India hopes high for 3G auction

In India, it is not uncommon to call someone’s mobile only to have to hear the latest Bollywood hit blaring back over the line until the recipient answers the phone.

This is caller ring-back tone, which has been one of the biggest earners for the country’s mobile phone providers at a time when they are struggling with declining revenues in conventional voice call services.
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3G auctions kick off in India - Apr-09

Now, with even this value-added service becoming commoditised, operators and application and content providers are looking towards another potential saviour – third generation mobile services.

Last Friday, the Indian government kicked off what is one of the world’s last great 3G auctions, potentially heralding the beginning of sophisticated mobile applications in India. The auction has attracted industry leaders Bharti Airtel, Reliance Communications, Vodafone Essar and others.

“3G will segment the market, giving carriers a customer who is willing to pay for access and richer content and applications,” said Neeraj Roy, chief executive officer of Hungama Mobile, a mobile entertainment company that claims to be behind 70 per cent of the Bollywood content distributed on cellular phones.

India is the fastest-growing large market in the world for mobile phones, adding nearly 20m subscribers a month and with total user numbers approaching 600m.

Yet, in spite of its progress on this front, the country remains a laggard in terms of internet penetration, with the most optimistic estimates suggesting it has about 70m users.

The launch of the long-delayed 3G auctions on Friday, which are expected to run throughout this week, has therefore been greeted as the beginning of the true internet age in the country.

Nine bidders are competing for slots in the country’s 22 telecom circles, with three pan-India allocations available.

Once the 3G auctions finish, the government will auction two pan India allocations for broadband wireless access spectrum.

Analysts estimate operators might pay up to $3bn for national 3G and BWA spectrum combined. This compares with a reserve price of Rs35bn ($787m) for 3G and Rs17.5bn for BWA national spectrum.

These stakes are understandable given the potential yields for operators from 3G. BDA Connect, a telecoms consultancy, estimated in a report last year that India could have 89.9m 3G subscribers by 2013. They would represent about 12 per cent of the overall wireless subscriber base and contribute nearly $16bn in revenues.

The BDA report predicted that by 2013, 3G will have led to an increase in the share of value added services of overall mobile revenue from 9 per cent to 23 per cent. This is a welcome boost for an industry in which the price of voice calls has fallen to less than one cent a minute.

Industry insiders caution, however, that sophisticated uses of 3G will initially be slow in coming to India.

The leading mobile operators are already so short of spectrum that they will at first use the new airwaves from the auction to improve services for existing users.

“There are lots of dropped calls, calls cut off in the middle and so on.

“The biggest use of 3G spectrum, as I see it unfortunately is going to be to fix those problems,” said Arvind Rao, chief executive officer of OnMobile, one of the country’s biggest developers of value added services.

He said the other problem initially facing 3G is that the people who can afford smartphones tend to be middle-aged businessmen who are less likely to use them for social networking, video television and other advanced applications.

The other challenge for the market is the difficulty of making online payments in India, a market that is under-penetrated for credit cards and in which the internet payment culture is not yet deeply embedded.

Still, many industry operators believe that even a small percentage of the overall user base in India will be enough to amount to a sizeable market. Unlike the west, 3G applications in India are expected to be entertainment driven, with Bollywood again leading the way.

Ronnie Screwvala, the head of the UTV, a film, television and gaming group, said he sees a market for short movie clips and three to five-minute television slots.

“Even 10 per cent of the mobile phone universe is 50m people and they will be substantial spenders,” said Mr Screwvala. “Whether it’s with our gaming or other aspects, such as videos and songs.”