3G - the Indian turning point

According to the Telecom Minister A. Raja, Indian telecom operators are expected to dish out $9bn to get rights to provide 3G services to the Indian market. There are 500 million cell-phone subscribers in India. Assuming half of them go 3G, Indian telecom companies are dishing out $36/potential customer just for the right to serve her. Is it dot-com like craze or is there some sense in it?

Indian telecom companies are operating at razor thin margins. The regulatory authority has done a decent job of maintaining a fair market. That the operators all have sufficient political capital and money also helps in maintaining the balance. Savage price wars have forced them to charge by the second! They are so desperate that they are trying to sell horoscopes and musical ring tones.

Although, Gartner says that there will be 771m subscribers in 2013, I personally think telcos will soon have milked the population potential because 42% of India is below poverty line. I am not sure how much of India can be a profitable telco market, but either that market penetration has already been achieved or will soon be achieved. The only way to make more money in such situation is to expand margins. As they look to do so, 3G appears as on the horizon as a ray of hope. Not only it will provide the telecom companies will incremental revenue streams, but also allow them to push value-added services.

As grains of sand together make a desert, half a billion subscribers make Indian telcos cash rich. They have money to splurge and are eagerly looking to invest. Specially after sinking $9bn in getting rights to 3G, they will be eager to make it work. Therefore, expect a massive and concerted private sector push to drive 3G penetration. After a relatively transparent auction, I expect the government to stay away – which is always good news.

The effort will bear fruit because internet penetration in India is very low – only 45m active users in 2009. A key issue is that the primary internet access device –computer – is out of reach for most of the Indians. Therefore, economical Smartphone devices blazing at 3G speeds will likely lead to an explosion in the internet usage. India has little to worry on content creation front. Indian is a software factory second only to the Silicon Valley/Seattle complex. Websites will pop up at the speed of light serving every niche.

Moreover, there is one more reality – it is impossible to lay out fiber optic lines to serve all of India. The private sector fixed line providers are concentrated in major metropolitan cities. Other areas are simply not profitable enough. The only way they can tap the grade B/rural market is by using 3G connectivity. This also means that, there is no large scale legacy investment in fiber optic systems competing with 3G and there will be no effective lobbying against and constraints on 3G rollout.

I believe that Indian consumers will lap up internet once the access problem is solved. I think a key entry point is the Indian education system. It is a mass exercise at a mass scale. Education is the over-riding part of a teenager’s life in India and mobile connectivity to process of education will meet with immediate acceptance.

One example is publication of examination results. Another driver will be the difficulty of getting things done in India. Any tool which will allow people to avoid wading through traffic or to cut bureaucracy will be extremely popular. A good example is the website of India railways which is one of the rare portals making over $1bn in revenues. It helps people avoid queues at crowded and dirty railways stations and exempts them from dealing with the unhelpful ticket clerk.

3G is the inflection point. I am betting big on the Indian internet space. I personally think that we will see an accelerated adoption of 4G too – how can you keep the Indian away from streaming cricket for long?