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After Years of Delays, India Finally Gets 3G

Date:2011-02-01  [ Print ]  Hits:
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In 2007, Varun Nand Chahal, a young entrepreneur in Bangalore, bought a 3G-ready mobile phone. It was his first handset capable of high-speed Internet access, and he was looking forward to using it to surf the Web. The only problem was that India didn't have 3G. The launch of the service in the country was repeatedly delayed. Just recently, Chahal, 25, got his wish. After three and a half years of waiting—and just in time for the rest of Asia to move on to 4G— Indian wireless carriers are rolling out 3G. Tata Teleservices began offering 3G in November, and Bharti Airtel, India's largest operator, launched service in the southern states of Karnataka and Tamil Nadu in January. Vodafone Essar and other carriers plan to introduce 3G, too. How's the quality? "Sometimes I get a signal," says Chahal, a Bharti Airtel customer. "Sometimes I don't."

Japan and South Korea got 3G early last decade, and China has had it since 2009. In India, bureaucracy stalled the process. The government didn't auction off licenses for the segments of electromagnetic spectrum that 3G uses until last year. Then, companies that spent a combined $14.9 billion in those auctions had difficulty building up their networks: Regulators banned operators from buying equipment from low-cost Chinese suppliers such as Huawei and ZTE for nine months until the vendors agreed to satisfy security concerns by providing access to their source code.

Another hurdle: The country is divided by telecom authorities into several dozen areas, with five or six operators getting permission to work in each—and none getting the go-ahead to operate nationwide. Since no one company has a nationwide 3G network, wireless carriers need to form alliances with rivals and provide roaming services domestically.

For all the hiccups, though, the new 3G networks offer the potential to transform India. Less than 1 percent of the population has access to broadband connections, says Aditya Kaul, an analyst with ABI Research in London, because the quality of fixed-line networks is so poor. "You don't have the infrastructure, so you have to look at other means of providing broadband," he says. While the networks that operators are launching won't be powerful enough to stream movies or provide other data-intensive services, they will still open the Internet to many Indians who "are just looking for basic broadband connectivity," adds Kaul. "Wireless is a good, cost-effective way to do that. That's why people are so excited." Mobile operators are already introducing services unheard of in pre-3G India. Vodafone Essar announced an alliance with ICICI Bank (IBN) on Jan. 12 to provide mobile banking services. The same day, Bharti Airtel unveiled a similar partnership with the State Bank of India. India is on the cusp of a "new wave of Internet access," Bharti Airtel Chief Executive Officer Sanjay Kapoor told analysts on Feb. 2.

India's telecom companies need the boost. A dramatic price war has cut into their revenues for voice and text-messaging services over 2G networks. Bharti's average revenue per user, a benchmark figure for analysts, is just 198 rupees ($4.38) a month, down from 230 rupees a year ago. Executives at Indian operators say they learned their lesson from 2G and won't let the same price war happen again. The 3G battles will be fought not on price "but on content and quality," Syed Safawi, president of No. 2 carrier Reliance Communications, told reporters in December. Skeptics such as ABI's Kaul aren't convinced Indian operators can resist the temptation to undercut rivals. "To compete in the market, the best strategy is to go with the lower price," he says.

Even if a price war does break out, cheaper access will make it easier for more Indians to use mobile networks as their primary way onto the Internet. "People have been starved for high-speed Internet connections," says G.V. Giri, an analyst in Mumbai with IIFL Securities, who predicts the number of people with broadband access will grow from 10 million now to 100 million by 2014. Those customers may eventually get to enjoy the same Internet speeds as some of their earlier-adopting Asian neighbors: Several Indian carriers are talking about launching 4G networks, perhaps as early as next year.

Indian subscribers may not have much experience with high-speed access, but that won't be a problem as long as they have phones that can get them online. "You just need to get the things in their hands," Giri says. "The rest, they'll take care of."  

By Bruce Einhorn

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