2009

Management Thesis
On
Future of 3G in Indian Telecom sector:A Revenue based
study

MANOJ RAI
MBA 2008-10
ICFAI LUCKNOW
2
 Contents

Acknowledgement 4

Abbreviations 5

Abstract 6

Introduction 7

Telecom Industry 8-11

What will 3G mean to users 12

How 3G works 14

Advantages of 3G 13-15

User Benefits 16

Issues of 3G 17

Current status and impact of 3G 17-18

Roll out strategies 19

Auction process 20

Market opportunities 21

3G applications in your life (scenario 1-7) 22-23

Future of 3G 23-30

3G Subscriber,Device & Revenue Projections 31-42

References 43

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 ACKNOWLEDGEMENT
I have taken this opportunity to express my sincere gratitude towards the pillars of

successful completion of this Manaement Thesis on “Introduction Of 3G

Technology Is Yet Another Bubble In The Telecom Sector: A Revenue Based

Study”, without whose unflinching assistance & co-operation at all times it would

rather have been impossible for me to achieve the desired goal.

Technologically advancement will enable us to get the environment we desire. In this

era of modernization & sophistication our endeavour to achieve complete and

perfect knowledge in the field we choose will be successful only with the help of

guidance, direction, stimulation & encouragement by our esteemed professors.I feel

proud to reiterate that our best faculties have always emphasized on the importance

of self-culture and stimulate us to gain possible knowledge by exercise of our own

facilities. They have tried to make their students ‘active partners’ in the work of

education, but not passive receivers of information.

I would like to thank Mr. Deepak Sinha for his invaluable guidance and support that

made my going easy and provided me a good learning opportunity.. I would also like

to express my sincere gratitude towards all other faculties and staff of ICFAI who

have always helped me to know and learn various aspects of management at

various stages of our curriculum.

Manoj
Rai

4
 ABBREVIATIONS

1- TCO Total Cost of Ownership

2- SME Small And Medium Enterprises

3- SOHO Small Office/Home Office

4- BWA Broadband Wireless Access

5- ARPU Average Revenue Per User

6- HSPA High Speed Pocket Access

7- WCDMA Wideband Code Division Multiple Access

8- EV-DO Evolution-Data Optimized

9- UMTS Universal mobile telecommunication system

ABSTRACT
5
The success story and rapid growth of mobile communications in India is well
documented, with India recently surpassing the US to become the second
largest mobile market globally. This has been possible by continued efforts
of public and private operators in making the services
affordable for the mass market, innovation by handset OEMs for reducing
entry barriers and due to various pro-active and positive policy measures
taken by the Government in the
Indian telecom services market.

This is in contrast to the internet and broadband market, which has

witnessed limited penetration and growth, with a majority of Indians not
having had any experience of internet access. The focus on internet
becomes critical for the country’s progress, given its inherent capability to
act as an infrastructure substitute and its ability to empower citizens across
any part of the country. The use of internet for completing simple tasks like
e-booking of train tickets and filing of tax returns versus lining up in queues
in railway stations and government offices, highlights the empowerment of
users for increased productivity and convenience.
The lower tele density in rural areas at 13%, as compared to urban tele
density of 75% gives an imperative for service providers and the
government to identify market mechanisms and policy interventions for
increasing wireless penetration in rural areas.

The introduction of 3G is likely to increase the penetration of internet and

broadband along with adoption of associated services..

The objective of the report is to provide an operational, on-the-ground view

of 3G services and is based on extensive industry inputs from carriers,
handset OEMs, network OEMs and VAS providers. The report provides rich
insights into the current state of the wireless telecom industry and discusses
the potential scenarios and key challenges in the way forward for 3G and
BWA, which need to be jointly addressed by the Government and
participants in the telecom industry.

Wireless broadband can provide an opportunity for India to leapfrog other

developed nations by providing seamless connectivity. The presence of
infrastructure combined with business models that create content which
delivers utility to the masses will transform broadband internet access from
the privilege of a few to a necessity for all. The growth in
this area will be crucial in leading the economic growth of India specifically
impacting the important sectors such as education, health, governance
among others.

I am confident that the introduction of 3G services will bring significant

changes in the daily lives of both the urban and rural communities and
positively impact the overall economy.

6
 INTRODUCTION
The topic of the management thesis primarily involved a revenue
based study of the 3g services in india.india has emerged as the 2nd
largest telecom market in the world surpassing U.S.,and is next only to
china. With the 3G services already rolled out by the public sector
players,the spectrum allotment to the pvt. Players is the next big buzz.

As the 3G requires a different infrastructure to what is being used

currently it requires a huge investment on the part of service
providers,thus this report is aimed at finding the scope and future of
the 3G services in India.

HYPOTHESIS
 Introduction Of 3G Technology Is Yet Another Bubble
In The Telecom Sector: A Revenue Based Study

7
 Telecom Industry

Objective: Future of 3G Technology in Indian Telecom Sector.

The Indian telecommunications industry is one of the fastest growing in the

world and India is projected to become the second largest telecom market
globally by 2010.India added 113.26 million new customers in 2008, the
largest globally. In fact, in April 2008, India had already overtaken the US as
the second largest wireless market. To put this growth into perspective, the
country’s cellular base witnessed close to 50 per cent growth in 2008, with
an average 9.5 million customers added every month.

According to the Telecom Regulatory Authority of India (TRAI), the total

number of telephone connections (mobile as well as fixed) had touched 385
million as of December 2008, taking the telecom penetration to over 33 per
cent. This means that one out of every three Indians has a telephone
connection, and telecom companies expect this pace of growth to continue
in 2009 as well.

The overall cellular services revenue in India is projected to grow at a CAGR

of 18 per cent from 2008-2012 to exceed US$ 37 billion. Cellular market
penetration will rise to 60.7 per cent from 19.8 per cent in 2007.

The Indian telecommunications industry is on a growth trajectory with the

GSM operators adding a record 9.3 million new subscribers in January 2009,
taking the total user base to 267.5 million, according to the data released by
COAI.

India is the fourth largest telecom market in Asia after China, Japan and
South Korea. The Indian telecom network is the eighth largest in the world
and the second largest among emerging economies. At current levels,
telecom intensiveness of Indian economy measured as the ratio of telecom
revenues to GDP is 2.1 percent as compared with over 2.8 percent in
developed economies.

Indian telecom sector has undergone a major process of transformation

through significant policy reforms. The reforms began in 1980s with telecom
equipment manufacturing being opened for private sector and were later
followed by National Telecom Policy (NTP) in 1994 and NTP'1999.

