3G Plans and 3G Market Potential in India- Reality Different than Predictions

Why 3G will Never take off in India

Read on for a completely different view on Why 3G market and its potential in India is not so good as it is made out to be.

The fundamental problem is that many products are created to be sold, not used- Yanagi Japanese Designer[1]

Are you one of those people who believe that 3G may be a bit low today in India but is going to take of really big time in the near future ? Huge amount of data consuming public is imminent because you see so many people with smartphones around ? May have heard telecom companies paid a bomb to get 3G spectrum and govt for a change made a lot of money . Surely you think that telecom companies are not stupid to overpay for spectrum and hence in a country of around 600 million active connections they are going to milk money by 3G data usage by public.

Unfortunately this is not going to happen in even near future. The a seemingly simple consensus view – 3G will take off really big in India, it just needs a bit of time say 2-5 more years- just as it happened in developed countries.

What I am saying is that 3G will not take off as per predictions of almost all analysts and telecom companies. It will remain a fringe/negligible percentage of overall telecom users in future (maximum % of active users may not go beyond 10% even in next decade because 4G/LTE/BWA may be adopted and 3G almost skipped).  The only way 3G usage can shoot up is when some company can make a phone with User Interface which is even simpler and delightful than iOS of Apple(and all of its copycats) and of course price it   below Rs. 5000/7000 or $130 (unlocked of course).

Read on for a completely different view on why 3G will not take off as per almost everybody’s expectation. I promise your time in reading will be well utilized.  Why 3G and 4G will NEVER take off in India Why 3G and 4G will NEVER take off in India.

My Assumption for the Analysis

The only assumption I am making is that the top notch browsing experience Model of any phone cannot be priced low enough at say around Rs. 10000($200) odd or below . Today it may be iPhone or top end Androids and tomorrow it maybe some other platform. But the price of phone which offers lovely browsing or 3G usage cannot go down enough for too many Indians to use in a large number(by large number I mean greater than 10% of installed base) .  Yes all predictions of huge number of smartphones in India are correct but those huge numbers of smartphones will NOT result in corresponding huge data consumption. This is the key.

In India there will obviously be millions of smartphones sold but not all of them will be used regularly for browsing via 3G or 4G in any significant manner. Most Smartphones for Indians will remain a feature phone which has camera, music and maybe sometimes email or whatsapp or 5-10 min of browsing for cricket scores, etc. That’s about it. Of course the top notch phones like iPhone and Samsung Galaxy, HTC One series, Sony’s high end Xperia etc top end phones will sell in millions as well. But all of them will remain a tiny percentage of overall 900 million or so phone market of India. The  phones on which regular browsing is being done via 3G in India may not reach even 10% of Installed mobile phone base in next 5 years or so .  The telecom companies making grand predictions of data deluge is just not going to happen. Wait and see. Read on for a completely different view on 3G future usage in India.

Volume Market Share and Browsing (3G Usage) Market Share Anomaly

The most crucial thing which everyone who is reading this must understand thoroughly is that device numbers and browsing (3G usage) are NOT directly correlated as I will prove giving various examples. The data has shown conclusively that though iPhones and iPads maybe small in numbers vs android phones/tablets but in browsing (3G usage and apps which consume bandwidth) iPhone/iPad crushes Android all over the world.

Here is just a small data to make you understand this anomalous behavior of browsing market share NOT directly correlated with the volume market share.

Apple market Share in Smart Phones – 15%    Mobile Browser market Share – Apple – 60% [2]

Android market Share – 75%    [3]                         Mobile Browser market Share Android – 26%[4]

Market Share of the Mobile Phones in 3rd Quarter 2012.  (Android greater than 75%)

3Q12 Market Share of Mobile OS

Source IDC[5].

Android is all over the place capturing almost 75% of the market share.

Installed Base of Mobiles

Android Growth over the years.  Amazing and unbelievable.

You would think that same Android will rule the Browsing market share as well. But ……

Amazing Surprise- Mobile Browsing Market Share – iOS of Apple Greater than 60%

Total Mobile Browser Market Share

Source – Netmarketshare[6] Oct 2012

US Black Friday E-commerce Sales Traffic-Apple 3 times that of Android

Just for fun I will throw you another statistics of USAGE i.e. e-commerce which is trumpeted all around-

US Black Friday Sales Traffic From Mobile Devices

Report from IBM for tablet usage- Black Friday tablet traffic in US – iPad 88% [7] even though iPad now has just about 55% tablet market share[8] .Of course this is for US only . Although in last 3 years Android market share has moved from less than 15% to 75% today the usage of Android phones/tablets for e-commerce is not at all going the way it should market volumes should indicate.  Why?

Wi-Fi Browsing Market Share at Airports-Apple >80%

Here is the wifi browsing data provided by Boingo [9]

Wi-Fi Non-Laptop Browsing share at Airports- Boingo

I would implore you to please look at the above charts again and again. Really understand, grasp and digest what it truly shows.

Here is what it shows

  • Android is the leader in Smartphone OS and has had a tremendous growth in last 3 years.
  • Android has almost 75% of Smartphone market share beating down iOS handsomely.
  • Although iOS has less than 20% smartphones’ share when it comes to browsing it has almost 60% market share beating android handsomely.
  • When it comes to Shopping via Smartphones and Tablets iOS dominates anything and everything.
  • In fact iPad accounted for 88% of tablet traffic according to IBM but it has just around 50% plus market share.
  • Wi-Fi Browsing at airports also is dominated by Apple with almost 80%+ share by Apple devices.
  • The Browsing market share just does not seem to be affected by the huge growth of Android over the last 2 years.
    • Seems people who buy iOS devices keep browsing while Android users just don’t seem to be browsing enough as one would have expected from a huge android volume market share.

