The rapid growth of mobile telephony over the last decade has been a huge success story, primarily driven by private sector players and consumer adoption of new technologies.
By Neeraj Jain & Kamlesh Dixit
With just over a million mobile subscribers in 1999, representing a teledensity of 3%, Trai data shows that the mobile subscriber count as of March 2014 stood at 900 million, a teledensity of a whopping 72%. This revolution has had a significant impact on the lives of Indian consumers.
These 900 million consumers are no longer just end-users of mobile technologies, they are playing a major role in shaping the future of the industry.
The industry has experienced a massive shift from traditional mobile services such as voice and SMS to value-added services such as CRBT, WAP, m-gaming, m-utilities and infotainment, along with data-intensive services such as browsing, social networking, apps and video streaming. Today, what a consumer desires is a seamless, always-on, high-speed data service.
Indian telecom operators have heavily invested in 3G spectrum procurement and network installation (about R67,000 crore). Even though 3G adoption began slowly, there has been an increase in the adoption of 3G data services from early 2013—3G data share was 43% of total mobile data usage in 2013, as against 33% in 2012, according to the NSN 2014 Mbit report. This increase was due to competitive 3G tariffs, rise in multimedia content consumption and higher smartphone penetration leading to migration of high-end 2G customers to 3G.
The total number of 3G subscribers in India as of June 2014 is estimated to be 67 million (3G adoption rate of 7.4%). The four largest 3G operators—Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications—reported a total 3G subscriber base of 46.4 million as of June 2014, up from 33.8 million in 2013. These operators have also reported an increased contribution of data services to their overall service revenues. Bharti Airtel’s revenue from mobile data accounted for 11.1% of the total mobile revenue for the quarter-ended March 2014 as compared to 6.5% in the corresponding quarter last year, while Idea Cellular’s data revenues contributed 10.1% of service revenue, up from 6.6% in Q4-FY13.
While 3G adoption is still picking up three years after its launch, the focus has now shifted to 4G technologies, especially LTE (Long-Term Evolution). Bharti Airtel was the first operator to launch 4G LTE services in India in February this year. Aircel, which acquired broadband wireless access (BWA) licences for eight telecom circles back in 2010, has launched 4G LTE services in Chennai. Reliance JIO, another big player holding the pan-India BWA licence, is preparing to launch its much-awaited 4G LTE services in early 2015.
But how different will the 4G be and does it command a premium over 3G? Well, 4G is expected to deliver speeds of 10-15 Mbps, 10 times faster than those of 3G, enabling users to download more content than 3G in the same amount of time. This makes data-intensive, on-the-go downloads such as music or HD video streaming a reality. Further, 4G promises faster connection times, assuring an always-on service experience. It offers less round-trip latency, making real-time applications such as VoIP, video calls, online gaming and multimedia content sharing quite practical. While 4G promises an improved user experience, the key question is will 4G be a game-changer and when can operators expect to break-even? And these concerns are amplified due to the various challenges that exist right now.
4G ecosystem: Currently there is a lack of affordable 4G-enabled phones in India. The availability of $100 handsets suitable for LTE band 2300 MHz in India—which can help users in voice, data and video—could result in faster adoption of the service.
Quality of service: 3G coverage in India is much below the levels needed to provide superior customer experience associated with high speed data technology, as cash-strapped operators face an investment dilemma. Here, 4G is a possible panacea if it delivers seamless and high-speed connectivity.
Pricing: In the recent past, competitive 3G tariffs have helped increase its adoption. A key question for operators is how to price 4G services to encourage demand for early adoption while ensuring returns on investment.
Product/service offering: Consumer interests and demands are shifting towards video calling, mobile gaming, HD content streaming, multi-tasking and seamless data connectivity.
Additionally, the Quality of Service models and Key Performance Indicators are different in the case of 4G. Operators need to be well prepared for delivering seamless experience backed with robust technology and network coverage of 4G services. Due to shift of consumers towards data-centric applications, 4G operators need to focus not only on Quality of Service but also on Quality of Experience as perceived by the user.
There have been a lot of discussions around 4G pricing in India and speculations are biased towards disruptive pricing for acquiring a considerable share of the pie. Operators may also attempt to explore innovative pricing strategies for different levels of consumer experience and explore triple-play bundled offerings (voice, video and data services), which is a common practice in many global markets.
Data plays a pivotal role and operators will have to strive to create additional revenue streams to improve operating margins. They should design MVAS (mobile value-added services) to cater to all-pervasive consumer needs such as banking, education, health and entertainment.
Undoubtedly, the delivery of user-generated content coupled with entertainment, utility and OTT services is going to drive data growth. For example, e-magazines, newspapers, live TV, m-commerce, content sharing, music and video content have a lot to offer.
While 4G seems the right solution for cash-strapped operators, maximising 4G potential could help mitigate their concerns—the key levers here will be pricing and marketing. Operators will need to make offerings independent of technology, device and networks. We expect that a time-frame of 4-5 years is reasonable enough for the Indian 4G ecosystem to evolve.
Neeraj Jain is senior director and Kamlesh Dixit is senior manager with Deloitte Touche Tohmatsu India