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3G Will it be the Start of a ‘Fast’ Era?
Jayakishore Bayadi
Monday, September 1, 2008
With the Indian government’s announcement of decision to auction 3G spectrum by the end of September, the marketplace is abuzz with what 3G holds for the telecom sector and to the millions of mobile users. It is expected to bring about tremendous potential for millions of novel value added services (VAS) and data applications, may be fuelled by three Gs, Games-Gamble-Girls! It is effective route to deliver mobile broadband to the masses. “3G is an opportunity creator driven by massive broadband penetration which is extremely good for India,” says Navin Chaddha, Managing Director, Mayfield Fund, CA, U.S. Perhaps it will single-handedly achieve far more in terms of bridging the digital divide than any other measure or policies.

3G is the third generation of mobile phone standards and technology superseding 2G and preceding 4G. An alphanumeric acronym, 3G stands for ‘third-generation mobile communications standard’. It supports very high bandwidth of up to 2Mbps, which is an exponential improvement over the 10kbps offered by the 2G (second-generation) and the 144kpbs speed of the currently prevailing 2.5G EDGE networks. Imagine, in 3G at peak speeds, you can download an MP3 song, which would take 30-40 minutes on 2G and 10-12 minutes on 2.5G, within 1.5 minutes! At speeds that are almost 10 times the existing technologies 3G will provide a better user experience, while creating fresh opportunities for high-speed data services such as video telephony, video-on-demand, mobile TV, and other entertainment related services. Broadly, 3G could change the very reasons for which we use the tiny pocket device!

“In India, the rolling out of 3G will help in exploiting its cheaper scalable voice capacity, along with its data carrying capabilities for operators,” says Alok Mittal, Managing Director, Canaan Partners. In 3G, the number of voice channels per spectrum is higher than that of 2G, and the spectrum utilization is far better for voice. Hence, at a basic level, 3G may not change much for the consumers, and operators should be able to continue their drive for user growth in a better way than they are doing it in 2G. Customers can expect better service levels; that means voice calls will have much better quality than at the present. However, high data transfer capability will be the key driver in 3G. For instance, USB modem based Internet services like Tata Indicom’s Plug-to-Surf may become faster than now. Though such services on 3G will be initially a bit costlier, the operators will woo the customers with ‘fast’ and ‘quality’ applications.

It is fascinating to see how 3G will pan out in India and what are all the VAS applications that are going to come in future? What could be the ‘killer application’ here? In Japan the video telephony, something similar to a video chat you do with your dear ones on your laptop connected to the Internet and downloading music was the biggest draw. Will it repeat in India? “It’s indeed exciting, only imagination will be the limitation,” says Srini Vudayagiri, MD, Lightspeed Venture Partners. “Mobile applications development for entertainment, and for segments like video broadcast and data-intensive services such as stock transactions, e-learning, and telemedicine through wireless communications, and advertisement could gain momentum. Middleware and service applications development for horizontals like billing, payment, provisioning, and building security issues surrounding them also could be hot opportunities,” he adds.

Killer applications need not be entirely new ones. Novelty lies in how the Web apps can be brought into the mobile space.“3G is an enabling technology that makes an application available to broader audience. So, it will be an extension of Web 2.0 applications on the PC to the mobile space, which will create more space to innovate on bringing the apps in the PC world to mobile world,” opines Chaddha. For instance, besides ushering in faster data transfer, 3G mobile services will provide huge advertising opportunities. As 3G services will bring better video quality and faster Internet access that will enable easy viewing of advertisements, entrepreneurs can envision the opportunities to build innovative Internet advertisement platforms and applications suitable for the mobile space, just as they built it for the Internet space.

“Mobile advertising should grow with increased data usage on the handset as the ability to directly target the individual on the phone is a key capability,” says Mittal. The ads that we watch in TV can be aired direct to the customers over a 3G phone. Currently Internet advertising, which accounts for 1.8 per cent of the country’s total advertising spend, stands at around Rs. 300 crore, and it is slated to rise by 7.1 per cent in 2010-11, out of which, Internet advertisement through mobile holds a very minute share.

“Also, for those who have already pioneered in building the applications for social networking on the Internet, it’s easier to build similar applications or platforms which are suitable for the mobile,” notes Vudayagiri. And when this becomes the reality, social networking through mobile will benefit. “At least in India, when 3G arrives, it will be seen as an extension of the broadband class Internet application,” he adds. Perhaps, ditto for the e-commerce space as well, while it also depends on how the mobile payment mechanisms like mChek or Paymate and others will take off.