Policy reforms can be broadly classified in three distinct phases-

• "The Decade of 1980's saw private sector being allowed in

telecommunications equipment manufacturing. Mahanagar Telephone

8
 Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were
formed and a Telecom Commission was set up to give focus to
telecommunications policy formation.
• "In 1990s, telecommunications sector also benefited from the general
opening up of the economy. NTP 1994 was the first attempt to give a
comprehensive roadmap for the Indian telecommunications sector.

 Availability of telephones on demand (targeted by 1997)

 Universal service covering all villages and one PCO per 500
persons in urban areas at the earliest (targeted to be achieved
by 1997)
 Telecom services at affordable and reasonable prices
 World standard quality of services

• "NTP 1999 brought in the third generations of reforms in the Indian

telecommunications sector.
• India is one of the fastest growing telecom markets in the world with
an addition of more than 6 million connections per month. FDI inflow in
Indian Telecom sector is the highest among all sectors. It is emerging
as telecom manufacturing hub. Year 2007 was declared as "Year of
Broadband" in India.

It is projected that the industry will generate revenues worth US$ 43 billion
in 2009-10.

Rural India had 76.65 million fixed and Wireless in Local Loop (WLL)
connections and 551,064 Village Public Telephones (VPT) as on September
2008. Therefore, 92 per cent of the villages in India have been covered by
the VPTs. The target of 80 million rural connections by 2010 is likely to be
met during 2008 itself. Universal Service Obligation (USO) subsidy support
scheme is also being used for sharing wireless infrastructure in rural areas
with around 18,000 towers by 2010.

The Indian rural market is going to be the next big thing for wireless telecom
providers. With the tele-density in rural areas being still about 10 per cent
against the national average of about 21 per cent, there seems to be huge
untapped potential for mobile phone penetration in rural India. The
government also plans an investment of US$ 2 billion, during 2008 to 2009,
for the development of around 100,000 community service centers in rural
India to provide broadband connectivity.

Additionally, by 2010, the government targets:

• 80 million rural connections

• Mobile coverage of 90 per cent geographical area
• Internet Protocol Television (IPTV) in 600 towns
• Quadrupling manufacture

9
 • Two-fold increase in telecom
equipment R&D from the current
level of 15 per cent.

Major Players
There are three types of players in telecom services:
• -State owned companies (BSNL and MTNL)
• -Private Indian owned companies (Reliance Infocomm, Tata Teleservices,)
• -Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures,
Escotel, Idea Cellular, BPL Mobile, Spice Communications)
Market Shares of Key
India Mobile
Operators, 2008

What is 3G?

3G (Third Generation) is the latest wireless technology. It is also known as

UMTS (Universal Mobile Telecommunications System), an improvement over
2G (Second Generation) providing wireless access to the data and
information to the users from anywhere and anytime. It is the latest mobile
technology and in fact it is described by Cellular (2004) as being a generic
name for the most of mobile technologies.
3G cellular phones were first launched in Japan in October 2001. This 3G
phone was designed so users would be able to surf the Internet, view
pictures of the people they are talking to, watch movies and listen to music
on their handsets .

10
International Mobile Telecommunications-2000 (IMT-2000), better known
as 3G or 3rd Generation, is a family of standards for wireless
communications defined by the International Telecommunication Union,
which includes GSM EDGE, UMTS, and CDMA2000 as well
as DECT and WiMAX. Services include wide-area wireless voice
telephone, video calls, and wireless data, all in a mobile environment.
Compared to 2G and 2.5G services, 3G allows simultaneous use of speech
and data services and higher data rates (up to 14.4 Mbit/s on the downlink
and 5.8 Mbit/s on the uplink with HSPA+). Thus, 3G networks enable network
operators to offer users a wider range of more advanced services while
achieving greater network capacity through improved spectral efficiency.

Mobile telephony allowed us to talk on the move. The internet turned raw
data into helpful services that people found easy to use. Now, these two
technologies are converging to create third generation mobile services.

In simple terms, third generation (3G) services combine high speed mobile
access with Internet Protocol (IP)-based services. But this doesn’t just mean
fast mobile connection to the world wide web. Rather, whole new ways to
communicate, access information, conduct business, learn and be
entertained - liberated from slow, cumbersome equipment and immovable
points of access. It will enhance and extend mobility in many areas of our
lives.

11
Evolution from 2G to 3G

What will 3G mean to users?

"Mobility" will be offered with many services that we currently regard as
"fixed" – indeed, Mobile operators believes that mobility will become the
norm for many communication services. We’ll be able to make video calls to
the office and surf the internet, or play interactive games with friends at
home - wherever we may be. But 3G is not just about applications that
require high speed data rates. It’s about convenience and speed of access.

There are various technology comes under various forms of services like
under 1G its AMPS, 2G its CDMA, TDMA, GSM, PDC & 3G its W-CDMA, CDMA-
2000,TD-SCDMA

TECHNOLOGY FEATURES

1 AMPS Advanced Mobile Phone -Analog voice service

G Service - No data service
2 CDMA Code Division Multiple Access - Digital voice service
G TDMA Time Division Multiple Access - 9.6K to 14.4K bit/sec.
GSM Global System for Mobile - CDMA, TDMA and PDC offer

12
 Communications one-way data transmissions
PDC Personal digital cellular only
- Enhanced calling features like
caller ID
- No always-on data connection
3 W- Wide-band Code Division - Superior voice quality
G CDMA Multiple Access - Up to 2M bit/sec. always-on
CDMA- Based on the Interim data
2000 Standard-95 CDMA standard - Broadband data services like
TD- Time-division synchronous video and multimedia
SCDMA code-division multiple-access - Enhanced roaming

Features of various services

Services Features Speed Time to Download 3Min
Mp3 song
2G Phone Calls,
Voice Mail,
Receive Simple 10kb/sec 31- 41 Min
Email Messages

2.5G Phone calls/fax

- Voice mail
-Send/receive
large email
messages 64-144kb/sec 6-9min
- Web browsings
Navigation/maps
- New updates

13
3G Phone calls/fax
- Global roaming
- Send/receive
large email
messages
- High-speed
Web 144kb/sec- 11sec-
Navigation/maps 2mb/sec 1.5min
Videoconferencin
g
- TV streaming
- Electronic
agenda meeting
reminder.

How is 3G different from 2G and 4G?

While 2G stands for second-generation wireless telephone technology, 1G

networks used are analog, 2G networks are digital and 3G (third-generation)
technology is used to enhance mobile phone standards.

3G helps to simultaneously transfer both voice data (a telephone call) and

non-voice data (such as downloading information, exchanging e-mail, and
instant messaging. The highlight of 3G is video telephony. 4G technology
stands to be the future standard of wireless devices.

Limitations of 2G
• Designed mainly for telephony application

• Circuit-switched

• High BER (Bit Error Rate)

• Low data bit rate (< 14.4kbps)

• Too many standards globally

 GSM, CDMA, PDC, PHS etc.

