Maravedis: Mobile broadband gains traction in India, challenges remain

Basharat Ashai

India faces challenges for broadband market penetration due to low PC ownership and affordability issues. According to the new Telecom Policy announced in the last week of May 2012, the Indian government has set a target of increasing rural teledensity from the current level of around 39 percent, to 70 percent by the year 2017 and 100 percent by the year 2020. This is a picture of huge growth potential in a country which still has relatively low penetration (just at 1 percent) and urgent economic needs for greater broadband availability.

Investment in 3G and 4G wireless technologies will be the most affordable and efficient way to boost broadband access, especially in the rural areas, which are vital to growth for the operators and for the economy as a whole. However, as our recently released report India 4G and Cellular Market Analysis and Forecasts, 2012-2017 highlights, problems with spectrum and device availability prevent deploying 3G and 4G at the required level.

In India, 3G license holders were awarded only 5 MHz per operator (compared with 20 MHz in many other markets). The 3G operators are likely to experience increasing network congestion as 3G services are rolled out. With this in mind, they are considering various options for 3G data offload, notably femtocells and Wi-Fi offload.

Indian subscribers will be unwilling to pay more than $100 for femtocells. In most cases, operators will have to rely on increased ARPU to cover the cost. It will take one or two years for femto prices to come down below $40 and gain popularity in India. Before that point, operators know there will be more and more traffic growth on their networks in the days to come. They are actively seeking other solutions to the problem of 3G data surge, including data traffic offload to Wi-Fi networks.

As the 3G pace picks up, Indian networks will be flooded with data. The data explosions we have witnessed in Japan, the U.S .and Western Europe will be dwarfed by what we see in India. This, in turn, will light a fire under local content players and lead to huge amounts of local app development and entertainment on handsets. And that will drag investment into India's mobile businesses, with ARPUs finally climbing off the floor, as India steps out of the "feature phone" dark ages into the "smartphone" golden age.

India's long period of uncertainty over technology choices is now over, and BSNL's proposal to surrender its broadband wireless (BWA) spectrum means that WiMAX is now finally out of the Indian system and the TD variant of LTE is full speed ahead. On the TD-LTE front, there will be multi-mode devices that support 4G as well as 3G and 2G technologies, enabling TD-LTE to take advantage of the 3G and 2G ecosystems. Eventually, this will create economies of scale to enable a broad choice of broadband wireless devices at affordable price points for Indian consumers.

The multi-mode device gives operators the opportunity to expand 4G with the option of fallback to 3G networks where 4G is not yet built out or would not be cost-justified. However, the immature state of the device ecosystem remains the prime hurdle for take up of TD-LTE services. The challenge Indian operators face lies in bringing an inexpensive multi-mode (2G/3G/TD-LTE) device to the consumer. Low-cost devices are always a crucial success factor for any kind of technology, but for TD-LTE they are critical because most of the operators that have announced TD-LTE plans are based in emerging markets like China, India and Russia.

Low-cost TD-LTE single-mode as well as multi-mode devices will have to be made available quickly to serve a market like India. The fundamental question is whether there is a TD-LTE solution that can go into deployment today to meet the broadband needs of Indian consumers at an affordable price. Maravedis-Rethink believes that mass-market devices for 4G TD-LTE are still two years away. It may take more than two years for device prices to fall below $50--the price an Indian consumer can afford. If that curve proves to be slower, TD-LTE adoption in India may evolve even more slowly.

Operators want chipset/device manufacturers to accelerate their efforts to get the cost of multi-mode devices down substantially. Chipset players like Qualcomm are starting to move, and Maravedis-Rethink believes that its efforts will be emulated soon by other chipset players. In the third quarter of 2011, Qualcomm, in collaboration with Huawei, ZTE, Quanta and BandRich, released a TD-LTE multi-mode dongle based on its MDM9x00 chipsets at its IndiaOn 2011 event in New Delhi. By offering the 3G/LTE multi-mode chipsets, Qualcomm continues to play a central role in accelerating the commercialization of TD-LTE in India.

Mobile Broadband has started to gain traction in India. This started with and will intensify with real broadband experience using TD-LTE. With a dynamic market of this size, it is not surprising that operators and consumers are expecting more from the mobile broadband networks. India's thirst for higher bandwidth at a lower cost per bit will only be quenched with the introduction of new technologies like TD-LTE and FDD LTE.

Basharat Ashai is a market analyst, APAC & MEA, for Maravedis.

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