Data demand is coming; are telcos ready?

With lower 3G and 2G data tariffs expected to grow data traffic faster, network growth too will have to keep pace

In 2010, most people expected that the 3G auction would mark a major turning point in the history of Indian telecom history.
It did—just that the turn was not for the better and that the industry is yet to get out of the woods.

Not surprisingly, in the aftermath of the 3G auctions, India’s telecom sector—once a darling of domestic as well as global investors—went into a tailspin that was partly self-made. After all, the telcos had made logic-defying high bids for 3G airwaves on borrowed money, only to realise later that the users were just not willing to pay for their follies. Moreover, there were not enough potential 3G users.

Thankfully, the course corrections by telcos came in not too late, in the form of a two-pronged approach, the first of which was to rush to make the pricing attractive enough to bring more users to the 3G fold. The second, well, was to largely wait for the 3G ecosystem to develop closer to an inflection point, which is yet to truly arrive.

Essentially, it was like getting back to the basics, as that’s how the universally applauded 2G growth in India had happened.
So in the months that followed May 2012, when telcos had slashed 3G data tariffs in the range of 70 percent to 80 percent, 3G data traffic jumped as high as by 196 percent when measured in December 2012 against the corresponding year-ago period by a Nokia Siemens Networks’ MBit Index study published in May 2013.

Obviously, 3G data pricing had finally got aligned to demand-side expectations, and the surging uptakes in data usage bore a testimony to that.

That seems to have emboldened telcos, which didn’t limit themselves to experimenting with lowered 3G data tariffs only. Barely a couple of months after the results were published this year, they have proceeded to slash 2G data tariffs as well, seemingly under the hypothesis that the move could help boost 2G data usage too.

It is unlikely that the market would disappoint them. In fact, while 2G data growth would very likely be a fallout, carriers could also stand to gain other wide ranging benefits. For example, lower 2G data tariffs could bring more users to the mobile Internet fold than 3G could for the coming few years, for the simple reason that the 3G ecosystem would take more time to mature to the point from where the market could take off on its own. And when it does, it would anyway be easier to migrate those 2G users who have tasted the virtues of mobile Internet than those who could not be initiated.

According to BusinessandMarket.net estimates, while around 75 per cent of all phones shipped in 2012 were GPRS or EDGE-enabled, only about 7 per cent of the overall shipments were 3G enabled.

And if the 3G adopters are to serve as mobile-data ambassadors they would be more effective if the 2G entry barriers were lowered. In fact, the Mbit Index study actually showed that that 2G data traffic grew by 66 per cent in the same period when 3G traffic grew 196 per cent. With lower 2G tariffs, the data growth in the segment may well come out to be higher than that in the previous year.

That said, however, lowered tariffs alone won’t make the magic happen for telcos. They would need to further beef up their data networks in ways more than one. The telecom regulators and licensors, on their parts, would need to be more accommodating of the industry’s needs than they have been in the past, particularly on issues such as inter-operator 3G roaming.

Deepak Kumar is founder analyst at BusinessandMarket.net and specialises in market research and strategic advisory