How 3G works?

14
The Advantages of 3G Technology

• Perform all those functions that they perform at present with their
mobile devices but at much higher speed than before.
• Provides them with faster connectivity, faster internet access, and
music entertainment with improved quality.
• Can avail the benefits of video calling.
• Clarity is better and the facility can be enjoyed as long as both of are
using the 3G technology.
• Access any site on the Internet by using your phone as a modem for
computer or laptop and mail the important documents.
• Downloading games and songs is much faster with this technology

15
 • Can be also used for favorite search engines to find information on
news headlines, get information about the evening weather.
• Provide with the data transmission speed of up to 2Mbps when the
users are using the phone on stationary mode.
• Provides significantly faster data transfer rates of connectivity and
increased networking and most importantly the resistance to noise.
• Increased the bit rate thus enabling the service providers to provide
high speed internet facilities, increased call volumes and host of the
multimedia applications to their customers.
• All these services can be provided to the customers on the basis of the
amount of data they transmit and not on the time for which they use
the service thus making the services cheaper.
• Beneficiary to the service providers as well as the intermediaries like
the content providers and the media houses who are looking for an
additional platform market their products. Basically it holds three way
benefits to all the parties involved.
• Improved performance over 2G, including:

 Will ease spectrum constraints on the 2G networks and

accommodate subscriber growth
 Will improve data opportunities as spectrum constraints are a
major barrier to adoption and usage; Indian consumers
already own c2m 3G devices
 3G spectrum will allow incumbents to differentiate services
from new entrants and regional players
 Improved capacity

 Improved coverage, enabling migration from a 2G

deployment.

 A high degree of service flexibility, including:

 Support of a wide range of services with maximum bit rates

above 2 Mbps and the possibility for multiple parallel services
on one connection;

 A fast and efficient packet-access scheme.

• A high degree of operator flexibility, including:

 Support of asynchronous inter-base-station operation;

16
  Efficient support of different deployment scenarios, including
hierarchical cell structure and hot-spot scenarios;

 Support of evolutionary technologies such as adaptive

antenna arrays and multi-user detection.

USER BENEFITS

OPERATOR BENEFITS AND MEDIA HOUSE

BENEFITS

Guidelines for 3G Services:

17
 • The 3G (3rd generation) mobile telecommunications is the generic
name for the next generation of mobile networks that will combine
wireless mobile technology with high data rate transmission
capabilities. The 3G networks will be capable of providing higher
data rates and will also be capable of supporting a variety of
services such as high- resolution video and multimedia services in
addition to voice, fax and conventional data services.
• 3G spectrum will be permitted in the 2.1 GHz band.
• The 3G licenses would be granted through a controlled,
simultaneous ascending e-auction, by a specialized agency to
ensure transparency in the selection process.
• Besides the initial, one time spectrum charge, it has been decided
that the successful service provider would pay additional spectrum
charge of 0.5 % of their total Adjusted Gross Revenue (AGR), as the
recurring annual spectrum charge. This additional revenue share is
proposed to be 1% of AGR after 3 years from the date of spectrum
assignment.
• The roll out requirements, including rural roll-out, as well as stiff
penalties for non compliance of the same has been stipulated.
• Mergers will not be allowed during the initial five years. No trading/
reselling of spectrum is allowed.
• The CDMA spectrum in 800 MHz band for EV-DO applications would
be treated separately from 2.1 GHz spectrum. If the CDMA based
service provider(s) ask for the EV-DO carrier of 2 x 1.25 MHz, they
would have to pay an amount proportionate to the highest bid for
spectrum in 2.1 GHz band.

Issues of 3G
Although 3G was successfully introduced to users across the world, some
issues are debated by 3G providers and users:

• Expensive input fees for the 3G service licenses in some

jurisdictions

• Differences in licensing terms between states

• Level of debt incurred by some telecommunication companies,

which makes investment in 3G difficult

• Lack of state support for financially troubled operators

• Cost of 3G phones
18
 • Lack of coverage in some areas

• High prices for 3G in some countries

• Demand for high speed services in a hand-held device

• Battery life of 3G phones

Current status and Impact of 3G in India

The success of 3G is going to depend on demand for superior quality voice

services and data heavy, media rich content. The initial pricing has been on
the higher side and it will have to drop if mass adoption is to ensue.
Spectrum policy in India has been the victim of slow decision-making, which
has left the country lagging behind many others.

The delay in auction over three years has deprived Indian subscribers of the
benefits of high-speed mobile data services available to over 300 million
subscribers residing in over 125 countries with significant concentration
around the Americas, Europe, and South East Asian countries.

This is also an opportunity for Indian software companies to join hands with
service providers to develop applications that will meet the needs of the
Indian mobile user. At a later stage, these could be rolled out into other
emerging markets..

3G in India is initially expected to provide additional spectrum for voice

services. This would pave the way for data usage on mobile phones. This is
vital as operators are focusing on customer acquisition as well as ‘sticky
offerings’ to prevent churn. 3G enables better VAS services due to the higher
levels of bandwidth that it can accommodate. The technology is expected to
drive data card adoption. Currently, Tata Indicom and Reliance are the only
players in the data card segment. With more players coming into the
market, sales are expected to boom with competitive prices and attractive
schemes.

Poor broadband penetration, a large untapped rural market, and the

challenge of providing high bandwidth in rural areas using landlines are all
factors favoring a 3G rollout. With 3G, network operators can offer wireless
broadband services. Moreover, many operators are starved of spectrum and
as 3G offers four to five times the voice capacity of 2G spectrum, it is a cost-
effective tool to deliver voice. Services beyond voice and text can be offered;
3G offers a platform which can offer true multimedia services.

The technology will be critical for operators in enabling the differentiation of

their service portfolio, by providing a far richer service experience than is
currently available—particularly in the deployment of audio-visual

19
services.The fundamental driver for 3G in India is to serve the country’s
demand for broadband services. From a technological point of view, in areas
where no fixed-line infrastructure exists, deploying a mobile network is much
cheaper and it can be rolled out a lot faster than wired infrastructure.

Revenue from Value added Services

12000 11096
10000
8000 7252
6000
5000
4000 2712 3708
2000 1752
0

2005 2006 2007 2008 2009 2010

Rs Cr

Roll-out strategies

Starting in February 2009, BSNL and MTNL—the state-run operators who

were pre-awarded 3G licenses—have rolled out 3G services in 70 (BSNL) and
two (MTNL) cities nationwide respectively. The private telecom operators are
in the process of planning their 3G network infrastructure and awaiting final
approval from the DOT auction to start rolling out their networks; they are
ready to go fully operational within six months of spectrum allocation.

