It has been over two-and-a-half years since the launch of 3G services in India. By our estimates, over 45 million smartphones have been sold in India since the launch of 3G services, contributing to the current installed base of over 150 million 3G enabled devices. In mid-2012, carriers have reduced 3G services tariffs by almost 70%. Yet currently, only about 30 million mobile subscribers are active on 3G.
There exist two key demand side barriers for slow 3G services adoption – lack of inherent demand for mobile data services among mass-market consumers and poor user experience. And, a key factor further magnifying this situation is the fact that both carriers and device OEMs operate in isolation, and cater to the market independently. Consumers are purchasing devices with many sophisticated features, which when enabled by data connectivity could open up a wide array of new and immersive experiences. But, the lack of concerted efforts by carriers and device players is inhibiting the consumers from exploring the vast potential of smart devices.
For creating demand and driving mass-market adoption of 3G services, they need to be positioned as attractive multimedia (music & video streaming, downloads, etc), social media (IM, social networking, etc), utility and productivity (email, contacts management, file sharing, etc) services, as opposed to quantum of data. And, for this masked positioning of data services, the device features, specifications and supported formats are extremely important.
From a carrier’s perspective, offering voice services is fairly straightforward. And, any optimization carried out at the network level (such as half-bit rate, quarter-bit rate coding, etc) would be seamlessly supported by devices, as most of them are standardized. However, different data based services would require different specifications and support of multiple formats at the device level as well as transcoding at the network level, affecting the user experience to a significant level. Carriers should look at collaborating with key device OEMs to test various devices for optimization of different services, before launch. Furthermore, pre-launch testing could potentially reduce the stain on the carrier’s 3G network (based on WCDMA access technology) caused by devices with poor reception/antenna issues.
Source: Convergence Catalyst Research and Analysis
Carriers could potentially test different service-device model combinations targeted for different geographies and consumer segments, to maximize the potential adoption of their service offerings. They could also optimize their networks to offer different bandwidths for different types of devices basis consumption, leading to multiple revenue models (our research indicates that although this feature is provided by most of network vendors’ solutions, only one carrier in India has currently implemented in their commercial 3G network).
As for device OEMs (who are now increasingly focusing on smart devices and looking to reach out and engage with the consumers), in the face of increased competition, shortened device upgrade cycles and reducing brand loyalties among consumers, partnering with carriers could potentially provide the much required CRM data and insights into specific features usage, that they could potentially use to fine-tune their future offerings.
In India, which is a highly competitive and extremely price-sensitive market with one of the lowest ARPUs in the world, it might not make business or economic sense to source devices on a large scale and offer them on subsidy. However, there exist many potential business and partnership models for a win-win situation, such as sharing incremental data revenues, sales and marketing costs, sharing of device activation and data usage behavior by carriers, upcoming devices roadmap by OEMs, etc.
There are already early indicators of how successful the collaboration between carriers and device OEMs and combined device-service offerings could be in India. Idea Cellular, which offers 3G services bundled with self-branded smartphones has close to 80% attachment rate of users to 3G services on these devices, and also significantly high data ARPU as compared to retail 3G subscribers. Also, during our research, we observed that the average data consumption by users of smartphone models of an Indian OEM bundled with a leading carrier’s 3G data services is double the average usage by retail users of flagship models of leading global brands… on the same carrier’s network and in the same geography.
In India, one size never fits all! And, the players are well aware of it. In the past, during the days of voice & text messages based revenues and gross subscriber additions, this issue was sufficiently tackled by carriers offering myriad tariff plans across various consumer segments and geographies. And, device players could offer basic and feature phones in retail independently, with little or no alignment to carriers’ service offerings. However, the business and operational models for offering data based services are much more complicated (especially for smart devices), and both carriers and device OEMs need to be open to partner basis a combination of mature models to grow on the value chain and drive increased revenues.
Going forward, as the device and service offerings get sophisticated and there exists a need to educate the average consumer on the value offered by these products and solutions, two of the consumer-facing players in the value chain cannot afford to continue to work in isolation. Convergence Catalyst believes that there is an urgent need to develop a successful ecosystem around mobile data services and carriers and device players need to take the first step in creating such an environment.