Handset, service costs key to 3G success in India

MUMBAI: 3G or third-generation services are set to change the dynamics of the Indian telecom sector. While consumers will finally get to download movies on mobiles and make video calls, there���s a lot more they will be able to do if handset makers offer affordable mobiles.

The success of 3G will depend on pricing. The entry barriers will be handset prices, availability of content and cost of services. ���Unless you have a lot of content for users, 3G will not take off,��� Ernst & Young India���s telecommunications leader Prashant Singhal told ET.

Put simply, 3G is enhanced data application along with multimedia. It allows high-speed internet surfing, faster movie and music downloads, video streaming and video calls on handsets. 3G has been highly successful only in Japan and Korea, which are data-oriented markets. Gaming is popular in these countries and has been a key driver of 3G services.

In India, value-added services contribute 7-8% to operators��� revenues, which largely comes from SMS. Content revenues are not more than 2-3% and this is due to high pricing as well as inadequate variety of content.

Also, the high cost of getting 3G spectrum may be passed on to consumers. ���The problem with the auctioning mode is that bids may be too high. In the past, auctioning has gone beserk in other countries and the cost is passed on to consumers. This will make services unaffordable to users,��� said KPMG executive director (telecom) Romal Shetty. Further, 3G is going to work well only in metros and tier-I cities. There will be higher margins from few users and lower from the most, he added.

Mr Singhal agreed that the reserve price of Rs 2,020 crore for pan-India spectrum is too high. ���Operators will not be ballistic in bidding for 3G. We may see 3-4 big companies bidding and new operators are unlikely to participate. Too high bids may lead to huge interest costs, leaving little focus on content development,��� Mr Singhal added.

While operators will upgrade their networks to 3G, it will be left to users to opt for services. Those who want to go in for services will need 3G-compatible handsets, which are being offered by all major vendors. In India, the prices range from Rs 8,000 to Rs 62,000, but their features vary.

A major plus of the 3G guidelines is that they compare favourably with similar policies in other countries. ���DoT���s policy of bringing in 3G services in internationally harmonised bands will lead to economies of scale in equipment manufacturing, competitive market for equipment procurement and increased spectrum efficiency,��� said Accendia Consulting���s Alok Shende.