The challenge is, how many people will surf the Internet on their mobile? Current statistics says that mobile Internet penetration is just around 2 percent of the total mobile subscribers. As of now Internet usage is pretty costlier on mobile when compared to broadband usage on PC, at least for the mass segment. The unlimited connection of GPRS is costlier when compared to other wired and wireless plans offered by the same providers, including the connection establishment. “The prime reason for this is the low allocation of data transfer capability. Since 3G has high data transfer capability, this will help operators to push data plans as well to increase the penetration,” says Mittal. According to Strategy Analytics, a research agency, India will have 270 million users subscribing to 3G services by 2013, which will constitute more than one third of the total wireless users in the next five years. Initially, the subscribers would come from the metros and ‘A’ category cities, and enterprises, business customers, and tech-savvy young generation would make the most of it.

3G VAS Opportunities and Challenges
Since in 3G the system of data transfer will change from circuit-switched techniques to packet switching mode, it provides several advantages over the existing techniques used for carrying mobile voice in 2G. It eliminates the dial up technology as required in 2G and allows higher call volumes and support for multimedia data applications, such as video and photography. An interesting difference is that, in 3G users will be charged on how much data they transmit, not on how much time they are connected to the network, because with 3G you are constantly online and only pay for the information you receive. “This will create huge data driven VAS opportunity,” says Aminish Sharma, VP, Technology and Operations, Air2web India, a U.S. based VAS player.

All voice based VAS applications like ring tones and ring back tones, can be migrated to video in 3G. Video-on-demand could create vast opportunity for content providers, where users can subscribe to the content they wish to have and could be pulled to his mobile phone so that he can watch it at his convenient time. There is also room for VAS players to offer their content directly to a subscriber, by leasing a line from operators and use that for video streaming purposes. Also, Games-on-demand, Real time gaming, Karaoke-on-demand, TV-on-demand, and maps-on-demand can be most sought after value added services. But what a fruit vendor or roadside dhaba owner or rickshaw owner or a farmer has to do with 3G? How will he gain any value? “I think opportunity will drive the value addition,” says Vudayagiri.

No doubt content will be the key driver for the success of 3G. But the question is why should these VAS players come up with more applications for 3G when operators are not still ready to offer them a substantial share of revenue? Today, in India, on an average operators retain 70 percent of the VAS revenue and content providers receive only 10-15 percent, whereas the aggregators are getting a mere 10 percent. VAS players will be compelled to come to the field only if there is a sound economic model.

“But a tilt will happen towards VAS players’ side in the next few years,” believes T.C. Meenakshisundaram, Founder, Managing Director, IDG Ventures India. Currently they are not seeing that VAS services will bring a substantial improvement in their average revenue per user (ARPU). However, when they attain maturity in terms of subscribers, they need to check on their revenue efficiency and should work on ARPU betterment. Meenakshisundaram further says, “Operators may become flexible in terms of revenue sharing if the content is really compelling and unique. Also, now, content providers are earning their share of revenue through operators. If content providers can innovate an operator independent method to gather their revenue from subscribers by themselves, operators have to become flexible.”

When and how will it happen then? Chaddha hints, “This trend will continue until the market becomes mature. On the contrary, VAS players can think of operator independent mobile Internet applications because operators cannot block downloading content from the Internet.” Nevertheless, since foreign players are also allowed to participate in the 3G-spectrum auction, they may become the game changers. Since in the western countries operators share a decent portion (60:40) of VAS revenue with content generators, and still are quite successful, they may replicate the same model in India as well. Interestingly, this will help these foreign players to gain a foothold in the booming Indian mobile market and to draw the best of the content providers towards them. “This might be the possibility. But it will be interesting to watch,” says Chaddha.

Though the 3G revolution will create new entrepreneurial ecosystem in the VAS space, it will not supersede the existing one because even then most of the VAS application users will continue to use 2G and 2.5G only. Obviously, entrepreneurs who cannot scale up to 3G will become less relevant in coming times. So, as a VAS player, one should start building 3G applications right now, as being early player in the space with excellent content to offer will become the key-differentiating factor. If a startup possesses such a unique value proposition, many VCs will love to fund these players.

Though all these appear to be rosy, in a mass market like India there are some challenges for the success of 3G. Undoubtedly pricing is the important factor. As of now, it seems that operators are investing huge amounts of money to buy 3G spectrums, which could have detrimental effect on the prospects of 3G services they offer. At times, companies bid for the sake of bidding and later find it impossible to execute the marketing plans. And this is dangerous. Some years ago in the U.K., the companies bought spectrum at such a high price that it became difficult for them to roll out the services and companies went bankrupt.

Hence success of 3G will depend on the pricing model of the 3G services operators coming up with, it will be hard to get people interested in 3G if it is heavily priced. “Unless these data services are not made affordable it will not make any difference,” says Arunan, Director and Co-founder, Bay Talkitec, a Chennai based mobile applications provider. According to the current estimations, the customers have to be prepared to shell out at least 40 percent more than their current mobile bills after they opt for 3G services.

Needless to say, the Indian telecom space should learn from this. Only then the ‘fast’ era will evolve fast.

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