Despite the hype around 3G, MTNL and BSNL have attracted a few thousand
subscribers for these services. Lack of attractive applications and content,
the high monthly charges and the anticipation of private players entering the
3G arena soon are the likely reasons for the low uptake of 3G services.
Meanwhile, Frost & Sullivan estimates that the number of 3G subscribers will
be around 7-8 million by the end of FY 2009-10.

In the first year of 3G operations, the operators are expecting 3G subscribers

to pay about five times the current 2/2.5G tariffs. 3G-enabled handsets and
data modems for laptops are also likely to be expensive. This is a steep
increase and will target only niche demographics, but in the coming three-
four years the operators will see higher subscriber volumes and better
operational efficiencies and consequently the prices will drop to attract a
wider audience. The challenge for operators will be to offer wide coverage
(including roaming), high quality service and attractive content in the initial

20
years to sustain high-paying subscribers long enough to reach the tipping
point of growth.

21
Market opportunity
According to the Federation of Indian Chambers of Commerce and Industry
(FICCI), in India, the 3G subscriber base is expected to hit 90 million by 2013,
accounting for 12% of the overall wireless user base. By 2013, 3G service
revenues are expected to generate $15.8 billion, accounting for a share of
46% in overall wireless service revenue. Due to the 52% contribution made
by the replacement market, annual sales of 3G devices are projected to
reach 81.3 million by 2013.

There will also be an increase in the share of non-voice services, including

data card access, and short messaging service. The Average Revenue Per
User (ARPU) from these services will rise from the present 9% to nearly 23%.

3G would be initially deployed as a voice technology. The ARPU is not

expected to rise significantly in the initial years. The overall impact on ARPU
will be determined by pricing/bundling strategies that operators adopt. In
some markets, where 3G services have already been provided, operators
have adopted a penetration pricing strategy, aimed at building a strong base
of 3G users by pricing 3G services attractively.

Indian mobile operators already generate significant revenues from non-SMS

data services and 3G will see new, exciting data services available to the

22
Indian public. It’s worth noting that India already has a dynamic mobile
content industry.

However, some experts think that apart from data cards, there are no other
killer applications in mobile data services. In the enterprise, e-mail may be a
major driver for this market. As far as retail is concerned, video streaming
could be a driver. This depends upon the pricing of video clips and the
download speeds that 3G can guarantee. 3G services are at a nascent phase
with only state owned companies offering 3G services in limited pockets—so
real price cuts cannot be seen

Getting subscribers on the 3G bandwagon

In urban regions, telecom carriers are facing declining service quality and
decreasing margins per minute. With 9% of the subscribers contributing 45%
of carriers’ margins and 29% of revenues, 3G will certainly enable the
carriers to transfer high ARPU customers to the congestion-free 3G network.

A combination of better services, innovative applications, and smart handset

bundling coupled with right pricing can attract a large base of users to 3G.
Besides, many Indian customers already have 3G-enabled devices. These
people will be the first movers.

In order for the customers to know and get the feel of 3G, MTNL is initially
offering a trial pack for 15 days. The customer can get a first hand feel of
exactly what 3G is all about. They can experience the service, and MTNL is
sure that after getting the feel of the same the customers would not like to
go back to 2/2.5G data services.

To improve overall service experience, operators will need to allocate

spectrum for 3G to provide improved voice services. However, this is unlikely
to impact the ability to provide richer VAS services. The eventual cost of
deploying 3G networks may deter operators from rolling out 3G networks to
the entire existing customer base, meaning that some segments will not
have immediate access to 3G. The cost of deploying the networks may
impact the pricing strategies for service packages offered to the market,
with operators adopting different strategies to attract new subscribers and
cover their investment costs.

3G Applications in your life….

Basically, 3G opens the door to anything you can imagine. You will be able to
do a multitude of things while going through your daily schedule, whether at
work or at leisure. The scenarios below demonstrate just a few applications
for 3G and only hint at what will be on offer in the future.

23
Scenario1:
An executive at a client meeting realizes that he has brought an outdated
version of his presentation. It’s no problem though because one of his
colleagues back at the office emails the updated PowerPoint file directly to
his 3G terminal. He transfers it to the laptop (wirelessly of course) and is in
no time ready to start the presentation.

Scenario2:
This scenario is about three women who are trying to find a gift for their
friend. Two of them are out shopping, but they are out of ideas and use a
web site that generates gift suggestions based on personality profiles. They
decide to buy a handbag at a shop situated somewhere near the city centre
(but at an unknown address to the women).

Not knowing exactly where the shop is, they use a map and positioning
service to find it. The map is displayed on their 3G terminal and shows them
the shop location and their current position.

At the shop, they want to make sure that the third woman (who was unable
to make it) likes the gift. They take a digital picture of the bag and send it to
her with a hand written note seeking her approval.

Scenario3:
The grandparents are out travelling in Europe. Here you see them in front of
the Eiffel tower. (The tour guide took the picture of them admiring the
magnificent building).In order to share their experiences with their friends
and family, they have created a virtual photo album on their personal web
site. This way, anyone with access to the Internet can follow them on their
trip.

But what about those without Internet access? Well, that's been taken care of
by the WalkMail network. The pictures are printed, together with the text, on
high quality paper and delivered as regular postcards within 24 hours.

Scenario4:
A busy executive doing her grocery shopping hasn’t had time to queue at a
teller machine, but cash is not needed. At the check-out, she uses her 3G
terminal to pay for the groceries. It automatically debits her bank account,
and gives her an updated balance on request.

Scenario5:
In this scenario, we see two men talking on their way from a meeting. They
decide to go out to dinner, but one of the men would like to invite his wife
along so he checks her calendar on his 3G terminal (their calendars are

24
constantly in synch).

Scenario6:
So far, there has not been an easy way to electronically communicate with
character based languages. But this drawback is over come with the white
board application.

The person in this scenario is actually handwriting a message when a friend

of his initiates a video call with him.

This way of creating a message makes the communication more personal

than a regular e-mail whether in Chinese, Japanese, English, French or any
language.

Scenario7:
This guy would like to catch up with his friends for a coffee. He uses the
SeekYourFriends service to find out who's on-line, and then sends a message
telling his friends to meet him in a groovy new café that he’s just discovered.

Future of 3G
The good news for mobile users is that now 3G has been uploaded in all the
latest handsets from the leading manufacturers including Sony Ericsson,
Samsung, LG, Nokia and Motorola. In addition, a new technology called
HSDPA has been upgraded with the 3G system which works faster than 3G.
The latest gadgets are well-equipped with power-packed features, enabling
you to communicate and enjoy loads of fun.

25
Today 2G is booming, one of the big reasons is the low-priced handsets.
This, however, is not the case with 3G. Opportunities are big, but we will
have to make it happen.

