News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Sunday, 8 February 2009

Delays notwithstanding, 3G to outpace WiMAX in India

On Friday I spotted an article in the Economic Times which quoted a familiar name: Kunal Bajaj, the India MD of BDA, a consultancy business which originated as an advisory firm specializing in China's telecommunications, media and technology sector. Kunal was a very useful contributor to one of the first Com World Series events it was my pleasure to host while working with Informa Telecoms & Media - the COAI-endorsed GSM>3G India 2007 conference and exhibition in Mumbai.

This event, now known as India & South Asia Com was, in those days, a useful place for telecoms tech vendors to mingle with a large, senior and diverse crowd drawn from India's numerous mobile operators. The event has since become rather more than that, having grown simultaneously in two directions.

One of these directions, in common with all the equivalent Com World Series shows in other regions, is about extending the appeal of the conference beyond the cellular sector and into the wider telecoms world. At any Com World Series event now, you can expect to meet representatives of a very broad range of telcos: MNOs, incumbent and challenger wireline operators, cable MSOs and all kinds of broadband service providers. While it is true that the mix varies depending on the relative value of each of these segments in the part of the world concerned, I am ending my involvement in the Series with a sense that the team are doing an ever better job of providing the exhibitors and sponsors (largely tech vendors: network equipment, OSS/BSS etc.) with high-value one-stop-shops of potential customers from across huge regions. The tricky part is ensuring that the conference element is genuinely useful for the telcos' delegates, i.e. providing them with meaningful peer networking opportunities and insightful presentation material from genuinely influential speakers. I believe the Com World Series team pull off this trick remarkably well.

In the case of the Mumbai event, the other change which I was responsible for driving was to do with marketing the conference to delegates from India's neighbours across the rest of South Asia, namely the Maldives, Bhutan, Nepal, Sri Lanka, Bangladesh and Pakistan.

Securing speakers and delegates from the last of these is not without challenges. One scarcely needs to be an especially diligent student of South Asian affairs to be aware of the tensions between Pakistan and India, two countries which have gone to war with each other three times since the partition of India in 1947. In terms of how these tensions have affected my work in that part of the world, I remember our team assisting the then-CEO of Pakistan's Ufone GSM, Mubashir Naqvi, whose participation we had secured as one of the key speakers. It was clear that the paperwork and delays around arranging a visit to India were rather more arduous for Pakistanis than for citizens of any other country. Along the way, I also realised that roaming agreements did not exist between mobile operators in the two countries, meaning that Pakistani visitors to the Mumbai conference would need to go to some trouble in order to keep in touch with colleagues and families back home.

These difficulties notwithstanding, I am convinced that Pakistani delegates can be attracted to the India & South Asia Com World Series event, even in the context of tensions raised yet higher by the November terrorist attacks on Mumbai. I noted in my end-of-year post on my former Com World Series blog that the timing of this terrible incident made a postponement of the India & South Asia Com 2009 unavoidable. The event was set to go ahead in January, and is now rescheduled for mid-May.

The main reason for my feeling sure that the Mumbai conference can successfully gather participants from all over South Asia is what I learned when I travelled to Bangladesh in July 2007 with the specific intention of gauging the appetite for a whole-region event. My trip to Dhaka took in a meeting of the South Asian GSM Forum and a conference which Informa Telecoms & Media ran in conjunction with Singapore-based colleagues at sister company IBC Asia. Dubbed Mobile South Asia, this event had previously been held in Sri Lanka and Pakistan as well as Bangladesh. The 2007 iteration, which I attended, seemed to be well-received by delegates from the operators, but it did prove rather harder to persuade sponsors that any of these venues would work well. That was part of why it seemed attractive for us to merge the Dhaka event into the Mumbai conference in 2008 and beyond. The Mumbai audience, when polled on site, were actively supportive of the move, but I travelled to Bangladesh less sure of whether the Mobile South Asia crowd would welcome being bundled together with their Indian colleagues. Again, I conducted a poll on site and came away feeling sure that the combined event would be successful. I would like to think that in my new role I will be able to attend this gathering, if not this year then at least in the not-too-distant future. I expect to see it evolving positively.

