Indian Mobile Infrastructure - To 3G or Not To 3G

 For most foreign investors around 1994, a first look at India's telecommunications policy seemed to allay concerns. In our naivete, we hoped that this policy would at least bring India on a par with China, which had a stifling telecommunications regime. However, a disastrous implementation left India languishing behind its neighbor in teledensity, mobile usage and broadband coverage.

Fortunately, later developments like the Unified Licensing Scheme, while a reactionary response to events threatening to overwhelm TRAI (the regulatory body), propels Indian deregulation forward even in places like Hong Kong, where a unified scenario is emerging. Despite the benefits of the specifics of deregulation, the foreign investor hopes to see a clear roadmap for the future if increasing the allowable FDI to 74% makes any sense. The recent confusion over the future of the 1900MHz band is an excellent opportunity for TRAI to use the controversy to map out exactly that map.

An equally major concern for the foreign investor, and something operators on both sides of the GSM-CDMA divide agree on, is the disappearance of high-margin demand. The future holds a long way up for every rupee that increases ARPU (average revenue per user). What makes it more interesting is the futility of previously successful product and marketing strategies under current margin conditions. Also, when last looked, the government had a hand in the till for an unbelievable 22-25% of revenue in the form of license fees, revenue shares and a second license fee through a false 'spectrum use charge'. Add to that the Access Deficiency Fee (ADC) paid to incumbent operator BSNL and you can't blame some investors for putting their calculators aside and out the door.

With cellular collection rates at rock bottom thanks to pseudo-WLL/CDMA implementations, mobile operators fear additional infrastructure investment. However, innovative value-added services are one of the few ways to increase ARPUs beyond your funk, you need to invest. How smart they do it determines their fate.

The 2003-04 rollout of EDGE (Enhanced Data for GSM Evolution) by some GSM operators is the kind of response one expects to see. By cost-effectively providing three times the data capacity of GPRS, EDGE gives operators such as Bharti, Hutch and IDEA the delivery system to offer innovative infotainment-based services and venture economically into rural areas. Using the same TDMA (Time Division Multiple Access) frame structure as GSM, EDGE ensures that existing cell plans remain intact. On the other hand, it uses a new modulation scheme that is also used for UMTS/3G. This makes it sort of a way station to 3G, for those still brave enough to consider that option. While EDGE was a smart move, the jury is still out on 3G.

However, following European cellular operators whose track record belies such a belief, some Indian cellular operators have begun mapping transition paths to that holy grail. Even if collection rates in India were not so low, the rollout of 3G could be an imminent disaster. It was therefore encouraging when India's IT minister stated last year that India wants to make the leap to fourth-generation wireless technology, skipping 3G, as cost-effectiveness has not been established. This is one of the rare instances where the industry benefits from listening to its minister.

However, these are just words until the Honorable Minister first releases VOIP (Voice over IP). Unless the chastity belt around VOIP networks is discarded and allowed to merge with the PSTN, India will get entangled in 4G, where IP is the dominant theme, by the way. If you live outside of India you are generally behind the times but as far as I know even today VOIP - PSTN interconnection is still incredibly illegal.

A favorable outcome of the 1996 regional ring bidding fiasco was a general reluctance to consider further auctions, even for 3G. This saved the Indian operators from the fate of their European counterparts. While European 3G license fees did nothing to secure a future for the technology, emerging OFDMA (WiFi/WiMax MMDS) alternatives are p