The success of 3G will depend on innovative business models. The most

certainly needed thing is favorable regulations in terms of spectrum fees. It
is creation and competition that are the two mantras for the success of 3G in
India. There is a need for creating an enthusiasm of technology among the
consumers, and 3G portals need not be the only goal of the operators.”

The big challenge set before us is the affordability of the 3G devices.

Educating the customer on 3G is another challenge. 3G is most certainly
going to be exciting, but also challenging. We need the infrastructural
support and the handset, too, would be at an affordable price. The
stakeholders should come together in order to see some good development.
There is an opportunity to transform the society, which is possible as long as
all of us can work together.”

One of the advantages of 3G network is that it would give better voice

clarity. It will shift the Internet largely to the mobile space and we can
ensure a 3G success

A matter of concern before us is the kind of bidding that would take place. It
is equally challenging to attract consumers to 3G. The reason why ARPUs are
on the decline is because the consumers are not able to see value for
money. We need to concentrate more on customers. A proper working
strategy will lead to the success of 3G services.”

Which companies have applied for 3G license?

3G spectrums has been provided to GSM players like BSNL, MTNL, Bharti,
and Vodafone and some international companies have also shown interest to
carry out an interface check on a non-commercial basis ahead of the start of
3G mobile services.

Apart from PSU majors, spectrum for carrying out 3G trials has been given to
all those who have applied under the National Frequency Allocation Plan on
the 2.1 GHz band. GSM players operate on 900 MHz and 1,800 MHz, while
CDMA players operate on 800 MHz.

What is the pricing issue in India?

While Tatas have welcomed Trai’s Rs 1,400-crore (Rs 14 billion) base price
for a nationwide rollout of 3G services, the rest of the players find the price
too exorbitant.

26
Bharti-Airtel is disappointed with the pricing as they were expecting it to be
Rs 300-400 crore (Rs 3-4 billion). The reserve price is a disincentive for
telecom companies in India. Bharti has appealed to lower the prices
especially for rural penetration.

What about the security in a 3G network?

3G networks offer a greater degree of security than 2G predecessors. By

allowing the UE to authenticate the network it is attaching to, the user can
be sure the network is the intended one and not an impersonator. 3G
networks use the KASUMI block crypto instead of the older A5/1 stream
cipher. However, a number of serious weaknesses in the KASUMI cipher have
been identified.

In addition to the 3G network infrastructure security, end to end security is

offered when application frameworks such as IMS are accessed, although
this is not strictly a 3G property.

Where was 3G spectrum first introduced?

Japan was the first country to introduce 3G on a large commercial scale. In

2005, about 40 per cent of subscribers used only 3G networks. It is expected
that during 2006 the subscribers would move from 2G to 3G and upgrade to
the next 3.5 G level.

The success of 3G in Japan also shows that video telephony was the killer
application for 3G networks. Downloading music was the biggest draw in 3G
services.

There are about 60 3G networks across 25 countries.

For infrastructure providers 3G will be a value-add during slowdown, as they

would get to put in a lot of new developments. Layout of next generation
networks that are 3G compatible will help in better manageability of services
over the networks. Even service providers believe that 3G would make the
entire mobility space much more accessible. The broadband connection, as
they have not reached the set target, will also benefit with 3G coming to
India.

3G will help service providers manage their existing infrastructure better and
remain competitive in a mobile number portability (MNP) regime. It will also
generate a more addressable market to the GSM service providers. They can
go back to their existing customer base and provide them with enhanced
data services

3G will not only make its presence felt in cities and towns but also bring in
better and faster networks to rural India.
27
In the years to come 3G would make a lot of difference in making business
models more innovative. 3G and WiMax will help solve the problem of low
broadband penetration in India to a great extent. It is high time the
government realizes the need and use of 3G. In a fast growing economy
these technologies have the power to change the development roadmap of
the country.

Dispute over foreign Telecom companies

Overseas, 3G has failed to deliver on the hype that often led to frenzied
license auctions.

In South Korea, SK Telecom Co and KTF Co have been offering 3G services

for more than a year, but high costs associated with subsidies for new
phones and marketing has been a worry for 2G market leader SK.

Singapore, Indonesia and Malaysia are few examples where 3G mobile

broadband has given a boost to its revenue growth. Investment and the
capacity of the investment possess a tough challenge before India.”

Foreign telecom firms could gain access to India's booming mobile market
through a global auction of 3G licenses this year, but low call rates and
established players mean it could take years to turn a profit.

Foreign telecoms with 3G experiences are allowed to bid at the auctions,

opening the way for firms such as AT&T, Etisalat, NTT Docomo to gain a
foothold in the world's fastest-growing mobile market.

But India's 2G operators, including Bharti, Airtel, Reliance Communications,

Vodafone Essar and TM International -backed Idea Cellular, are not going to
cede their territory easily.

Five 3G licenses will be available for most of India's 22 service zones,

although limited spectrum means there will be a maximum of three in large
cities such as New Delhi and Mumbai.

Next-generation high-end 3G services give users a chance to enjoy fast

Internet access, games and a host of multimedia content from maps to
music on their cell phones, areas where 2G has been handicapped by a
slower data transfer capability.

India has set a base price of 20.20 billion rupees ($435 million) for a national
license. Actual bids are expected to be higher, especially in lucrative centers
such as Mumbai and New Delhi, as the government is looking to raise up to
$9 billion.

28
Importantly for new entrants, a winning 3G bid does not automatically get a
bread-and-butter 2G license. Foreign operators will have to look for an Indian
partner that owns a 2G network.

New 2G licenses such as Unitech, Datacom and Loop Telecom could be

targets for foreigners, although Indian policy at present does not allow two
2G license holders to merge their licenses for three years from issue.

A huge untapped market beckons in the rural areas, which currently

accounts for only a third of total mobile users in India. If the government's
plans to connect every village to a broadband network are fully
implemented, this market could see an explosive growth.

TRAI and DoT disagree on the issue of permitting foreign telcos to bid for 3G
spectrum. DoT thinks the present competitive intensity (14 existing telcos) is
not enough for competitive bidding in the 3G space and as such has been
exploring the idea of allowing foreign telcos to bid.
Meanwhile, TRAI thinks existing operators are in a better position to deliver
3G services efficiently and quickly. According to TRAI, any foreign telecom
player who emerges as a successful 3G bidder via international auctions will
have to acquire a Unified Access Service License (UASL) before they can
begin operations. The issue of a UAS license will entitle them to 4.4MHz to
start 2G operations. This will mean more players in the crowded 2G space
which already has 14 players. Another option is to allow overseas bids for 3G
spectrum but not allow foreign players any rights to 2G spectrum. This will
involve creating a new license category, which may delay the 3G auctions.
As we stated earlier, while bidding for 3G makes no sense from the business
perspective, it does represent an indirect way to obtain 2G spectrum. It is
this that is creating a lot of interest. We believe the queue for 2G spectrum
will discourage the Indian regulator from holding international 3G auctions.
But the regulator is unpredictable and we cannot rule out further surprises.