The article in which Kunal Bajaj's name cropped up concerns the idea that India's telecoms operators are worried that the further delay of 3G and WiMAX auctions (which I was writing about here on Friday) will significantly dampen the development of services. Kunal and his colleagues at BDA seem to be more optimistic. A report which they have prepared, in conjunction with the Federation of Indian Chambers of Commerce and Industry (FICCI), predicts that by 2011, 25% of 3G revenues will come from non-voice services, a half of which will be data access. Kunal Bajaj says "while this seems like a modest estimate, it is to be noted that data comprises less than 1% of present 2G revenues."

I suppose BDA's estimate only appears modest to those who did not adjust their expectations down to realistic levels in the wake of relatively lacklustre 3G debuts in markets around the world. I remember a very good article written in 2006 by Neil Montefiore, who recently stood down as CEO of Singaporean cellco M1 after a stint of nearly thirteen years at the helm. Writing for the Informa Telecoms & Media Global Mobile fortnightly research service, Montefiore argued that "the basic problem with all technology lies in its marketing." He observed that "clever stuff is developed and launched and sometimes catches the imagination of the masses without too much effort from the marketing experts," and that "it's when the clever stuff gets complicated that the marketing becomes the catalyst for success, or the point of failure." Montefiore argued that when compared to products such as the iPod, SMS or mobile voice, "3G is a complex proposition... [requiring] new technology and new handsets [and enabling] the mobilization of familiar experiences." Montefiore noted that most operators had targeted 3G launches at the mass market, "focusing on expensive, high-profile content downloads and mobile TV", had spent significant sums on mass-media advertising, and had offered "huge voice-tariff incentives for people to switch to 3G." He observed that handset makers had launched wide "ranges of cheaper handsets in an effort to fire up the market, losing sight of the fact that the success of 3G is based on the sale of the service itself." This last point is surely familiar territory for us all. How many of us are currently using anything like the full range of functionalities offered by the mobile devices in our pockets? Perhaps it's even more pertinent to ask about the handsets in the pockets of our friends and family members who do not earn a living in the mobile sector.

Writing in 2006, Montefiore argued that "the results have been mixed, the adoption rate is slow and there is no mass-market take-up... because the mass market believes the hype and assumes the service will be as good as the advertising says it is." He insisted that "when the experience doesn't live up to the expectation, the momentum quickly dissipates" and that "ultimately, the marketers are trying to sell the service to the wrong people."

Montefiore argued that "as an industry, we need to relaunch 3G. We need to communicate specifically with early adopters and develop targeted marketing propositions to cater to their expectations. That means thinking outside the box in terms of media, looking at ways of reaching our target markets in a structured rather than scatter gun approach. It means treating 3G as a niche market with identifiable and quantifiable applications that have a value and purpose. We need to turn our perception of 3G on its head, stop treating it as the cure-all for falling ARPU by assuming that every user out there actually wants streaming video, and revert to proper, old-fashioned marketing by building a proper business case for its adoption."

My feeling is that these lessons have been learned in the two-and-a-half years since Neil Montefiore levelled his criticisms at operators and handset vendors. We are, finally, living in a mobile data market showing clear signs of explosive growth after years of slower progress. The Informa Telecoms & Media report, Mobile Networks Forecasts: Future Mobile Traffic, Base Stations and Revenues (published June 2008), quotes network vendor Ericsson as stating "that on the W-CDMA networks it has deployed worldwide, total data traffic overtook total voice traffic in May 2007" and that "by December 2007 total data traffic was 3.7 times the level of voice traffic."

In his article, Neil Montefiore argued that "the way to build a market for a new technology is surely to focus on the people who understand the way that technology evolves, who are excited by its potential and who are forgiving of its teething problems." He said that computing, Internet services, DVD, VCR, MP3 "all started as expensive, complicated, sometimes unreliable technologies, but the mass markets they enjoy today have been built on the belief and understanding of those early adopters who disregarded the hype and focused on the capabilities."