Agreed that the data is mostly for US and around the world but what is going to be the likely scenario in India 5 years down the road?

Quality of cheap 3G phones is too Low to allow Significant Browsing/Data Usage

Please go through a brilliant article on possession vs utilization of smartphones here http://www.asymco.com/2011/09/21/the-perils-of-possession-without-utilization/ . If you “get it” that there is a huge difference in possessing a Smartphone vs utilizing it say for browsing then it will be very simple to understand my logic of why 3G will not take off in India in any significant manner.

Cheap 3G enabled phones will not be able to persuade significant number of people to browse and use internet on phones. They won’t because of the most important reason – Cheap phones with 3G suck. Cheap phones with 3G have all the characteristics of worst thing you can have from a 3G browsing phone like:

  • Low resolution and small screen where you have to squint to see what is written.
  • Pathetic battery life while browsing on 3G.
  • Exceedingly tough, frustratingly low quality interaction with phone for browsing or 3G App usage.
  • If it’s a touch phone then whatever you want your touch to do will not be done but something else will happen.
  • Lagging, Jerky, inconsistent, frustrating touch response.
  • Weather in India: Almost whole of India has strong sunshine for almost 8-10 months[10] a year vis-à-vis a lot of developed countries which do not have this kind of climate (European countries[11]). Of course the rest of the months it rains. Low priced 3G phones have bad quality screens when viewed in Sunlight which anybody who has used them has experienced. Heck, even high quality and expensive phones are difficult to read on direct sunlight. [12] So how do people expect that Rs. 5000 costing phones are going to be used tremendously in the 10 months of bright sunshine kind of weather in India? Of course forget that people are going to use the phone for 3G browsing during rains while out on the street.
  • Physical Keyboard Based Phones Can never be Good browsing Phones: If you have a physical keypad based 3G phone then it’s even pathetic experience. (Ask RIM Blackberry which was leader 4 yrs ago and check out the video of Jobs presenting the iPhone 1st time [13] Or you can just see the screenshot here [14]). You just cannot have millions of people browsing net and use 3G to its capacity on a keypad based phone in a trouble free way. You need touch screen phones for 3G browsing. Period.
  • Apps on Cheap Phones are Pathetic – Any app which consumes data and is put on Rupees 4k to 8k phones generally has a pathetic user experience simply because the hardware is not good enough and of course the app is NOT customized / optimized for that hardware/form factor. It’s going to remain same in future as well. If you don’t believe me ask any android developer about why device fragmentation gives them highest amount of headache.[15]This is a must read which I cannot emphasize enough.[16] In fact if you dig deeper into the device fragmentation you will realize why iOS apps for iPhone are generally better in quality than Android apps.
  • Blackberry Still has pathetic Browser - Blackberry even 5 years from iPhone introduction has a pathetic browsing experience on its phones (and it reflects in the share price of it which has fallen 90% over last 5 years since iPhone was introduced and also its market share is now low single digit). If you think keyboard based phones with 3G will eventually be made user friendly, cheap and usage will spike then you really are a prime example of optimist. (Have a look at this graph [17]of Blackberry which was king of smartphones).
  • Huge Language problem in India where there just aren’t enough English educated people who will browse content on phone You may otherwise hope that there will be massive amount of web pages(and they will be optimized for mobile browsing) made for the top  different languages in India viz Hindi , Malayalam , Tamil , Telugu , Kannada , Gujarati  , Punjabi etc , . But I am sure it will remain more of a hope than reality as business economics of making lots of local language based pages is just not good enough. If you are a good content writer, developer etc you will rather work for English language and make lots of money rather than write lots of web pages for Gujarati or Punjabi language. Just for a hint the total number of English newspaper subscriptions in India i.e. the top 10 English papers have less than 20 million daily subscribers. This would give you a fair idea of something costing 2-3 (after factoring in resale of papers to raddi) per day in English is popular with just 20 million people in India. Is it a coincidence that active number of 3G subscribers is also close to half of 20 million??? A generic limit of maximum number of 3G subscribers in India can be set up at 125 million (because that is the number of English speaking people in India[18]. Mind you that would also mean that all the 4-8 year kids have separate 3G enabled phones , they are browsing on them and never breaking them-.(if you think English literacy is going to shoot up quickly , Dream On) By the way literacy in India went by around 9% in last 10 years to reach around 76% . So it will at least 2 decades more to reach literacy level of China unless politicians do something. (I am kidding!!!)
  • Cheap Android phones are too Complex for Vast majority of Indians to utilize complete Browsing/App Usage- Add to all above negative factors that most of the incremental customers for cheap up to 5k to 10k android users are going to be people who may not be highly educated, tech savvy, English knowledge guys who can understand basic things like what a task manager in android phone does and why the RAM usage matters for battery life or what exactly is meant by MB or GB or why their android phone battery sucks (they cannot kill the crap app which is hogging the battery)If you think people are going to magically understand what MB and GB are here is a nice NYT article which asked people in US about MB and you would be surprised by the answers from a country of almost 100% literacy [19]. (Just FYI think why Apple iPhones do NOT have a task manager showing RAM usage and CPU usage?? Here is a hint  …[20])

Experience of Using iPhone Vs a Cheap Android phone for 3G browsing and Apps

The facts of buttery smooth browsing were absolutely apparent to me when I first browsed on iPhone back in late 2008 and when I browse on cheap androids today in 2012. If you do not “get it” that cheap android phones cannot help the millions of Indians in browsing, it will be really difficult to explain.