How will 3G policy unfold?

Our analysis suggests that international players will not be allowed to bid for
3G spectrum.
The key constraint for the regulator is the limited availability of 2G spectrum,
which is available on a seniority basis. Any foreign player becoming eligible
for 2G spectrums via international 3G auctions will have to wait until the new
entrants and existing players receive their share of 2G spectrum. Any
attempt to modify the seniority based rule would lead to litigation and delay
the 3G spectrum auctions (which the Indian government wants to avoid).
This poor visibility is a major deterrent for any foreign player wanting to bid
aggressively for 3G spectrum

29
Why the Growth Spurt in 3G?
Improvements in infrastructure and increased cap-ex investments by carriers
have laid the
groundwork for the burgeoning 3G market. At the other end of the value
chain,3G is now
revolutionizing how cell phones are used and consumers are responding.
Operators are now
providing advanced features and services, which means an enriched user
experience for the
consumer 3G is about multimedia performance, driven by demand for mobile
entertainment and
on-the-go productivity. Current 3G handsets feature high-resolution color
displays, integrated
video cameras, streaming of audio and video content, internet access at
broadband speeds,
location-based services, and multi-user 3D gaming. And these are only the
beginning. To be
sure, 3G is succeeding by delivering user-rich, value-added services that are
influencing
consumers to switch to 3G mobile phones and networks. However,
3G’ssuccess won’t occur in a vacuum. There are three areas to consider for
3G to realize its full potential:

No. 1: Open standards drive rich value webs and

interoperability.

Wide adoption of 3G will require introducing innovative services with cross-

network
interoperability. Only a non-proprietary, open approach will foster innovation
of new content,
services, and applications. Wireless operators must work together with
handset manufacturers,
semiconductor partners and software providers to promote open standards
for 3G networks and equipment.

No. 2: Economies of scale apply.

Deploying 3G comes with a price tag. Hence, economies of scale will help
make the 3G UMTS
market main stream. Chip manufacturers must deliver higher performance,
lower power, lower
cost and more integrated complete solutions through smaller process
geometrics and innovative silicon technologies.

30
No. 3:Multimedia-rich applications will define 3G, but not
at the expense of the user experience.

The underlying 3G technology platform must deliver upon user expectations

in key areas that
may not have been as important in prior generations of wireless technology:
multimedia quality
for pictures, video and audio. This trend will only increase, with the expected
surge of even
higher performance multimedia applications and a strong trend to deliver a
consumer electronics experience to the cell phone.

Issues Facing The Technology

In some countries the 3G technology has been introduced very successfully.

However, in
some other countries there are various issues that prevent the technology
being launched.
Introducing new technology is never smooth sailing. Here, we will give an
overview of the
issues concerning rolling out 3G technology.

1) High Licensing Cost- One of the main reasons for the slow
introduction of 3G
technology in Europe is the high licensing fee. European mobile phone
companies spent
$129 billion six years ago to buy licenses for "third-generation" networks.

2) Billing- Current billing starts with the start of a call to the end of it. With
3G, pricing
formulas will need to encourage the use of 3G services. A slow down in
adoption to 3G
will significantly affect handset manufacturers

3) Equipment and Infrastructure- There is a lack of available 3G

phones initially and
consumers were slow to pick up the new phones. There is also the difficulty
of rolling 3G
network which is based on a different platform while integrating it with the
old 2G
network. Intermediate network such as 2.5G is one of the solutions to bring
about a
gradual change

31
4) Content Provision and Marketing- Successful operators must be
able to meet
expectations of providing new and innovative services. The main task at
hand is to be
able to promote the idea of 3G technology rather than selling the product
itself. Content
providers must market an attractive range of mobile commerce,
entertainment, banking,
shopping, information and other services that can cater to the needs of
consumers

5) Malware- Technology is a double-edged sword. With the ease of

connectivity, there is
also the increased risk of malware infection. Flexispy, a spyware billed as the
'world's most powerful spy software for mobile phones'. It can secretly
records all activity
on a mobile phone. Symantec warned that mobile phones are potentially
vulnerable to
spyware which can gather a user's information without their knowledge.
Industry experts
also cautioned that increasing complexity of phones has its downsides.

Market Rapid Drivers Towards 3G

1) growth in text, WAP and other data traffic- up to 50%of total mobile traffic
within 5 years
2) Mobile & Internet penetration both growing rapidly
3) Alliances forming between major mobile, IT and e-commerce players
4) Mobile commerce and multimedia identified as key growth areas - but
need bandwidth
to deliver

32
 3G Subscriber, Device and Revenue
Projections(Source-FICCI)
The overall wireless subscriber base is expected to reach 746 mn by 2013,
based on household income levels, increasing affordability and decreasing
Total Cost of Ownership (TCO) for a wireless subscriber. By 2013, the
industry ARPU (2G and 3G) will decrease to USD 4.1 at a CAGR of -3.1%,
buoyed by increasing revenues from 3G.

The share of VAS ARPU will increase from the current level of 9% to 23%. 3G
subscriber base is projected to reach 89.9 mn (67.5 mn handset and 22.4
mn modem subscribers), forming approximately 12% of the overall wireless
subscriber base by 2013.

The underlying basis for this projection is the increasing availability of 3G

devices at affordable prices and the replacement / upgrade cycle of 2G
subscribers across different segments. Blended 3G ARPU (from handset and
modem subscribers) is expected to decline from USD 19.1 in 2009 to USD
17.3 in 2013. 3G industry revenues for India (including both handsets and
modems) are projected to be USD 15.8 billion for 2013 with data (access and
content) contributing 43% of total 3G revenues.

The 3G device market size in 2013 is expected to reach USD 11.2 bn with
sales of 81.3 mn devices (67.7 mn handsets and 13.6 mn modems), driven
primarily by the replacement market in the high income segment.

The overall broadband subscriber base (including wireline, 3G modem and

BWA) is projected to grow to 46 mn users by 2013, with an overall PC
installed base of 75 mn. Total 3G modem subscribers are expected to reach
22.4 mn by 2013 with sales of 13.6 mn new modems (including data cards,
routers and USB dongles) in that year,generating revenues of USD 0.5 bn.
WiMAX will become an alternative broadband access service for residential
and SME / SOHO customers, and the overall WiMAX subscriber base is
expected to reach 10.8 mn by 2013.

33
 Based on household affordability estimates the overall wireless
subscriber base is expected to reach 746 mn by 2013, with GSM,
including WCDMA / HSPA, accounting for 77% of the base.

