High price, bill shock, patchy coverage plague 3G

India is going through some serious 3G birth pangs and it may be at least 9 months before happiness arrives for telecom operators.
Going beyond the general consensus that high-speed, third-generation (3G) mobile internet services have not taken off in India as expected, analysts now blame high price, patchy coverage, limited 3G handsets and bill shock.

“A majority of the consumers who are subscribing to 3G, particularly post-paid subscribers, are experiencing bill shock,” argue Sachin Salgaonkar, Piyush Mubayi and Paras Mehta, telecom analysts with Goldman Sachs, based on their on-the-ground channel checks.

The analysts reason that this is because software applications are not properly closed, and therefore the apps run in background, leading to higher data consumption and hence a higher bill. While lack of user’s technical sophistication may be partly to blame, addictive nature of some applications, such as those that allow access to social networking sites are also seen as culprits behind the so-called ‘bill shock’.

While the learning curve may be a short-term deterrent for potential subscribers, absolute pricing of data plans  itself may need to temper down for wider adoption, according to the analysts.

“Based on the current prices, downloading a song would cost consumers around Rs 50 and watching a football match for an hour would cost around `300,” Goldman Sachs analysts estimated in their latest report on Indian telecom sector.

“We consider current price points on 3G to be expensive to appeal to the masses but believe that over time, with scale advantage and volume growth, the prices will come down.”

Besides the higher price points, slower sales of 3G-enabled handsets and patchy 3G network coverage and poor quality is also being seen as a major limiting factors by the analysts.

“Although our checks indicated that the handset ecosystem is evolving at a fast pace, handset makers indicated to us that there has not been a material increase in 3G handset sales even after 3G launch,” Salgaonkar, Mubayi and Mehta noted.

According to these analysts it may take at least another 9-12 months for the 3G eco-system to mature when operators would have fixed the current glitches and subscribers would have gone through the initial learning curve to become sophisticated users.

And then, the much-hyped 3G will eventually start contributing meaningfully to operators’ revenue.

By 2015, revenue from 3G services is expected to be around $1.8 billion, driven by a larger 3G subscriber base, which would increase from 16 million, or 1.7% of total mobile subscriber base, in the current fiscal to about 117 million, or about 8.9% of total subscriber base, by fiscal 2015.

Industry analysts are hopeful that the pent-up demand would start playing out sooner than later.

“Even at the current level of awareness there is a significant pent-up demand for 3G services,” said Kunal Bajaj, partner and director at telecom advisory Analysis Mason.

“Given the very active above-the-line marketing strategies from the telcos, especially on TV, to promote and raise awareness about 3G, it is only a matter of time before the adoption improves.”