I have one more suggestion to everyone – Pick up any iPhone (by that I also mean even the 1st iPhone which came out), browse and use 3G enabled apps. And then pick up any Android phone priced below Rs. 6/7k and browse. Now honestly tell which is more likely to result in repeated browsing and bandwidth consumption. You will get the answer.

Most of my analysis below would focus on the most crucial aspect of 3G usage on mobile phones – Experience and Ease of use trumps volumes when it comes to browsing and internet on phones. You sell 200 million cheap android smartphones still no one would care to browse or use 3G or 4G. Everyone will use it as a feature phone with Camera and music/FM. That’s it. There is no way around it. Android is not easy to use as compared to iOS, it’s my opinion but I think most will agree [21] [22].

There are some things which are facts and some which are opinions. I will try to stick with facts as much as possible but will have to shift to opinions when I cannot use facts for e.g.- (with respect to 3G usage)the ease of use  of the lowest priced iPhone today i.e. iPhone 4 (costing Rs. 26,500 ) is more than 5-10 times than that of say a lowest priced 3G phone available which can start from as low as Rs. 4500 onwards. You simply cannot expect millions of Indians to start using the below Rs. 7000 phones as a 3G device in any significant number.

Tablets: Next Holy Grail for Huge 3G/4G data usage ? Or is it ?

When Apple introduced iPad in 2010 almost all the tech guys said this was just a big iPod and there would be not much use of it , it cannot do this  or that and is doomed for failure . Unfortunately it became the largest successful product launch in history of consumer electronics[23] [24].  Apple is reaping billions of dollars in profits for this amazing product . Apple has sold over 84 million iPads since the first generation was launched. “To put this in perspective, we sold more iPads than any PC manufacturer sold of their entire lineup,” said Tim Cook. [25].

Of course competitors have caught up with Apple and the recent market share is just around 55% with Android capturing almost 44% of the market share. [26]

If I project it in 3-4 two years iPad is going to keep losing volume market share and maybe settle at around 30% kind of volume market share.

Whether the next cheap android tablet(which for India must be priced below 8000 at least ) will capture the browsing market share to a huge extent that 3G and data consumption is going to sky rocket , is an open question . But just have a look at the following graphs and statistics of browsing usage of tablets . I will let you people to decide what can happen in future considering this fact (iPhone has 17% market share but 60% browsing share).   Mind you most tablets will be used on Wi-Fi and without 3G.

Report from IBM for tablet usage-

  • Black Friday tablet traffic in US – iPad 88% [27] even though iPad now has just about 55% tablet market share[28] .Of course this is for US only.

Cyber Monday IBM Analytics Tablet Usage –iPad >88%

 Cyber Mondy Browser Market Share

Here is what Tim Cook said during iPhone 5 introduction   when Apple announced the iPhone 5, he said the iPad had 92% of tablet web traffic, adding, “I don’t know what these other tablets are doing. They must be in warehouses or store shelves or maybe in people’s bottom drawer.” [29]

OnSwipe pulled the data from more than 1,200 websites using its service with a sample of more than 29.5 million unique visitors. Not surprisingly, the iPad is also continuing to dominate tablet web traffic share entirely, accounting for 98.10 percent of usage. [30] You can remain positive of it completely reversing quickly but you should mind the fact that this was BEFORE the low price iPad Mini launch .

War of Tablets

I will leave it to the readers to decide whether the next Aakash(which has 3G) tablet or Google tablet or Samsung tablet is going to break the back of iPad in terms of browsing/data consumption via 3G/4G . Keep in mind all the data points above do NOT INCLUDE the new cheaper iPad mini which Apple sold almost 3 million in 3 days .[31]  India price is Rs. 21500 for iPad mini Wifi only .

Dream on if someone thinks that a new tablet at Rs. 4000 is going to skyrocket the data consumption via 3G/4G. And why would people use more of the cheap tablet on 3G and why not on cheap, reliable Wi-Fi back at home?

By the way just FYI neither Google ,Amazon nor Samsung ever release the unit sales numbers for their phones/tablets. [32]   Would implore my readers to read specifically about Amazon[33] [34] [35]  which really is a fantasy[36]. Please read it for me.

India is Non-Subsidized Phone Market and Will Remain forever.

Here is the deal – In US you can get a iPhone 4 free with a 2 year monthly contract or get a top notch Samsung Android phone for free with a 2 year monthly contract. The most expensive iPhone 5 (16 GB) is for $200 with contract which is around Rs. 10800 for India rupees.

I can dream that when India and Pakistan have finally made peace on Kashmir I will be able to buy a subsidized iPhone for close to same price as US(i.e. around $200 or say Rs. 12500).  You know what I mean as to when it will happen.

A simple reason for subsidy based phone sales never happening is I will take the iPhone from telecom guys who are giving it for a subsidized value, give them my wrong address proofs or whatever they want, run away , unlock iPhone and not pay you the rest of the money . Ever .On top of that telecom guys cannot do anything. Ever.

