SEPTEMBER 2009

Uptake of 3G Services in
India

W h i t e p a p e r
 Uptake of 3G Services in India

Executive Summary
The beginning of 2009 was
Mobile Subscriber Base (Forecast)
1200 marked by a momentous
1000 development in the Indian
800 telecom market – the

in millions
600 advent of third-generation
400
(3G) networks. After a long
200
waiting period dotted with
0
2008 2009 2010 2011 2012 2013
several rounds of delay,
Urban - Above Poverty Line Rural - Above Poverty Line the Indian government
Urban - Below Poverty Line Rural - Below Poverty Line finally allowed two state-
owned operators—Bharat
Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited
(MTNL)—to roll out 3G services in over 12 Indian cities. Although the ball has
started rolling, India’s 3G market will gather proper steam when private telecom
operators are also allotted 3G spectrum. According to Evalueserve estimates, the
total mobile subscriber base in India will cross the 850-million mark by end-2012
and will reach nearly one billion by end-2013. Evalueserve also estimates that
about 275 million Indian subscribers will use 3G-enabled services, and the total
number of 3G-enabled handsets will reach close to 395 million by end-2013.
With the availability of 3G spectrum, private operators are expected to deploy 3G
services in more than 30 Indian cities. Initially, operators are likely to focus on
voice services; however, over the years, revenues are also expected to be
generated from data- and application-related services.

Mobile Subscriber Base in India

Owing to the rising income per household and improving standards of living and
service quality, mobile penetration in India has been increasing rapidly over the
past few years. The purchasing power of the population above the poverty line will
play a vital role in the growth of the Indian wireless industry.
During 2005–2008, India’s overall subscriber base recorded an impressive growth
of 66 percent (CAGR). As of end-2008, the total number of mobile service users in
the country stood at 346.9 million. According to Evalueserve estimates, the mobile
subscriber base in India is expected to increase at a CAGR of 23 percent during
2008–2013 and will reach nearly one billion by end-2013. The growth in this sector
will be primarily driven by increasing adoption of mobile services by the rural
segment, which is largely untapped as of now.
The overall mobile penetration
Mobile Penetration in 2013 (Forecast)
is expected to reach 78.3
160%
140% percent in 2013 from about
120% 30.0 percent in 2008. In 2013,
100% the penetration is expected to
80%
60% reach 142.5 percent, 79
40% percent and 15 percent in the
20% urban (above poverty line),
0%
Urban – Rural – Urban – Rural –
rural (above poverty line) and
Above Above Below Below urban (below poverty line),
Poverty Line Poverty Line Poverty Line Poverty Line respectively. However, the
rural (below poverty line)
segment will remain relatively dormant due to low purchasing power.

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 Uptake of 3G Services in India

3G Subscriber Base
Evalueserve believes that the number of 3G subscribers in India will grow at a
rapid pace during 2010–2013. This growth will be fuelled primarily by a decline in
the price of 3G services, resulting from fierce competition among private players.
The launch of 3G services in India will improve consumers’ experience by
providing high-speed Internet access and better quality of voice and data services.
The services will be available in both urban and rural areas, with initial focus on
urban customers. The following are some of the major factors that are likely to
drive the adoption of 3G services in India:
‹ Demographic Factors – Since about 54 percent of the total Indian population
is aged below 24 years 1 , 3G service operators will mainly target this segment.
‹ Income Level – Increasing purchasing power of the average telecom services
consumer will promote the adoption of 3G technology-based innovative
services.
‹ Pricing – Evalueserve anticipates a price war among the private operators to
gain market share in the initial stage. Lower price and higher disposable
income of customers will result in increasing adoption of 3G services.
‹ Service Domain – 3G
services such as video Subscribers Base Breakup (Forecast)
1200
telephony, banking 1000
In millions

services, mobile- 800

learning and mobile- 600
400
governance provide
200
convenience and 0
mobility. Easy access to 2008 2009 2010 2011 2012 2013
banking services is 2G Subscribers 3G Subscribers

expected to attract
urban consumers, while mobile governance will be more popular among rural
consumers.
The growth in the 3G
Share of Customer Segments in 3G in 2013 subscriber base will be
(Forecast)
driven primarily by the
0%
0% adoption of the service by
20%
the Urban (Above Poverty
Line) customer segment.
This segment is expected to
80% be the fastest adopter of
Urban – Above Poverty Line Rural – Above Poverty Line this new technology. The
Urban – Below Poverty Line Rural – Below Poverty Line urban (above poverty line)
segment is expected to
account for about 80 percent of the total 3G consumer base by 2013. The Below
Poverty Line segment is expected to remain dormant over four to five years
following the launch of 3G. The Rural (APL) segment will witness growth only after
2011 with the basic 3G service portfolio coming of age and the proliferation of
customised services focused on the rural markets.

1 1
Poverty ratio for urban and rural regions have been computed using the consumption data for 30-day recall period
1
India a Potential for 3G Market – A Feasibility Study, IIT Kharagpur

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 Uptake of 3G Services in India

Evalueserve expects that

3G Penetration by Customer Segments in
nearly 50 percent of the total 2013 (Forecast)
urban (above poverty line) 60%
50%
customers will opt for 3G 40%
services by 2013. The low 30%
20%
rural (Above Poverty Line) 10%
0%
penetration indicates huge Urban – Rural – Urban – Rural –
untapped potential in the rural Above Above Below Below
market. Poverty Line Poverty Line Poverty Line Poverty Line

ARPU
ARPU is one of the crucial KPIs that drive decision making in the wireless markets.
Overall, ARPU has declined over the past few years due to decreasing prices of
wireless services.
The use of mobile services, determined by Minutes of Usage (MoU), has been
increasing steadily in the urban region; however, decreasing voice service tariffs
and a growing rural subscriber base have led to a net decrease in ARPU.
Although data ARPU is expected to increase in the near future, its effect on the
overall ARPU would be minimal as it constitutes a small fraction of the overall
ARPU.
Following the launch of 3G
Breakup of Voice and Data ARPU services, increase in the
(Per Month) (Forecast) uptake of data services in
250
200 the urban regions will result
in the overall growth of data
in INR

150
100 ARPU. However, it is
50 expected that India’s
0 overall ARPU will continue
2008 2009 2010 2011 2012 2013 to decline with an
Voice ARPU Data ARPU increasing subscriber base
of low ARPU rural users.