The TCO of wireless services for the first year (including end user device
price and service plan) has already reached USD 25 in 2008 based on an end
user price for a 2G handset at USD 16 (INR 700)18, with prepaid lifetime
validity connection for USD 4.3 (INR 195) and a recharge of USD
4.4 (INR 200) every six months to keep the connection active (incoming calls
are free). Mapping the TCO with household income projections and
affordability estimates, an overall wireless teledensity of 61% in 2013 and a
wireless subscriber base of 746 mn (assuming a wireless coverage of 95% of
population)can be arrived at.

In the High Income Segment (HIS)20, it is expected that there will be more
than one SIM per person with approximately 7 connections per household.
Middle Income Segment (MIS) will be the biggest segment accounting for
52% of the population and 68% of mobile subscriber base. Though the Low
Income Segment (LIS) will decline with the overall growth in the economy, it
is still expected to form 21% of the overall subscriber base.
A decline of 5% in the CDMA market share by 2013is projected,as industry
inputs suggest that with two major CDMA based carriers announcing plans of

34
launching GSM services, there will be an increment of subscribers added on
GSM networks.
In addition, with mobile number portability (inter-technology and intra-
technology), we expect that there will be some migration of subscribers from
CDMA to GSM. Also, if one of the carriers begins offering WCDMA services as
a differentiator in the incremental urban and tier 2 & tier 3 markets, then
CDMA can face a loss of share among net new additions.
CDMA based data cards and USB modems currently have stronger market
share than GPRS / EDGE devices due to better speeds, however, this will
change with the launch of sub USD 100 HSPA modems offering much higher
speed than current 2.5G CDMA modems.

The 3G handset subscriber base is expected to reach 67.5

mn by 2013 (excluding 3G modems), with WCDMA /HSPA
accounting for 89% of the base.

The initial target segment for 3G services will be corporate users,

professionals and high
income youth. This segment is characterized by current use of 2.5G services
and / or ownership of 3G enabled handsets.The current base of 3G enabled
handsets in India is estimated at over 10 mn devices, and industry inputs
suggest that all handsets above USD 200 would be 3G enabled by 2010 and
all handsets above USD 100 would be 3G enabled by 2013.The coverage
would extend to top 100 cities by end of 2010 for private carriers and to
about 200 cities for public sector carriers. Finally by 2013, 3G adoption rates
are expected to be limited by upgrade / replacement cycle of 2G subscribers.
WCDMA is expected to take a majority share of the market given the
reported plans of major CDMA carrier’s transition to GSM and the uncertainty
around the availability of spectrum for CDMA EV-DO for auction levels.
However, in laptops, the residential share is expected to increase with
declining laptop prices and consumer preference of laptops over desktops.
We expect emerging computing devices like netbooks to be an additional
device for some laptop users and a new first time device for incremental
users(e.g. college students in urban areas).

Broadband subscriber base is projected by type of access –Wireline, 3G or

WiMAX. Wireline penetration is limited by total number of access lines that
are upgradeable to DSL due to loop length, copper quality and affordability
parameters.The remaining broadband penetration is divided into 3G and
WiMAX depending on carriers’ roll-out plans, consumer preference and
consumer TCO. For residential households,wireless broadband will be an
alternative to wireline (DSL,Fiber, DOCSIS) in un-served and under-served
areas.Broadband connection in a household with multiple devices has been
accounted for as a single connection as it is likely that the same broadband
connection will be used across access devices through a LAN. For the large
35
enterprise segment, desktops are assumed to be connected to enterprise
wireline(leased line / fiber) broadband.

By 2013,22.4 mn 3G modem users with increased

adoption by the enterprise and residential laptop
segments is expected.

The growth of 3G data cards will be driven by increasing adoption of both

enterprise and residential laptops. Current trends suggest that laptop sales
have already become equal to or
surpassed desktop sales. Since India is a price sensitive market,it is
expected that 3G data plans will be priced equivalent to DSL, even though
3G provides the additional feature of mobility. For enterprise laptops,
broadband penetration willbe primarily driven by the employees’ need for
connectivity on the go. In addition, enterprise laptop users who do not get a

36
corporate 3G connection might get a 3G broadband connection for
residential purposes. However, penetration of 3G in households with only
desktops will be quite limited as the mobility feature will not be of much
value for those households and they will primarily look for higher speeds or
unlimited data downloads.Total 3G modem connections are expected to
increase to approximately 22.4 mn by end of 2013 riding on the wave of
high growth in both enterprise and residential laptops. It is expected that
there will be 15.3 residential / consumer 3G broadband connections and 7.1
mn enterprise 3G connections in 2013.

3G service revenues are expected to reach USD 15.8 bn in

2013 with 3G modems contributing 19% of the total

3G industry revenues for India are projected to be USD 15.8 bn in 2013 (USD
12.8 bn from handset subscribers and USD 3.0bn from modem subscribers)
with data contributing to 43% of total 3G revenues. Blended 3G ARPU from
both handset and modem subscribers will fall from USD 19.1 in 2009 to USD
17.3 in 2013.
Voice and data ARPU are calculated based on the subscriber income level
and handset features. Voice ARPU is based on income levels and consumer
usage patterns, while data ARPU also depends on the handset price and its
features, the availability of relevant content and user experience.

37
For purposes of calculation, data ARPU is considered to be a blend of content
and access revenue. Access revenue includes limited / unlimited data plans
from carriers or download charges for every byte of content downloaded.
Data tariffs are expected to be flat rate, with different data and speed tiers
available. Adoption for these plans is expected to increase gradually with
time, and even as tariffs fall for each plan,more users are expected to shift
to higher tiers as adoption of broadband services increase.Content revenue
is based on the kind of applications that are expected to be offered by
carriers. It is expected that instead of
any one killer application, carriers will look to offer a variety of applications
targeting different niche segments. Some of the new applications that
carriers are likely to offer will be location based services, video clip casting,
online gaming, etc. Price and adoption of each type of content has been
arrived at for each income segment and handset price category by taking
into
account the user profile and usage patterns within the segment.Content
ARPU consequently increases with time as enhanced experience and better
quality content increase spend.We expect that there will be 67.5 mn 3G
handset subscribers with a monthly ARPU of USD 18.3 and 22.4 mn 3G
modem users with a monthly ARPU of USD 13.3 in 2013. Total 3G service
revenues will reach USD 15.8 bn in 2013 and will constitute 46% of total
industry services revenues (2G + 3G).