So the hope that there will be mass top end smartphones’ 3G usage which happens so regularly in US is shattered. There will never be a carrier based subsidy model in India for top end phones. Rcom had a plan like that earlier that it will provide CDMA tech based phones and here is a brief result – RCOM market capitalization has fallen more than 90% in last 5-6 years. Go figure. Don’t even ask me about Tata Indicom which again provides handsets – since existence around 10+ years it has had losses every single year.

The basic point I am trying to drill is this – High usage of 3G is completely depended on high quality handsets which is dependent on the monthly salary of the person buying it. Rich countries citizens are rich and hence they can afford to buy high end phones or in other quirk buy high end phone at cheaper price than India, pay for high data usage charges. India is poor. Some Indian guys have money which will not go up significantly faster than GDP+inflation growth. Hence the 3G spread has a limit of how many rich Indians are present who have yearly income of say above 3 lakh or so.  Calculate that and it will be the maximum limit of 3G reach.

Why Samsung/Google Copied iPhone user interface – It’s the simplest and Best interface

If you think why I keep on harping on why Apple’s user interface and others have copied it please have a look at the document which Samsung engineers prepared where they compared Galaxy phone (Samsung most successful series) with iPhone and pointed out that this is how they need to copy errrrr get inspired and ‘improve’ their products. It’s a must read for anyone who has ever used a pathetic touch screen phone and a iPhone/Galaxy  Series’ top end  phones. http://www.theverge.com/2012/8/8/3227289/samsung-apple-ux-ui-interface-improvement

Imagine Apple engineers thinking about the ‘obvious’ user interface design in 2005-06 when the best phone in market was Nokia N95 [37](a two way slider phone) and Nokia N70[38] . And yes both were 3G enabled. What are Apple guys thinking today? Think !!

Why do you think the largest selling phone companies(Samsung) are selling touch screen based phones which are being used for browsing ?

Analysis of 3G Spectrum Auctions in India – Amazing Conclusions

Indian operators in all paid around $12 Billion in total for the 3G spectrum in mid 2010.

Now there are some amazing aspects to the amount of money paid and the reality of the 3G usage which is supposed to happen.

Salient Facts on Auctions

  1. Delhi +Mumbai = 2.5% Population <>40% of Bid Amount – Delhi and Mumbai together account for just 2.5% of India’s population but they account for almost 40% of the total money raised.  (Its analogous to a probable bizarre US auction where for New York with population around 2.6% of US was bid so high that telecom guys paid 40% just for NY).
  2. The top 7 circles – Delhi, Mumbai, Karnataka, Tamil Nadu, Andhra Pradesh and UP account for 90% of the bid amount but they cover just 53% of the population of India.

3.      40% of population covered by paying just 5% of the bid amount .

I didn’t see any article anywhere which tried to explain this anomalous behavior and what it actually points at the 3G potential of India.  Someone said that you should not believe what politicians or business men say but you should look at what they do.

2.5% population Account for 40% 3G Bid Value

44% of Population Covered by just 8% of Bid Amount

Conclusions From the Amazing 3G Auction

What the above mismatch in bid amount and population shows clearly is that even telecom companies know for sure that 3G is not going to have a high usage pan India anytime soon.

Mumbai and Delhi 2.5% population with 40% bid AmountBecause Delhi and Mumbai have the highest per capita income (read highest concentration of rich people with most number of top end smartphones) hence even with 2.5% of population telecom operators think they can pay 40% of their bid amount for these two circles. In the hindsight 5 years from now it will look ridiculous which I will explain later.

Although businessmen are great at telling story but unfortunately mathematics cannot be manipulated. If Telecom guys have put 40% of their cash for 2.5% population of India how is it that they expect greater than 20-30%  3G penetration all over India in coming couple of years (population wise)? Even if I assume every single human being from toddlers to 80+ old person in Mumbai(which has 5 million people in Slums) and Delhi start browsing on 3G still it would mean 3G has spread to only 2.5% population of India . So do you think that there is a reasonable chance that the rest of India 3G spectrum has been bought by Telecom guys really cheaply or have they overpaid too much for Delhi and Mumbai.

40% of Population Covered by just 5% bid Amount -We can remove almost 40-45% of population of India from being even targeted (for 3G browsing) aggressively by the telecom operators of India because that is what is shown by the way they have bid. If they had thought that pan India there was a huge potential for 3G then they would have coughed up more(I don’t know any magic where by just putting 10% of bid amount value for spectrum telecom operators can hope to target and make enough money from 40% population).  So if 40%+ population are not even in the target frame of telecom operators how can anyone expect that pan India there is going to be surge in 3G browsing ( I am talking about even eventually – whatever that means , mind you my favorite website http://www.zerohedge.com/ tagline is –on a long enough timeline the survival rate of everyone drops to zero).

If you think Telecom guys are indeed going to target the huge mass of India with low income population in villages with 3G then try moving around in Delhi and Mumbai main areas with a 3G phone and check how many times it loses the 3G and goes to E (a number of times even E won’t be there). You will be pleasantly surprised that even the most expensive 3G spectrum wise cities in India do not have great and seamless 3G coverage. I can only imagine about the Rest of India.

Office Travel and Long Distance Travel Effect on Data Usage.

