The way mobile service packages are sold in India is set to change with the introduction of new 3G services and rules for mobile number portability.

In the coming months, the Indian market is likely to see an increase in bundled offers for mobile devices and services, which up until now has been practiced only by the CDMA operators in the country. While bundling handsets with services is the norm in the US and Europe, this is not the case in the Indian market. According to informed market sources, bundling constitutes only about 5 to 7 percent of the entire handset market in the country. (See Gartner Forecasts Handset Sales in India.)

Indian operators are looking for ways to bring down the entry barrier for 3G services, since they have made huge investments in 3G licenses in the recently concluded auctions. Bundling offers a viable option for them to offer handsets at a subsidized rate and thus bring down the total cost of ownership for the end customer. (See India's 3G Auction Ends, Raises $14.6B and India Watch: The Road to 3G.)

The cost of 3G handsets is still a big deterrent to the adoption of 3G services in the country. The average cost of a basic 3G handset starts from 6,500 Indian rupees (US$140.78). Industry sources say that the price should come down to INR4,000 ($86.63) to address the mass market. (See India's Smartphone Battlezone.)

One carrier that is pursuing bundling deals is government-owned Mahanagar Telephone Nigam Ltd. (MTNL) , which has been offering 3G services since January last year. MTNL has teamed with Micromax Informatics Ltd. and Nokia Corp. (NYSE: NOK) to offer 3G handsets at cheaper rates to its customers. The company is now targeting more such partnerships.

“We are definitely looking at bundling to reduce the entry barrier for the end customers," J. Gopal, MTNL's executive director in Mumbai, told Light Reading. "The main reason for this is the price of a 3G handset is still very high, and we want to bring the cost down to increase the adoption of 3G."

But bundling has not been very popular in the country to date, because the operators were not in a position to subsidize the handsets. Because of low average revenue per user (ARPU), the operators would not have benefited by offering handsets at a subsidized rate.

And the introduction of 3G is not the only driver for an increase in the bundling deals. Mobile number portability (MNP), which is likely to be introduced by the end of the year, is another factor that might make an operator opt for bundling deals. Number portability is likely to cause some churn in the market, and bundling deals could help an operator to prevent its subscribers from moving to a competitor. (See Will Churn Burn India's Mobile Operators? and MNP Delayed Again.)

“MNP along with 3G will definitely lead to more bundling deals," says Ajay Sharma, country manager at High Tech Computer Corp. (HTC) (Taiwan: 2498). "For us, as of now, 60 to 75 percent of our models are tied with the operators in some form or the other, but this is likely to increase to 90 percent going forward.”

The handset manufacturers and service providers have to work together more than ever to create the ecosystem for 3G services in the country.

HTC has adopted a bundling strategy across the world. But in India, the process is different. HTC has partnerships with operators through which some features or applications are available to the subscribers of that particular operator. There are going to be more such tie-ups as well. For instance, the company teamed with Bharti Airtel Ltd. (Mumbai: BHARTIARTL) for HTC Smart, wherein some applications are available only to the subscribers of Airtel. HTC Smart is available through its distribution channel as well.

Indian device developer Olive Telecom seconds this position: "Bundling is very much a part of our strategy. As of now about 15 percent of our handsets are bundled but we see this increasing to 50 percent," says Artem Orange, president of operations at Olive Telecom.

Reverse bundling
At the same time, there are other factors that might reverse the bundling trend. To begin with, intense competition in the handset market ensures that handset prices have kept coming down in the Indian market for the past couple of years, even without bundling. In fact, some players believe there really is no need for bundling to happen, since the prices are coming down on their own. (See Indian Handsets Gain Traction.)

“The prices of handsets in the Indian market have been coming down regularly for the past few years without bundling. I believe reverse bundling is likely to happen more than bundling,” says Ashok Vohra, co-founder and managing director at Wynn Telecom. As one of the newer players in the market, Wynn is targeting the Tier 3 and Tier 4 towns and doesn't have any bundling deals in its kitty as of now.

In reverse bundling, the handset maker takes an operator’s SIM card, bundles it in its own distribution system, and sells it -- but not the other way around.

Bundling or reverse bundling, the Indian handset market is set to change in the coming months.

— Gagandeep Kaur, India Editor, Light Reading