Indian WCDMA (Family) connections to hit 150 million by 2014 - Wireless Intelligence updates Indian 3G market forecasts following spectrum auctions

GSMA Intelligence has updated its market-level WCDMA scenario based on the winners of last month’s spectrum auction. This model takes into account WCDMA and HSPA launches on a per-circle basis, aligned with the auction results published by TRAI. Our assumptions are based on WCDMA deployment by end-2010 (excluding BSNL and MTNL who have already launched WCDMA networks in Q1 2009). As with all other markets, GSMA Intelligence does not show data for non-commercial networks and as such, WCDMA figures for operators other than BSNL and MTNL are not yet shown in the database but will be available as and when the networks are commercially switched-on.

The rollout of new high-speed networks in India following the completion of last month’s 3G spectrum auctions will see the WCDMA family of connections (WCDMA and WCDMA HSPA) account for around 13 percent of total Indian mobile connections by 2014, according to the latest GSMA Intelligence forecasts. We predict that total WCDMA (Family) connections will pass the 10 million mark during the first half of 2011 and will reach 100 million connections during the first quarter of 2014, hitting 150 million by year-end 2014. Outside of Delhi and Mumbai, the most competitive service areas are expected to be Maharashtra, Tamil Nadu, Haryana, West Bengal, Assam and North East India.

BSNL and MTNL – the two state-owned operators – have already launched WCDMA networks ahead of the private auctions, which should have given them a ‘first mover’ advantage. However, they have accumulated only 1.5 million connections on their new networks in the first year of launch – with the larger BSNL accounting for 77 percent of this total. Both operators have struggled to attract users, despite offering low prepaid and postpaid WCDMA tariffs. The cost of ownership of a WCDMA device and data plan is a barrier to fast adoption in such a price sensitive market, and this will remain a challenge for the country’s auction winners.

By year-end, we estimate that BSNL will control two-thirds of the WCDMA (Family) market in India, while MTNL - which operates in only Mumbai and Delhi - will control 10 percent. However, these market shares will shift dramatically as larger operators begin their WCDMA rollouts. By 2014, we forecast that the country’s top three operators (Bharti Airtel, Reliance Communications and Vodafone) will account for 43 percent of the WCDMA (Family) market, while tier two operators Tata Teleservices, Aircel and Idea Cellular will control a combined 32 percent. Over the same period, BSNL and MTNL’s combined share of the market will fall to around 25 percent.

In October 2009, we published a report - India 3G Market Assessment - which analysed the potential 3G market in India based on the local regulators’ guidelines and recommendations. Since then, the country’s mobile market has seen a number of developments alongside the country’s long-awaited 3G spectrum auctions. Over the past 10 months, India has seen many new mobile network launches, both from new entrants and existing operators launching services in new circles. Idea Cellular and MTS launched their respective GSM and CDMA networks in six new circles each, while Tata Docomo’s GSM network has been switched on in 17 circles. Elsewhere, new entrants Uninor launched in 14 circles, Cheers Mobile in nine, Videocon Mobile in six, and S Tel in three. Other developments have included the merger between Idea Cellular and Spice Telecom, which was completed in the first quarter, and the first time that connections in the Chennai metro service area were reported as part of the Tamil Nadu circle.

According to our latest data, India surpassed the 600 million mobile connections mark in the first half of 2010 and is expected to reach 1 billion before 2013. The market – which is divided into 22 circles – has recently passed 50 percent penetration. Growth is largely being fuelled by demand in rural areas, a factor that has led to severe price erosion in the highly-competitive market.

In our initial set of forecasts, we said that Bharti Airtel, Vodafone Essar, Idea Cellular and Reliance Communications were likely to join state-owned operators BSNL and MTNL in the race to deliver WCDMA data services. Based on the auction results, we can now add Aircel, Tata Teleservices and S Tel to the list. Bharti Airtel and Reliance Commmunications provisionally won spectrum bandwidth in 13 circles, Idea in 11, Vodafone and Tata in nine, and S Tel in three. Rajasthan and North East India were the only two circles excluded from the initial spectrum allocation (as they had no radio bandwidth available) but the final auction results show that all circles have been covered – with an average of three WCDMA operators per circle.

Our updated forecasts assume that mobile operators are committed to launching WCDMA and HSPA services commercially by end-2010, and will take 6 to 8 months to deploy networks. Metros will lead the growth during the initial rollout phase before being rapidly outpaced by gowth in the category A and B circles. Both these circles today comprise more than 200 million connections each, whilst category C and metros have just over 70 million connections each. As such, rural demand is likely to boost demand for data services as the market develops. We estimate that by 2014, the A and B circles will comprise more than two thirds of the WCDMA (Family) connections base, while the Metros – Delhi, Kolkata and Mumbai - will represent around 10 percent.

The terms of the WCDMA licenses issued to operators include a series of network rollout obligations aimed at expanding coverage into rural areas. In its final set of recommendations to India’s Department of Telecommunications (DoT), the Telecom Regulatory Authority of India (TRAI) has detailed a granular approach to network coverage which would oblige operators to completely cover areas inhabited by 2,000 to 5,000 people four years after the spectrum allocation date. The proposals also include a three-year timeframe for areas inhabited by 5,000-10,000 persons and two years for areas with a population above 10,000. These recommendations compare to initial license obligations under which operators are required to cover 90 percent of Metros five years after spectrum allocation, 50 percent of district headquarters or cities in the service area, and just 15 percent of rural areas. The regulator noted that, 15 years after the introduction of mobile services in the country, such urban-centric network rollout obligations have resulted in a lowly 25 percent penetration in rural areas, something it is keen to avoid with a WCDMA rollout.

Joss Gillet, Senior Analyst, GSMA Intelligence:

On a per circle basis, it is clear that India’s growth largely depends on rural demand and how fast mobile operators can connect the unconnected. Nevertheless, even though we believe there is clear evidence that 3G can help to bridge the so-called ‘digital divide’ in India, it will take time for mobile operators to develop users’ appetite for data services. A number of factors will influence the rate of adoption, but pricing is the most important. In our previous report, we highlighted that the generic price per megabyte has already reached a low of INR2 (US$0.04), and we estimated that a postpaid WCDMA subscription with the purchase of a WCDMA-enabled device could account for 20 percent of an average consumer’s annual budget. In addition, 75 percent of the Indian population lives on less than US$2 per day with around 200 million inhabitants living below the poverty line. Nevertheless, mobile operators are expecting monthly ARPU from WCDMA services to reach US$11 – compared to US$5 at present for existing voice services. Therefore, to encourage fast adoption of high-speed mobile data services, operators will need to focus on two key factors: affordability and availability. BSNL and MTNL’s disappointing WCDMA subscriber numbers to date have already shown how challenging market conditions are. Affordability requires more low-cost WCDMA devices in the marketplace as well as flexible price segmentation – but the large investments behind spectrum allocation and network deployment are likely to inflate the cost of high-speed services for consumers. With regards to availability, network and spectrum sharing will play an important role to speed up adoption, especially in unconnected rural areas.