This is such a crucial thing to understand that I have never seen any analyst or article mentioning this in their analysis. But I have Mr. Sanjay Kapur or Airtel putting it clearly in concall – “data does not get consumed in the peak hours that voice gets consumed. It actually extends itself down to even early hours of morning and very late hours of night”.   Think why does this happen.

Almost all developed countries have really good public transportation system i.e. great trains .  US public transportation is almost equal to private cars as it has more number of vehicles as its complete population who are eligible to drive.[39]

So let’s get down to basics as to when and where in Developed countries people consume a lot of data on 3G phone .  Its common sense that while going to office whole of Europe (in trains) browse a lot on the phone on 3G . A lot of US customers who go via subway also do that . And of course the millions in US who drive to work and face crappy traffic turn immediately to their smartphones the moment they get a chance to while driving (a lot of times actually even while driving). One more crucial thing to note is that since more than 95%[40] of cars in US are automatic drivers have complete freedom to use one hand for phone(read browsing) and other for steering.

Consider the situation in India for people going to office every morning.

Public Travel is so pathetic in India that everybody is busy guarding their purse , hanging on with one hand in overly crowded bus or auto rickshaws ,etc. (don’t even ask me about office hours Mumbai local train traffic else I will kill you—even pigs getting transported to slaughter house anywhere in the world have it better ) . Here is one more prediction – Public travel and traffic in India will keep getting worse in future for ever.

India is a land of two wheelers. It has almost 70 million + two wheelers which are used extensively across India. There is NO way people are going to start using Smartphone Browsing while driving a two wheeler in India.

I do not have exact figures but I am sure that more than 99%+ vehicles cars sold in India are with gears (clutch or stick shift as you may call) . It’s very difficult to use 3G browsing and constantly shift gears in the pathetic traffic of India. This is NEVER going to change .EVER.

On top of all this every morning millions of Indians have to deal with pathetic traffic delays which is going to worsen in future for sure and you seriously do not expect that while facing that kind of hot/cold climate and  frustration already high in crushing crowd people will take out their 4-8k rupee ‘cheap Smartphone’ and furiously start browsing on pathetic 3G. If you do believe this is going to happen you are an eternal optimist.

Also the battery life of cheap ‘smartphones’ are really bad . While cheap phones can be used readily by US drivers in their cars (with connection to battery) they just CANNOT be used by Indians who move by bikes.

GPS data consumption is very high in developed countries and Maps are a crucial point for all Smartphone manufacturers and it consumes a lot of data. Ask Apple for Maps update and they will tell you how important it is particularly Forstall who was fired for maps fiasco[41].

Now this is never going to happen in India that lots of people will suddenly start using GPS based smartphones and navigation and consequently start consuming lots of data. First of all there are 18 cars per person in India vs 812 cars per person in USA and the long distance drive by Indians are far lower than US. On top of that in India anywhere you get lost you have 1.2 billion Indians to ask directions from compared to just 300 million in US with an area of almost 3 times that of India. . Just think of any destination whose path you no clue about, drive a car and get lost. Within very kms ahead you will find some Indian with a direction to where you want to go. Try doing that in USA then you will appreciate why GPS/3G will NEVER pick up to any significant level in India.

Long distance travel via trains and usage of 3G in them is again a pipe dream. I travel from Churchgate to Goregaon (around 30 kms ) or from Dwarka to CP and I lose 3G signal more than 5-10 times . Go figure it out while extrapolating for all over India.

Peak Data Consumption Time in India – Wi-Fi and Coming 4G will Rule

Here is a comment from Bharti CEO Sanjay Kapoor this year “data does not get consumed in the peak hours that voice gets consumed. It actually extends itself down to even early hours of morning and very late hours of night”.

Here is a new announcement by Tikona [42] –Tikona Digital plans to launch 4G services at 2-5 paise per MB.  This is with Tikona (had you heard its name earlier ??) . Think what will happen when the big daddy Reliance comes in with its nationwide 4G seamless license. It gives me shudders at even thinking about the pricing which Reliance will come up with if Tikona can come with this.

Its common sense when you see around yourself that almost all of the bulk of the data consumed by Indians wirelessly are going to be through Wi-Fi today and even more so in the near future with the impending cheap tariff with 4G launch , cheaper tablets and cheap phones with Wi-Fi.

I cannot emphasize enough that bulk of Indians are NOT going to browse on the go on a 3G mobile but instead are going to use the home based broadband (be it wired or wireless/4G/Dongle etc).  They are going to use data on the go to a verly limited extent like just checking email or occasional social networking but not much of browsing or data consumption. They will easily postpone that huge data consumption to be done back when they reach home on a wifi .

Misconception of 3G taking off after a gestation period

One of the lamest excuses given by pundits of low 3G adoption in India is when they start to compare the 3G adoption rate in advanced countries whereby they took a minimum of 3-7 years before finally the majority of people started using 3G .  3G took off because Apple produced a phone which was really ‘obvious’[43](in the hindsight of course) to every copy cat in Jan 2007. IPhone is what brought 3G to the market in a mass number . Then of course Google and Samsung jumped in with Android and democratized the smart phone starting late 2008-09 with really affordable phones.

