Operator collaboration critical in India's 3G era

Absence of operators with pan-India coverage underscores need for interconnection agreements between 3G licensees to ensure seamless connectivity for customers across all territories, note industry observers.
Written by Swati Prasad, Contributor

INDIA--Metros and larger cities of India are poised to get 3G before the close of 2010 but with no pan-India operator in place, the country's 3G rollout has to focus on collaborations between telecom players to ensure seamless connectivity for users, say industry analysts.

With April's bidding frenzy behind them, the winners of India's 3G auction currently await the allotment of spectrum by the Indian government scheduled to take place in September this year.

"A lot of work pertaining to 3G has already been done," Nareshchandra Singh, principal research analyst at Gartner, told ZDNet Asia in a phone interview.

India's 3G topography
There are 22 telecom circles or service areas, which are broken down into four groups: metro, A, B and C circles.
Metro circles cover dense population centers of Delhi, Kolkata and Mumbai. A, B and C circles cover geographic territories of varying population sizes; with A being the largest in terms of population coverage, and C the smallest.
Circle3G licenseesCircle type
DelhiVodafone, Bharti, RelianceMetro
MaharashtraTata, Idea, VodafoneA
GujaratTata, Vodafone, Idea A
Andhra PradeshBharti, Idea, AircelA
KarnatakaTata, Aircel, BhartiA
Tamil NaduBharti, Vodafone, AoircelA
KolkataVodafone, Aircel, Reliance Metro
KeralaIdea, Tata, AircelB
PunjabIdea, Reliance, Tata, AircelB
HaryanaIdea, Tata, VodafoneB
UP (east)Aircel, Idea, VodafoneB
UP (west)Bharti, Idea, TatB
RajasthanReliance, Bharti, TataB
Madhya PradeshIdea, Reliance, TataB
West BengalBharti, RCom, Vodafone, AircelB
Himachal PradeshBharti, STel, Idea, RelianceC
BiharSTel, Bharti, Reliance, AircelC
OrissaSTel, Aircel, RelianceC
AssamReliance, Bharti, AircelC
NortheastAircel, Bharti, RelianceC
Jammu & KashmirIdea, Aircel, Reliance, BhartiC
MumbaiVodafone, Bharti, RelianceMetro

Jaideep Ghosh, executive director at KPMG, added that since 3G network deployment requires only incremental investment to the existing base stations, the rollout time is "likely to be low".

According to Singh, metros and bigger cities of India should see the launch of 3G by year-end, while most other parts of the country will gain access only in 2011.

The 3G spectrum auction, which lasted 34 days, raised US$14.6 billion (INR 677.2 billion) for the Indian government. On the last day of the auction, the price of a pan-India 3G license touched US$3.6 billion (INR 168.28 billion)--nearly five times its reserve price. No single operator was able to purchase a pan-India license.

Given the current market potential and degree of congestion on 2G networks, 3G deployment is likely to be city-wise, as opposed to the circle-wise approach earlier adopted by operators. "Most top 100 cities with high potential are likely to get covered in the initial phase," Ghosh told ZDNet Asia in an e-mail.

The network infrastructure is also likely to be upgraded in phases over the next few quarters.

"Circles offering lucrative growth opportunity and experiencing spectrum crunch will be top priority for operators," Nupur Singh Andley, associate research manager for connectivity at Springboard Research, said in an e-mail.

Delhi and Mumbai are likely to hold the highest potential for 3G operators, followed by category A circles. Some 60 percent of India's top 100 cities fall in category A circles or metros.

Rollout to see more tieups
Operators that have secured 3G licenses for a larger number of circles, such as Bharti, Reliance Communications and Aircel, would be able to provide wider geographical coverage and cater to a larger number of subscribers.

"These operators would be in a position to earn a larger share of roaming revenues from both voice and data services," Naveen Mishra, lead telecoms analyst at IDC India, told ZDNet Asia in an e-mail.

However, the situation would have been a lot different had the auction thrown up a player with pan-India spectrum, enabling the operator to be more self-sufficient.

"[Having] pan-India presence would have also reduced the cost of calls and roaming charges for the operator," Ghosh said.

Given that no operator has bagged a pan-India 3G license, there is likely to be high degree of collaboration to ensure customers get seamless connectivity across all circles.

As a result, Mishra said, interconnection agreements will become a market necessity for operators.

However, that will not come easy.

Singh said: "Players that have superior market share will try to tilt the agreements in their favor."

KPMG's Ghosh, however, noted that since some operators paid a higher price for their 3G license, such as circles covering the metros, there may be a scenario where there could be collaboration between select operators.

"Any two or three players that can combine their spectrum to form a pan-India base might collaborate easily instead of six to seven players collaborating to offer 3G," he explained.

Collaborations could also be formed between 2G and 3G operators.

"Given the high entry cost of 3G spectrum and capital expenditure involved with infrastructure rollout, the service tariff is likely to be on the higher side," Singh Andley said.

This is expected to impact the adoption of service to a large extent, especially in the B- and C-class circles. "Hence, existing 2G operators might consider partnerships with 3G service providers in select circles in order to safeguard their marketshare," he added.

The 2G industry is reeling under significant price pressures and offering 3G value added services could provide a margin boost to these players.

However, Ghosh noted that much would depend upon the cost at which they are able to offer the 3G services and the willingness of 3G operators to allow more competition in the nascent 3G industry.

Innovation to drive growth
And while the launch of 3G will undoubtedly see the introduction of new apps for mobile phones, many such services are already available on existing 2G networks.

"The ecosystem [for these services] has been in place for some time but the network was inefficient [to support these services]," Singh said. With 3G, services such as music-on-demand, video streaming and mobile games will run a lot faster.

Moreover, operators might start relying on an advertising-driven model for these services, as opposed to subscriber-driven models.

Singh said: "The content industry [for mobile phones] will flourish, creating a whole host of opportunities for advertising and sponsorship."

To further drive value added services, collaborations can also be established across multiple domains such as music, movies, books, sporting events, mobile TV, mobile learning, mobile games and mobile commerce.

"However, there will be no single killer 3G app that will lead to market dominance," IDC's Mishra said. Players in this space will need to develop a bouquet of services to appeal to the diverse set of demographically heterogeneous subscribers in India, he said.

The "one size fits all" approach will not work in the 3G era, he noted. "Therefore, innovation is a must for driving growth of 3G services," he added.

Swati Prasad is a freelance IT writer based in India.

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