With the imminent large-scale launch of 4G services by Reliance Jio set for later this year, the market for 3G in India faces an uncertain future just four years after its commercial introduction and only five years after the country's leading operators parted with nearly $15 billion for their 3G licenses.

Having secured licenses in an auction in early 2010, a number of operators launched commercial 3G services in early 2011, providing Indians with their first real experience of mobile broadband. (See India's 3G Auction Ends, Raises $14.6B.)

And while there is little doubt that the introduction of 3G services has had an impact on India's communications sector, it hasn't been the broadband revolution many had been hoping for.

According to the Mbit Index report on mobile data usage in India published by Nokia Networks , mobile data volumes grew by 87% during 2013 to reach about 50 Petabytes per month. "3G continues to be the prime contributor in the data growth, growing its share from 33% in 2012 to 43% of total mobile data in 2013," states the report.

However, the initial response to 3G can at best be described as lukewarm. High tariffs and patchy coverage coupled with the high price of 3G-ready smartphones has ensured a limited demand. It was only when the telcos decided to reduce their tariffs in mid-2013 that 3G started to record strong uptake. A further drop in prices of 3G-enabled handsets led to the further migration of high-end 2G customers to 3G.

Even so, uptake is limited in a country that is fast approaching 1 billion mobile connections, with recent statistics from the Telecom Regulatory Authority of India (TRAI) showing there were only 70 million mobile broadband connections in use across the whole country at the end of 2014 (though the number of 3G connections will be about 12 million or so higher due to the way broadband connections are reported to the TRAI by Idea Cellular and Reliance Communications).

Idea Cellular Ltd. provides a clear example of how 3G has attracted only a small section of India's mobile base: The operator had more than 150 million mobile connections at the end of 2014, but only 16.1 million 3G customers. (See India's Mobile Subs Base Nears 1 Billion.)

Table 1: India's Leading 3G Service Providers



Service Provider Number of 3G Subscribers (millions)* Number of 3G Cell Sites* Data Revenues (as % of services revenues)* Data ARPU (in Rupees) Airtel 16.9 41,850 22.6% (for non-voice revenue) Rs 170 Vodafone India 16.6 30,500 14% Not shared in result Idea Cellular 16.1 27,744 15.70% Rs 197 Reliance Communications 16.7 11,659 (from fiscal Q2 results ending Sept. 2014) 24.3% (for non-voice revenues, from fiscal Q2 results ending Sept. 2014) Rs 137 (from fiscal Q2 results ending Sept. 2014)

It's not all bad news for the 3G sector, though. The introduction of 3G services has resulted in the significant growth of mobile data revenues for the operators, resulting in an increase in the ARPU (average revenue per user) levels of all the main telcos. Vodafone India 's blended ARPU increased from 171 Indian Rupees (US$2.75) in March 2011 to Rs 192 ($3.08) in December 2014, while Idea Cellular's ARPU increased from Rs 161 ($2.59) in March 2011 to Rs 179 ($2.86) in December 2014.

Table 2: ARPU Growth of Leading India Mobile Operators



Operator ARPU (March 2011) ARPU (December 2014) Bharti Airtel Rs 194 Rs 202 Idea Celular Rs 161 Rs 179 Reliance Communications Rs 107 Rs 142 Vodafone India Rs 171 Rs 192

This increase in ARPU is the result of increased data usage. For Bharti Airtel Ltd. (Mumbai: BHARTIARTL), data usage per customer has increased from 187 megabytes per month at the end of March 2013 to 622MB per month by December 2014. For Idea Cellular, data usage for a 3G subscriber touched 705MB per month by December 2014, while Reliance Communications Ltd. recorded monthly data usage of 752MB per customer at the end of September 2014.

The telcos have also recorded a significant increase in the contribution of non-voice component to the overall revenue of the telcos. While in March 2011 (the early days of 3G) the contribution of non-voice revenue was in the range of 10-15%, now this has increased to more than 20% for most of the telcos.

Next page: The impact of 3G roaming