Apple Laughably Small Market share in India, Result – Less Browsing and Data Usage

Apple’s market share of handsets in India is 1.2%, according to research firm IDC. South Korea’s Samsung, the market leader, has a 51% piece of the pie. Apple sold around 100,000 phones in India in the first six months of 2012, much lower than China, where the Cupertino, Calif. Company sold 2.3 million in the second quarter alone. “You know of course I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries,” Tim Cook, Apple’s chief executive, said during an analysts call on July 24. “We have a business there, that business is growing, but the sort of the multilayer distribution there really adds to the cost of getting products to market,”[44]

First of all I do not agree that Apple has market share of 1.2% because that would mean that there are at least 9,000,000 iPhones in India (total at around 900 million and   it’s not typo[45]) . It’s impossible based on two things –

  • If apple sold only 100,000 phones (0.1 million) in 6 months in 2012 that would mean Apple should have sold close to 8900000 (8.9 million handsets in last 4 years since launch or every 6 months around 1.4 million ). It’s mathematically not plausible at all.
  • I do not see huge number of people (read rich educated ones who are seen in office, lifts , malls, theatres ,etc ) touting iPhones but almost all have Samsung or Blackberry.

So we have a situation where the phone which is THE worldwide leader in browsing market share(upwards of 60%[46]) selling a laughably small 1 lakh number of handsets in 6 months in a country which has almost 900 million phone subscribers(I didn’t give % because that would be so small it would look like a rounding off error ) .

On top of this the most powerful CEO in Tech industry , Tim Cook says he is not focused on increasing the market penetration in near future in India but is concentrating more in other markets like China .

So how do Indian analysts, telecom companies expect that the next cheap Android or Nokia phone will cover up for the low browsing/3G data consumption while Indians don’t get iPhone which accounts for 60% browsing share worldwide while maintaining around 17% volume market share of smartphones in those markets?

If the 100% literate population of world who have to contend with just one language they know and read , prefers to browse disproportionately high  using iPhone/iPad and doesn’t  use Android to consume data too much[47] why do Indian analysts and companies expect this to be completely reversed in a market like India which has lowest per capita income coupled with low literacy levels , multiple popular languages and pathetic quality of data services ? Did someone say Magic?

Here is my small prediction – Apple will NEVER reduce price of its cheapest handset below 18-20k . This directly implies there would never be a cheap enough iPhone/iPad which will be for masses that prefer something like Rs. 5000 to Rs 8000 to be a really high value for a Smartphone . This directly implies there would never be the high data usage (3G usage) which every tech pundit and company are predicting to be true (hoping for a magic from cheap android phones).

The above prediction will become false when someone can come up with a phone  in the world that people are preferring to browse(consume data) disproportionately high with that phone , capture say a 30% browsing market share in world and price it below 10000 INR. Not impossible but again not probable as well.

Here is a prediction by Google which is again going to be true only to an extent that India may well have 200 million internet users by 2013(its almost that year right ) but those users will not using phones to browse internet to an extent as predicted..

http://www.latestdigitals.com/2011/09/18/india-add-200-million-internet-users-2014-google/

September 2011 – Google predicts India will add 200 million Internet users in the next two years i.e. by 2013. [48]  Read the link given carefully it says –“But his bullish predictions depend on handset makers bringing out discounted smartphones that the masses can afford. The sweet spot, he says, is a Web-enabled phone less than about $80. Today, good smartphones cost at least $140. Google has been working closely with manufacturers to bring out low-cost phones in India that use its Android operating system”

A web enabled phone at $80 does not mean it will be used for lots of web browsing . It may sell in millions but its utilization as a data consumption device is just not on the cards.

Indian Telecom Operators Pipe Dream of Huge 3G data Usage in Near Future

Here is some data to Chew –

Bharti Infratel IPO Facts on 3G:

“India has approximately 51 million are 3G subscribers.  Says quoting Analysts Mason  that the number of 3G subscribers is expected to grow to around 412 million by 2017.  “

Excited about the 51 million 3G subscribers and 412 million by 2017 ?? I am.

Of course none of above is factually wrong but the only problem is number of subscribers is meaningless when you consider the following Active 3G subscribers from top 4 companies in India. India may as well have 412 million 3G subscribers by 2017 but the number of people actually using 3G “actively” will be something like less than 50/80 million.

P.S.- There is NO mention in the Bharti Infratel IPO about active 3G subscribers . Of course they will not mention it . They are selling.

 

Active 3G subscribers in India

Telecom Operators No. of Active 3G subscribers(in Millions)
Idea (Q2 FY 13 ) 3.7
Airtel(Q1 FY 13 ) 3.7[49]
Reliance Communications (Q2 FY 13 ) 4.8 [50]
Vodafone(Q1 FY 13 ) 1.3[51]

Basically 3G usage in India after May 2010 auction of $12 billion for spectrums is   “pathetic” to put it mildly .  To put in data terms here is what TOI  reports[52] – “India’s 3G adoption worst among top 30” There are less than 20 million  Active subscribers of 3G in India . How about that for a country which has around 950 million subscribers of telephone ? [53]

Does anyone really think Telecom Operators can make a good Enough App ?

You will hear a lot of talk about telecom companies making the investment in great apps which will be put in low priced phones ( Apple just does not allow any crapware/bloatware on its iPhone and it’s the only phone company in the world to do so. Rest all phone companies get paid by careers to install software users don’t need, cannot remove and have to pay atrocious data charges if they use it. )

Do you know any Smartphone app which was loved by users all around for either iOS or Android and it was made by a Career?? Any??