Value Added Services (VAS)

According to Evalueserve, the launch of 3G services in India would have a
positive impact on value added services (VAS). With the launch of advanced 3G
services by private operators, the revenue from data services is expected to
increase substantially in the near future.
In addition, the demand for
VAS Revenues (Forecast) regional content such as
500
450 video clips, mobile comic
400 strips and mobile magazines
in INR billions

350
300 is expected to surge in the
250
200 rural segment post-2012.
150
100
Industry experts estimate that
50 the percentage share of data
0
2008 2009 2010 2011 2012 2013
revenues (in total revenues)
is expected to reach 23
percent by 2013.

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 Uptake of 3G Services in India

3G-enabled Handset
The 3G handset market in India is set to grow at a tremendous pace in the next
few years. Although 3G services have just been launched, the number of 3G
handset users is already above 20 million. The number of 3G handsets is
expected to reach 395 million by 2013, an increase of about 82 percent (CAGR)
from 2008.
As handset manufacturers are preparing to launch 3G handsets for as low as USD
100, it is expected that by 2013, 3G handsets will account for over 40 percent of
the total mobile handset base in India.
Attracted by the immense
potential of 3G services in
Number of 3G-enabled Handsets (Forecast)
500 India, players such as Apple
400 and Blackberry have already
In millions

300
started offering their 3G-
enabled handsets in the
200
country. Operators are
100 expected to eventually bundle
0 their handsets with data and
2008 2009 2010 2011 2012 2013 voice plans, thereby reducing
upfront costs and initial
payments. This move is likely to boost the 3G-enabled handset market
considerably. Handset vendor Samsung’s partnership with MTNL and BSNL to
supply 3G-enabled handsets bundled with the service providers’ 3G plans is one
example of such partnerships.

3G Adoption – The Challenges

The late arrival of 3G technology in the Indian market may prove beneficial for the
country as most operators are already aware of the loopholes and the factors
inhibiting the adoption of 3G services in the international markets. However, there
are still a number of challenges that need to be overcome by the Indian operators
for successfully implementing 3G services in the country.
‹ Rules and regulations set up by the TRAI and the Indian government, such as
pricing issues for the auction of 3G spectrum and standards for mobile
number portability, could impede the pace of adoption of 3G services in India.
‹ The Indian consumer is highly price sensitive in terms of adopting new
services, thereby affecting the widespread adoption of 3G services. The
relatively higher price of 3G-enabled handsets as compared with its non-3G
counterparts may inhibit the adoption of 3G services in the Indian market.

The Way Ahead

The availability of 3G, coupled with reasonable price plans, affordable handsets
and compelling services, can revolutionise the Indian telecom market. The launch
of 3G technology will open the door to innovative VAS offerings and will give
impetus to the highly competitive Indian mobile market.
The case for 3G technology is quite clear in the urban markets. As technology-
savvy urban subscribers increasingly adopt 3G services, operators can be
assured of higher ARPUs. In addition, the widespread adoption of 3G mobile

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 Uptake of 3G Services in India

services across rural India will address the great rural-urban digital divide and will
propel India towards the forefront of the global 3G map. Due to inadequate fixed-
line infrastructure, rural India offers immense potential for mobile broadband
services in areas such as healthcare, education and governance. Information
services also have a tremendous potential in the rural areas. For example, an
application that keeps farmers abreast of weather reports and the latest prices of
farm produce is bound to provide great utility to rural India. Similarly, mobile
broadband will have a far-reaching impact on rural education and healthcare. As a
mobile broadband access technology for rural India, 3G technology faces stiff
competition from alternative access technology, WiMax. However, 3G technology
is believed to offer providers with a better business proposition than that offered
by WiMax.
3G technology has significant potential in India—rural and urban. However, its
success depends on how soon the government allows the market to pick up by
allotting the spectrum to private operators. India is already a late entrant in the
global 3G market, and it is now imperative that regulatory hurdles be cleared to
promote the market forces that will shape the future of 3G in the country.

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 Uptake of 3G Services in India

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believed to be reliable, the author and Evalueserve disclaim all warranties as to
the accuracy, completeness or adequacy of such information. Evalueserve shall
have no liability for errors, omissions or inadequacies in the information contained
herein or for interpretations thereof.

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About the Authors

Abhishek Khanna is the principal author of this paper. He is
part of the Telecom and Digital Media practice at
Evalueserve. He has been associated with Evalueserve for
over six years and has vast experience in telecom
research. He manages clients ranging from original
equipment manufacturers to telecom operators and
telecom research firms. He has been assisted by Gaurav
Narula, Gautam Jain, Ankur Maheshwari and Nishant
Kumar Karn, also part of the telecom research team.

Nitin Navish Gupta is an Assistant Vice President leading

the Telecom vertical at Evalueserve. Nitin has over eight
years of experience in the outsourcing industry and has
worked in the Telecom vertical for the last six years. He is
responsible for a group of over 140 analysts in the telecom
domain. The delivery areas include business plans,
commercialisation analysis, sector monitoring, partner
identification and value chain analysis.

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