To me, drawing on my daily experiences of living in the UK, it seems intuitive to believe that the remarkable growth in data traffic reported by Ericsson has been driven more by tech-savvy/time poor business users of HSPA dongles than by trendy consumers playing with funky phones. Beyond people working in the industry, I still seem to know very few people with 3G handsets and even fewer who are using them to do anything very bandwidth-hungry. However, for MNOs looking for a return on their 3G network investments, we possibly should not suppose that the mobile phone form factor and consumer services will always contribute less than dongles and corporate data subscriptions. The Informa Telecoms & Media Non-SMS Data report (published June 2008) notes that even the 2G version of the iPhone has significantly boosted the take-up of mobile Internet browsing, citing the case of T-Mobile's German operation, which announced in 1Q08 that average mobile data consumption, mostly for mobile Internet browsing, was up to 30 times more than for users of other handsets. Maybe a disruptive player shaking up the devices market is one of the more significant factors moving us towards the tipping point for mass-market mobile data use.

Devices also get a mention in the Economic Times article in which we saw Kunal Bajaj being relatively bullish about mobile data in India. The article flags up doubts about the practicality of 3G arising from "the unaffordability of 3G-enabled devices in the market and the costs involved in setting up a 3G network." In the same piece, these concerns are swiftly dashed by COAI supremo T.V. Ramachandran: "Even though most 3G enabled phones in India today are priced above Rs.8000, LG has launched a $100 phone which is enabled for 3G services but does not have any multimedia capabilities. These will flood the Indian market for 3G voice services [once the spectrum auctions are concluded]." Ramachandran continues: "nearly all of the existing telecom networks, which have been set up in the past two years, are 3G enabled."

According to the article, Kunal Bajaj estimates it will take only six months to deal with the need to build the additional capacity building to run commercial 3G services on these networks.

The thrust of the Economic Times article is that the prospects for 3G in India are rather better than for WiMAX, hence the title of my blog entry. Remember that the spectrum issues which have delayed the onset of the 3G era in India have also affected those seeking to deploy WiMAX, so I would not expect to see a situation similar to the one I've heard described in the Russian Federation. There, the three leading mobile operators (MTS, Vimplecom and MegaFon) have rolled out 3G services in major cities but not in the nation's capital. As recently as December 12th, Global Mobile Daily was reporting that the rollout of commercial 3G services in Moscow faces further delay because the Russian military has not yet freed up UMTS frequencies. I have heard the argument that this frustrating 3G launch delay in the country's most lucrative market has created a window of opportunity for broadband providers offering WiMAX-enabled services and has been the catalyst for some fairly enthusiastic hyping of the prospects for WiMAX in Russia.

Not only will prospective Indian WiMAX deployers not gain from any significant first-mover advantage, Friday's Economic Times article also makes the case for how 3G enjoys two advantages over the rival access technology, one of which is probably true worldwide, the other of which has to do with the specifics of the Indian market.

The first of these points in favour of 3G is that "there is no such truly affordable counterpart [of the above-mentioned low-cost 3G phones] available for accessing WiMAX." The second concerns market maturity. "National penetration of mobile telephony," the article states, "is expected to cross 50% through 3G in 2011, thrice as fast as it would with 2G, as the capacity of a 3G network is thrice more than that of a 2G equivalent." The argument goes that whereas in developed countries 3G was developed only when 2G penetration was saturated and telcos wanted to grow their revenues through more value added services (VAS), the case is very different in India. Says Kunal Bajaj: "In India, we are already on a 2.5G platform in terms of technology; but our services are still poorly developed owing to spectrum constraints. In this context, 3G will definitely mean better voice services and data access for the first time in many segments, rather than increase in other VAS."

This is not to suggest there is no business case for WiMAX in India. I think I understand from the Economic Times article that Government policy has a place for WiMAX, favouring the technology as a provider of data access, particularly for last mile connectivity in rural areas. Additionally, the BDA report says that "WiMAX is expected to be used for fixed residential and enterprise broadband access in cities."

This all makes it sound as if there is a reasonable case for WiMAX and a stronger one for 3G in India. Let's see.

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