If you are having trouble thinking about that do you think that Airtel , Vodafone , RCom has that quality of engineers that they can come up with great app which consumes data , works fine on less than 7000 rupees phones of all size/shape and gets loved by users all over India that they will use it ferociously ? Think about this probability whenever you hear the word “apps” being uttered by any Telecom Companies’ CXOs.

Airtel CEO Comments and Interpretation in Concall Q2[54]

Sanjay Kapoor – CEO Airtel – “What is interesting is that despite a smart phone penetration not really achieving the targets, in fact the smart phone penetration in the country is going slower than what we envisaged. “

Problem is not that there are not enough smartphones — Problem is other than top end Androids (read above 14-18k and iPhone  all the other phones are crap for using data  . )

“The data revenues are still growing 70%-80%. “

 

So why still such low number of active 3G customers(3.7 million)? Why the need to cut 3G data prices by 70%?[55]

When Data is Actually Consumed–Not Peak Hours Implies Future of Wi-Fi/4G better than 3G

Sanjay Kapoor-“ On the profitability of data, data does not get consumed in the peak hours that voice gets consumed. It actually extends itself down to even early hours of morning and very late hours of night and therefore the network utilization becomes better with consumption of data and therefore inherently it has a design where it can give you better profitability. “

————– This directly means that Indians are not using data services while on the move. So they will use data when at home – they may use the handset but will get the net via Wi-Fi on a wired broadband or in future via 4G wireless broadband –wait till Reliance finally launches 4G.

On Pricing of 3G

“There is a dysfunctionality on the dysfunctionality in the market world over you see 2G and 3G prices are in line, however in India because of hyper competition 2G prices came down to a low well actually they cannot make too much money for anybody I believe that this will get corrected as we progress .

To give away 6GB and 8GB and 10GB of data on 3G is not sustainable. So, the movement you start to correct the volumes, the pricing automatically will get corrected for the packs. So, I believe both 2G, 3G in the long run will need correction to be realistic and to be profitable;  “

————–  Any hope of cheaper 3G pricing goes right out of the window and consequently any bump in number of users becoming huge data consumption users via 3G.

.

Idea Concall Points[56]

“The 3G voice and data subscriber growth is steady and active 3G subscribers in the

Quarter of July to September 2012 has reached 3.7 million an improvement of over

600,000 customers against April to June quarter. ”

 

————– If the incremental addition to a mobile market of 900+ million people is 0.6 million over a quarter by one operator you can use mathematics to compute how many quarters is needed to go up to around 50% 3G penetration . (Hint- you can take 5 operators and make that 0.6 million to 3 million for ease of calculation)

 

“As consumers experience improves the adoption of 3G will happen, it may sound trickle at this point of time but I have no doubt in my mind that this trickle will become stream over a period of time. So, you will have to wait and watch for this”

————– Unfortunately there will NOT  be a stream of 3G users which the Telecom guys are expecting . It just isn’t gonna happen for reasons mentioned above about how huge usage of 3G is almost completely dependent on fantastic quality of smartphones which are generally priced above Rs. 15000.

 

“The shift of existing customers to Smartphone is key to the growth in adoption of 3G services and we are satisfied with the pace of new Smartphone introduction in the price bracket of Rs.5,000 to Rs.7,500. As the feature rich 3.5” Smartphone average handset selling price falls to below Rs.5,000, we expect the shift of consumer replacement phone purchase pattern in favor of superior 3G phones fueling growth in this category.”

————– For a country where the ARPU is around $3 or around 130 Rupees  how could telecom companies expect that millions will start using data services when clearly Airtel CEO above has pointed out that pricing in 2G is irrational and free 3G data of around 3/6 GB is impractical ? You cannot expect people who are buying Rs. 5000 Smartphone to consume data unless data becomes something like pay 25 rupees and get 1GB or something like that.

———– The problem with cheap smartphones is explained earlier. The point is no matter what you do the experience of using a Rs. 5000 Smartphone is never going to be good enough to lure users into consuming lots of 3G data .Never. The apps are never going to be optimized for the cheap Rs. 5000 rupee android phone with low quality hardware. Users are going to be frustrated using them for consuming data.

The replacement handset market in the country is very robust with almost 900 million consumers holding a handset and over 120 million to 130 million consumers entering the market to replace handsets. If affordable Smartphone’s of 3G are made available that is going to be the driving force for us and we are extremely hopeful that at a point of time in near future inflection will come and volumes will grow. That is why the current focus is to clearly build backhauls, build our packet core as well as build networks to be ready for surge of data traffic whenit comes.

———– Dear O Dear the surge in data traffic is just NOT going to come. I pity the forecasters and people

whose job depends on the coming surge in data traffic via 3G .

“In our specific case, as far as Idea is concerned, we have made an investment of Rs. 5,500 crores for 3G spectrum in the total of Rs. 8,500 to 9,000 crores of investment to start our mobile data businesses, out of Rs.40,000 odd crores of gross block When these investments start yielding results it would have disproportionate impact on the margins .”

—————- this is not going to happen – when was the last time there was a disproportionate impact on margins of any company based on low quality products sudden surge in usage ? And to say this when telecom companies have just cut the prices by 70% for 3G is icing on the cake.

