opine that Indian people will first experience internet on the mobile. But one must of cognizance of the fact that it is not easy to access internet on mobile. Seasoned users find this to be too restrictive and new users do not find the experience to be good enough for adoption. For seasoned user, a dongle or a USB stick would be the way of adoption of services and mobile would be the second form of access of internet. For new users, this definitely poses a challenge. If tablets prices were to fall in India, these new users could as well first experience internet on a tablet in India. Recent announcements by Reliance Infotel for a sub INR 10K tablet is heartening in this regard. This will not only help in penetration of an internet device in India, but will also lead to better user experience. Moreover, this tablet will most probably run on android platform which would be a familiar to platform for most mobile phone users (especially, after the ubiquitous android success). This would further reduce the new user jitters of using complex operating systems (like windows on a PC, or on a mobile). Also, tablet experience would be good for many users, prompting them to adopt. Good content availability by operators (esp., bollywood & cricket) would definitely tempt people to use these services & devices.Additionally, the hype around 3G and the telecom controversy in general have a great deal of mind share in the country. This would at least, prompt people to try 3G sometime somewhere, and not let it pass like the GPRS services launch few years ago. In the short term, operators are happy to provide broadband to these 60-100 internet users in India. And once these segments reach saturation, new segments would be targeted. Again, Awareness level are set to improve with 3G services, but in the medium term, not definitely in the short term, though signs are encouraging.

Summing up, while 3G has the potential to solve the broadband issue in India, it is plagued by the same diseases of pricing, reach and awareness in India, much like the wired broadband. In short term, there is no expectation for 3G services to prompt broadband services and contribute to GDP growth. In the long term, it will. The optimist (one like me) will pray that long term in not more than 1-2 years for India.