Migration to 3G Mobile Telephony

The Indian telecom industry has received a boost with the Union Minister for Communication & Information Technology, Thiru A. Raja announcing the 3G spectrum auction guidelines. While there will be up to 5 players initially - 4 GSM and 1 CDMA, eventually up to 10 licenses may be handed out by the end off the year with services being launched as early as mid 2009. 

3G will come with significant increase in network capacity for the choked wireless networks of today.  This capacity will be used to improve voice call quality and offer higher data throughput.

Most operators in India will leapfrog 3G (WCDMA) and deploy 3.5G or HSPA allowing a Downlink and Uplink speeds of 7.1 Mbps.  These speeds are per cell site so will get divided amongst the number of 3G users accessing services and will also be impacted by voice calls.  So, in reality, the data speeds will be much lower, though one can generally expect data speeds to increase by 5-7 times - a substantial improvement over the current speeds available.

These developments spell exciting times for the VAS industry as it enables new richer applications, improved experience with existing VAS applications, which in turn means a big business opportunity in the space.

§      3G will give an impetus to entertainment services. End users will be able to tune into radio stations, download and listen to full music tracks on their handsets and this will represent a huge opportunity waiting to be tapped in India. Video content on handsets is picking up globally in the US and European markets and we can expect similar trends here.

§      3G will drastically improve the mobile internet experience. This coupled with widely available lower priced data handsets will lead to increased consumption of data services on mobile. Many users will access their favourite websites and email from their mobile devices in addition to their laptops or desktops. Also the mobile will also become the first medium of experiencing the internet for a large number of new users.

§      3G speeds will take the social networking buzz to mobile handsets and will it will get even bigger with users being able to upload photos and content from their handsets.

§      More and more companies will now turn to develop their WAP sites as an additional avenue to reach out to a large set of customers.

§      Mobile ERP applications and sales force solutions will find greater acceptance among enterprises as well.

Reality Check:

Of course a lot depends on how these services will be priced. For example, 3G can lead to bulk voice and data plans, but if data pricing is remains expensive many of the rich media applications will find it difficult to take off.

3G services will initially be offered in metros and work slowly work their way inland – much like the way 2G technology was rolled out. This will initially restrict the 3G customers to the larger towns.  We expect 3G penetration to reach 6-10% in 3-4 yrs – which is still a sizeable 40- 60 million user base.

Service operators will leverage their 3G offerings to differentiate themselves and will introduce promotions around the technology and rich media applications on offer. However, a considerable amount of benefits of the additional spectrum provided by 3G will be utilized to improve voice quality by operators.

Challenges associated with accessing VAS over mobile devices will remain, such as – convenience, usability and device form factor.

Implication for VAS vendors

Voice prices are already very low in the country and the additional 3G spectrum along with the increased number of mobile operators will drive this lower. Further voice is a commodity and operators will look for unique VAS applications to both differentiate themselves from the competition as well as drive revenues and profits.  Many of these applications will be heavily promoted by the operators as well in mass media and therefore present a big opportunity for VAS vendors. 

3G will provide the biggest boost to the fortunes of entertainment focused VAS vendors – particularly those dealing with music, and will provide an opportunity for players to emerge on the mobile video space.  Data oriented VAS vendors will finally start getting their day in the sun as data applications will thrive on higher speeds.

Portfolio News

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At Canaan

Alok Mittal MD Canaan Partners will be participating in the ongoing Tata-NEN Hottest Startups 2008 as one of the experts and help to shortlist 30 start-ups for the final round. The contest aims to find the top five hottest start-ups in India through expert ratings and multiple rounds of public voting.

Deepak Kamra and Maha Ibrahim, General Partners at the Canaan Menlo Park office are visiting India in the first week of September 2008. Deepak joined Canaan in 1991 after an 11-year career growing technology startups into successful global leaders. He is focused on investments in digital media, specifically as it relates to the seismic shift taking place in online advertising. Deepak led Canaan’s early investment in DoubleClick, the Internet’s first and leading online advertising solution; Match.com, the most popular dating site worldwide; and BharatMatrimony, the world’s number-one online matrimony site. Maha joined Canaan’s Menlo Park office in March 2000 and focuses on digital media, networking and wireless investments. At Canaan, Maha helped to negotiate and manage a partnership between Tacit Networks and Brocade, and established Canaan as a lead investor in Mobilitec and Mino Wireless.  Maha also led the firm’s investments in PicksPal and Watercooler, both leading community applications via social networking platforms.