“Mobile operators in US, Europe and even in China have improved mobile data revenue contribution in their overall Revenues ranging between 25% in China to 40% level in USA and Western Europe. In fact in Japan the mobile data contribution now is over 50% of the total revenue. “

Except China all examples given is of developed countries with 100% literacy and a per capita income greater than at least $30000 . How can you even think of comparing the %  data contribution from these developed countries with that of India where ARPU per month is around $3 and per capita income lower than $3700 ?Comparing people’s usage where incomes differ by 10 times should happen only in Alice in wonderland.  The real example should be from Africa and the data browsing revenues from there . They won’t say that. By the way China has greater than 93% literacy , with almost 3 times the Per capita , at least 10 times better infra than India and more than 21% population on Internet vs just 3.37% of Indian population [57]. Also Apple just sold 3 million iPhone 5 in China in 3 days . I can bet my last dollar Apple has not sold 3million total iPhones in India. And you know the reason Indians are poorer than Chinese whether you like it or not.

Reliance Concall [58]

“Feature phones will become redundant. Smartphones will grow to 80% of the market by 2015.

RCOM in 2012 in conference call. —“Data market is 7000 crores, and is expected to grow to 37000 crores in the next 4-5 years. “

——————Smartphones may well be 80% of market by 2015 but that does not mean that the utilization of those smartphones will be that high as well . Please read this amazing clarification of possession vs utilization of smartphones[59] .  Prediction may be Absolutely true for the explosion of data market as well but the only problem is how much of that data consumption will occur via 3G on smartphones/Tablets vs how much will happen via 4G/BWA (Reliance is in play here) , Wired Broadband [60] ,some other new technology .

Five Years from Now the Concall of Telecom Operators will be like this

  • We overestimated the demand for 3G and overpaid for the spectrum.
  • Although the number of smartphones have skyrocketed to almost 30%+ but the users are not using them to use our 3G services to the extent we expected them to .
  • The apps, content and ecosystem have not been customized enough to drive user engagement.
  • The BWA/4G tech by Reliance has meant that most data usage happens via Wi-Fi in home or by 4G phones and hence people have eschewed vigorous 3G usage .
  • We are working very hard to add various VAS services via 3G and custom apps that use 3G data to increase data consumption and drive engagement .

Conclusion

I have looked at things at a second level as Howard Marks my favorite role model of investing has put . He is a brilliant guy Pls go through his letters to investors here[61]. Seemingly simple Conclusions drawn by brain have to be thought out multiple number of times based on data available and probability of things happening here which have happened in other countries.

If you have really reached till here and read through all I have written –Congratulations My work is done . I am satisfied if even one guy could reach till here . Please leave your feedback on this and it will be highly appreciated. In the meantime you can go through other items which I have put in my Blog . And as promised at the start the time you will spend on reading my writings will be worth it . Promise.

By the way if you are a person who can make a decision/refer me for some kind of work which is reflected in my blog please email me. I am unfortunately not doing the work which I love doing i.e. Reading and Thinking and using those thoughts in real life.


About amitkumarblog

Will update later !!!!!!

Posted on December 20, 2012, in Uncategorized and tagged , , , , , . Bookmark the permalink. 2 Comments.

  1. Here is one of the most amazingly wrong predictions by none other than McKinsey – https://www.mckinseyquarterly.com/India/Can_India_lead_the_mobile-Internet_revolution_2746
    “McKinsey research forecasts that the total number of Internet users will increase more than fivefold, to 450 million, by 2015″ You mean to say that in a country of 1.2 billion where more than 300 million live below 32 rupees per day and where almost 30% people are illiterate almost rest all the people will start using internet . lets do the math –
    Total population 1200 milion
    Total Number of illiterate individuals – 400 million ( as literacy rate is around 75% ) Can We remove them from people who will Browse internet — Sure .
    People Left 800 million .
    In any population group there are at least around 15% of population in range 0-6. Can we assume that 0-6 age kids will not all browse internet ?? Yes . Mind you we are not talking of only Mum and delhi kids. we are talking of real india .

    So subtract 15% of 800 million ie 120 million
    left population — 680 million
    Now 5% people are above 65 . i will assume most will not browse internet .
    So now left = 646 million .

    Report says that 450 million ie around 70% of population of India who can mathematically browse internet will actually browse the internet .

    Think about it for a second . Here is a list of countries which have highest population with internet penetration – http://www.internetworldstats.com/top25.htm
    All of them are developed with almost each of them having per capita income greater than $30000 per year . Every single country has a literacy rate of close to 98% and above . And each country has 1 single language as Main language known by every damn individual .
    In India the highest prevalent language Hindi has just 41% penetration . go Figure it out .

    So you have a prediction whereby a country ie India with a per capita income of 1/10th of the developed countries being projected to have same kind of internet penetration 2 years from now ??

    Seriously McKinsey ??? is that even mathematically seeming plausible ???

    Report also says there willl be around 180 million people accessing internet via mobile only. Currently not more than 18 million are active 3G/data subscribers in India. So it says it will jump 10 times in 3 years.
    Possible ???? Really .. ??

  2. wow what an article.. really so detailed. But it is really sad to know that my beloved 3g will not shot up. Lets hope for 4G. Why should we all concentrate in cities or localities where we have wired lines that too from prominent ISPs. We have wireless. Where there can be last mile reach all over the country. 3G or 4G per MB cost has to come down substantially. Is there any hope for that? can we expect 100 GB data plans under Rs. 1500??

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 202 other followers

%d bloggers like this: