The next six months are shaping up to be a crucial period for India's mobile operators and the 3G technology they are deploying. As the Reliance Jio juggernaut gets ready to launch 4G services in December, players including Bharti Airtel, Vodafone India and Idea Cellular are all trying desperately hard to cling on to their heaviest-spending subscribers by enhancing the quality of their mobile data services. (See India's 3G Market Still in the Starting Blocks.)
Clearly, there is plenty of scope for improvement. Nearly four years after 3G technology was first launched in India, only about 30% of towers in the country are 3G-enabled. This means that most customers are still using 2G or EDGE technologies to access the Internet, and many still cannot distinguish between 2G and 3G, according to a recently published survey carried out by Ericsson. The coverage offered by 3G networks is still patchy, even in metropolitan areas. But operators are starting to realize that if they do not expand and upgrade their services, they risk losing business to RJio.
Indeed, having picked up spectrum in the liberalized 900MHz and 2.1GHz bands, India's biggest mobile operators plan to make significant investments in upgrading their 3G networks in the coming months, seeing this as a more economical option than investing in 4G.
A recent deal between Bharti Airtel Ltd. (Mumbai: BHARTIARTL), India's biggest mobile operator, and Nokia Corp. (NYSE: NOK) represents a step in this direction. Under this contract, Nokia Networks will deploy 3G networks in five new circles and expand existing infrastructure in another three. As part of a four-year agreement, it will also provide radio equipment and service expertise to Bharti Airtel. Using 900MHz spectrum, the operator has already launched 3G networks in Kolkata and Mumbai, and the percentage of its towers that use 3G technology rose from 22.6% in March 2014 to 33.3% a year later.
Although Bharti Airtel is not ignoring 4G -- having already made some investments in this area -- it believes 3G technology is currently more scalable and economical. For one thing, it owns 3G-compatible spectrum (either 900MHz or 2.1GHz) in all circles bar Kerala. The plan is to spend about 64 billion Indian rupees (US$1 billion) on expanding and upgrading the 3G network.
Similarly, Idea Cellular Ltd. , India's third-biggest mobile operator, is also planning to invest around INR55 billion ($860 million) on network expansion in the current fiscal year, viewing 3G as a major priority while it continues to evaluate 4G. "Existing 3G operators are expected to increase their coverage and provide 3G service on 60-80% of 2G sites," said the operator in a recent investor relations presentation.
This is not to say there has not been wariness about heavy spending on 3G expansion, largely because growth in data consumption has not been matched by an increase in revenues. Idea reported more than a doubling in the volume of data traffic on its network in the last financial but noted that data was contributing just 14.6% of service revenues, while Vodafone India -- the country's second-biggest mobile operator -- says data contributes about 15% of total service revenues. Other service providers have flagged similar figures.
Nevertheless, Vodafone spent INR85.98 billion ($1.36 billion) on 3G expansion in its last financial year and is likely to make similar investments this year, even as it looks to introduce 4G technology in the second half of the year. No doubt, rivals will be making similar moves.
— Gagandeep Kaur, contributing editor, special to Light Reading