Is Indian market ripe to accept 4G?

Thu, 12 Apr Pre-Open

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Recently, telecom incumbent, Bharti Airtel launched wireless broadband services using the 4G technology in Kolkata. With this it became the first company to launch 4G services in India. It may be noted that Bharti Airtel had paid Rs 33 bn to the government in 2010 to acquire bandwidth for launching broadband services in four states. 4G is basically an extension of 3G service which enables high speed data transmission. What stumps us is that the announcement comes at a time when third-generation (3G) services have themselves failed to deliver. Most telecom operators have paid far more for 3G licenses than they could afford.

Considering the rising competitive intensity and faltering margins, telecom players are looking forward to embracing data services that offer higher average revenue per user (ARPU) and margins. And with voice services contributing approximately 85% to the telco's top-line there exists a tremendous scope for data expansion. Also, the fact that broadband penetration in India is in single digits, companies offering high speed data services in early stage can get a first mover advantage in cornering the data market.

So, will this early mover advantage turn out to be a potential game changer for Bharti Airtel?

We believe it is too early to comment on the same for numerous reasons. First, the price at which the services are launched may not suit an average Indian's pocket. Thus, only corporates with the need for having uninterrupted data connectivity happen to be the target market for the company, at least now. Secondly, handset compatibility can turn out to be a major issue. Considering that most mobile handsets in India are not compatible for 3G/4G services the target market to that extent is limited. Hence, unless the handsets get upgraded the services will ply through dongles (data card used in laptops and notebooks) and fixed connection on machines (PCs). Lastly, the low broadband penetration in India reduces the addressable market of the company.

So, while Bharti Airtel might be the first company to launch 4G services it is difficult to say whether the company can capitalize on the same considering the current data market dynamics in India. Also the fact that Reliance Industries Limited (RIL), known for its predatory pricing practices to capture market, is planning to launch the 4G services by September the company may witness churn in its subscriber portfolio.

Thus, we are not sure whether an early launch of 4G has presented a first mover advantage to the company. But we are reasonably sure that it can turn out to be a potential winner's curse if data revenues do not meet the expectations.