Why 3G won’t solve India’s connectivity problems

By | 27 October, 2010

 

India, with 700 million mobile phone users, has not been able to replicate the same kind of success with broadband and Internet as other countries. It is hard to understand why the country adopted the mobile phone with gusto, but not the Internet and the computer. India has 50-80 million Internet users and 10 million broadband connections. With less than 1 percent internet penetration India is grossly unconnected.

There are number of reasons for mobile/telecom success in India, but it all boils down to these two:

Cheap call rates
There was competition, increased competition and now hyper-competition. This led to rate wars, innovation, pay by the drink plans and India is at the rock bottom when it comes to call rates, even if purchasing power parity is considered.

Cheap phones
The competition was limited to call rates until the hyper-competitive players like DoCoMo, Aircel and Uninor came along. When the new telecom players came along – thanks to the falling call rates – they brought an entire ecosystem of cheap phones with them. Cheap Chinese phones flooded the market. After the ban on IMEI numberless phones, local Indian players led the charge. The phones are the same with a different name. That did the trick. To keep up with the falling call rates and the competing plans a new category of phones emerged. Dual SIM phones are especially popular and the biggest reason for this category’s success is the cheap call rates.

The keyword here is cheap. Computers aren’t cheap and the broadband/Internet plans aren’t especially cheap. Two things mobile has sorted out over the period of 10 years. Those are the same things which computer/Internet has to sort out.

Cost conscious India needs cost-effective computing devices and the data plans that go with them.

The reason why Internet plans aren’t cheap is because of the infrastructure that has to be laid out on the ground is an expensive affair. Ten players control 95 percent of Internet subscriptions in India, with the top three controlling 80 percent. BSNL, the state player, controls 57 percent of the market. Private sector participation has been minimal because of the infrastructure challenges. These challenges will remain and that’s where the wireless spectrum and 3G come into picture. Why can’t we just leapfrog and jump on this wireless thing? You know, like we did with mobile by skipping landlines. A novel thought, but it has its own limitations.  

 

3G
The ecosystem developed by all the players involved in the 2G revolution will help 3G. There’s no doubt about it. Cheap phones are especially helpful. Now people can expect a smart phone for less than Rs. 10,000 (US$224) and get it. Looking at the trends a touch screen 3G phone will be available for less than Rs. 5000 (US$112). This is a possibility achieved through intense competition and great innovation from the local players.

Compounding the benefits of cheap hardware are Google’s efforts to push Android in India. Google’s increased focus on India and the availability of its mobile operating system Android means two things. India will not be left out of the smart phone race, and the local players like Spice, Videocon and Micromax will continue to be Nokia’s nemeses in India. 

What’s missing?
Data plan rates aren’t going to be cheap. Vodafone’s chief said so himself. Unlike the 8-10 telecom players for 2G in a circle, there are only three 3G players (ignoring BSNL+MTNL was deliberate). What this means is they will not cut each other up. There is competition, but not a lot. Not the kind we are used to. This will keep the rates artificially high in the initial years. Besides these operators have paid a fortune to get the spectrum so they will want their money back. Providing 3G services is not philanthropy. Subscribers are good but shareholders are better. 

Brand new subscribers for 3G will be hard to come by. None of the telcos have revealed their rate plans but they will be targeted at the top of the pyramid 2G crowd. What 3G launch will do is take corporate and individuals who subscribe to expensive data plans off 2G and put them on 3G. This would ease up the 2G spectrum which the operators can use to sell more 2G data/voice services or just improve the quality of the existing service.

210 million people subscribe to data services, with Airtel having the most subscribers (71 million). Even if telcos convince the top 20 percent of this 210 million subscribers to switch to 3G we are staring at a number of 42 million subscribers. Optimistic? Maybe.  These 210 million subscribers are from all the circles and for all the operators. A lot of collaboration and cross selling has to happen between the telcos to tap the 210 million subscribers. A little caveat here. Data services might not be the equivalent of Internet. Many telcos provide limited services which could be counted as a data service.

3G will help Indians who are already connected. It still will not solve the connectivity problems and low Internet penetration India is grappling with. For that to happen, the rate plans have to come down and the hardware has to come down.

4G is unfortunately monopolized by Reliance. There are very few players and one big player. I don’t expect 4G to solve India’s connectivity issues because of the lack of competition. If Reliance can solve it and provide its services at affordable rates, then there is nothing like it.

Yet another solution to the problem is a new category device – Mobile Internet device (MID) or the tablet PC’s. 3G enabled MIDs are the most desirable devices and prices are falling. There at least seven tablet PCs launched in India and many more to come. The cheapest available tablet in India is available for Rs. 7,999 and we haven’t seen the cheapest yet. Indian HRD ministry’s $35 MID is for real and is all set for a field trial. And they expect to produce a million devices to keep the cost at $35. Though it is not available for retail consumption, it still has the potential to be a game changer.

Even if we get cheap hardware, cheap software and cheap data plans in place we will still be left with another big problem – content. Where’s the content?

[Picture from Flickr user Armando Alves]

 



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