3G devices projections are based on handset upgrade by

existing 2G subscribers and handset / modem replacement
by 3G subscribers

The projection for 3G device sales is carried out separately for handsets and
data cards.
3G handset sales are a combination of upgrades from 2G subscribers to 3G
handsets and the replacement of handsets by the existing 3G subscribers.
For each of the technology options,
WCDMA and EV-DO, total upgrades by 2G subscribers to 3G handsets are
calculated by each income segment and handset price level. Handset
replacement by existing 3G subscribers is also considered based on income
segment and handset price.
38
Most of the early 3G adopters will be high income subscribers with high
priced handsets and a shorter replacement cycle.
In addition, we have considered device sales from the grey / used market by
handset price category to arrive at the totaldevices market size.
For modems, device sales to new subscribers will be larger than the
replacement market due to the longer replacement cycle for modems.

3G device sales are expected to reach 81 mn in

2013,driven primarily by the replacement market

Total 3G devices sales in 2013 are expected to increase to 81.3 mn with

WCDMA handset sales of 61.9 mn, EV-DO handset sales of 5.8 mn and 3G
modem sales of 13.6 mn (including USB dongles, routers and data cards).By
2013, the size of the replacement market for 3G handsets will be higher than
handsets bought by the first time 3G subscribers primarily due to a large
share of 3G subs from the high income and high ASP segment, who have a
shorter replacement cycle than the average. The share of handsets bought
from grey market will be higher for low and mid income segments as they
move from low price to high price handsets.

39
 3G device revenues will be USD 11.2 bn in 2013 with the
high price handsets segment contributing 59% of
revenues

The total 3G device sales is projected to reach USD 11.2 bn with USD 9.6 bn
from WCDMA handset sales, USD 1.1 bn from EV-DO handset sales and USD
0.5 bn from 3G modem sales. The high price handset segment (above USD
200) will constitute 59% of total device revenues, largely dominated by
handset replacements by existing 3G subscribers. By 2013, 3G handsets
would be available at sub USD 100 levels and will account for 31% of device
sales and 11% of total device revenues. The ASP of a 3G device sold in India
in 2013 is expected to be USD 138 with WCDMA handset ASP at USD 156
and EV-DO handsets at USD 192.

If carriers pursue a more aggressive rollout strategy and

build subscriber volumes which can result in a faster
decline in 3G handset ASP, the industry could reach 121
mn 3G subscribers by 2013

Two different scenarios are projected over and above the base case (89.9
mn 3G subscribers in total), to account for the uncertainty in carrier plans for
rural expansion, as well as the potential market growth through aggressive
handset bundling and subsidy, especially at the lower end of the market.

Public sector carriers are reportedly planning an aggressive roll out to cover
all 600 DHQs with 3G coverage. This mightlead other leading GSM and CDMA
carriers to revisit their plans and rollout equally aggressively to gain / protect
market share. In such a scenario, an increasing number of 3G enabled
handsets will fall in the 3G coverage area, resulting in about 109.5 mn 3G
subscribers by 2013.

It is also possible that with all major players expanding coverage in rural
areas, carriers may offer 3G as a differentiator to the incremental user base
which will result in more bundling at the low end. This will result in a faster
decline in the ASP of 3G handsets with sub USD 50 3G handsets also
becoming available. As the % of 3G handsets in the sub USD100 category
40
would increase, overall sales of 3G device would increase and may reach
94.9 mn in 2013 as compared to the base case projection of 81 mn. We
project that in this case the ASP of WCDMA handsets will be USD 140 as
compared to USD 156 for the base case and that of EV-DO handset would be
USD 144 compared to USD 192 in the base case. The revenue from devices
is estimated to be at USD 11.9 bn with 16% from sub USD 100 handsets. In
this scenario, there will be 120.7 mn 3G subscribers.

41
42
43
44
 CONCLUSION

BSNL and MTNL are very differently placed in comparison to other private
players. It is not clear when 3G auctions will happen and which
companies will be in the spectrum run. With a huge amount of
investment only to acquire license, a lot of other costs would be involved
when it comes to network building and implementation.

But the high costs will lead to new services making its way into the market,
especially the urban areas. “Unlike 2G, in 3G one has to come up with very
innovative applications and tariff plans.

The penetration level of 3G, however, is still uncertain. The new technology
comes with costs attached, and while the upper-middle class business
professionals might be able to utilize these services, a major part of our
population is still far from the levels of affordability that these services ask
for.

With a per capita income (national average) of as low as $950 per annum
(Rs 38,000 approximately), access to these technologies shall remain for the
select few. Rs 8,000, the minimum amount required for purchasing a 3G
handset, is a luxury that most can't afford. Also, other gadgets such as
laptops, which can use 3G-run broadband access, are yet to make inroads
among the large population.

Even as most handset manufacturers see a tremendous growth opportunity

in the realm of 3G-enabled mobiles, it is certain that price will play a key role
in deciding the fate of the new technology. To tackle this concern, mobile
phone manufacturers are making efforts to come up with phones as cheap
as Rs 3,500, against the currently available minimum price of over Rs 8,000.
Mobile makers in India are also expecting prices to dip, and thus are
contemplating aggressive plans to come up with affordable handsets in this
category.

Analysts say that 3G first needs to be popular with the middle class segment
if it is to bring the much talked about “broadband revolution”. For such kind
of change to take place, the price of the handset and the services will play a
crucial role.

About 15-20% mobile phones in India are already 3G-enabled, but they have
to be made affordable. The availability of reasonably priced phones has
already made many experts rework their estimates of the size of the 3G
market to grow from the present 40-70 mn to 100-150 mn by 2012.

3G is one of the most cost effective ways to deliver mobile broadband to the
masses. Expectedly 3G can single-handedly achieve far more in terms of

45
bridging the digital divide than any other way of mobile internet connection
introduced by the government.

Because of its higher voice capacity, 3G could also facilitate the delivery of
far more cost-effective voice services. However, this will happen only if
operators do not have to pay exorbitant prices for 3G spectrum. An auction
of 3G spectrum could lead to irresponsible bidding resulting in high costs
and tariffs, which would completely negate the tremendous capacity
advantage that 3G has to offer.

Auctions also have another downside - by their very nature, they entail a
selection amongst bidders, which would result in discrimination between
existing cellular operators as it would deny some operators their legitimate
expectation of evolving to 3G. Also, it would not be in the national interest if
the 3G policy ended up being disruptive, creating uncertainties, leaving the
survivors with the winners' curse and others with the prospect of gradual
collapse of businesses.

Therefore, the answer to the question raised is that, yes, 3G has a future in
India and that it is relevant and important, but the key to the success of 3G
will lie in its price, that is, if it has to become a mass service. 3G did not take
off in the west because of the exorbitant prices attached to its spectrum,
which made the service unaffordable and restricted to a niche market

46
 REFERENCES

www.scribd.com

www.bdaconnect.com/india/ficci

www.wikipedia.org

www.ibef.org

www.trai.gov.in

www.networkcomputing.in/Connectivity-Convergence-012Dec008/3G-Services

47