3G to attract more users, handset prices to fall

Telecom companies and analysts do not foresee any increase in rates for 3G services, but they do expect a fall in the price of 3G handsets to $70 (Rs 3,200), to then lead to an accelerated shift of existing 2G users to the new services.

And, that will help them increase their overall revenues and pay for the huge sums they have forked out for 3G spectrum.

"The prices of high-end smartphones will come down drastically after introduction of 3G services. Currently, the penetration of 3G handsets in India is just one per cent. It will take at least two-three years for 3G mobile services to pick up significantly," said Angel Broking analyst Rahul Jain.

Operators say that at the current price of $100, the 3G phone penetration is limited in most of the country. "Our estimate is that in Delhi and Mumbai, there are already over 15 per cent to 20 per cent subscribers who have a 3G handset. Obviously, they will move to the new service immediately. Most of these subscribers already have an Arpu (average revenue per user) of Rs 750-1,000 a month. However, in the rest of the country, we think it is less than five per cent," says an executive in a leading telecom services company.

He expects this market to nearly double or go up even more, once  prices of handsets fall to $70-levels. "In simple terms, it means a larger base of subscribers would be spending on data and this will push revenues," he adds.  

Differing views on Arpu

Operators say they expect revenues from customers moving from 2G to 3G to go up by at least 10 per cent, due to more data usage. However, they admit this did not justify the huge price paid for spectrum in Delhi and Mumbai.

"The high price has been paid not only because we are expecting revenues from data to go up with 3G, but we will also no longer be stymied in our expansion of the 2G customer base, getting stuck because of lack of spectrum. We expect aggressive expansion in the 2G customer base," says a senior executive of a telco which won the bid for the metros. 

But, many also say that with no killer applications in 3G, realisation per subscriber will not go up substantially. Says Sanjay Chawla, analyst, Anand Rathi: "Video calling is much hyped but I don't think it is going to work easily in India. For those subscribers who shift to 3G, their Arpu will go by Rs 150 to Rs 200. But, that is only 10 per cent of the entire market. The impact of increase on account of 3G on overall Arpu will not be high."

Says Nishna Biyani, analyst, Prabhudas Lilladher: "I don't think voice tariff will increase. But, the enterprise data market is expected to grow at 30-35 per cent."

Others say the market potential is pretty big. After all, there are over 150 million users who use some form of data on their phones, according to a CLSA report. They say there are over 50-60 million circulating 3G handsets and the abysmal one per cent broadband penetration adds to an amazing opportunity.