Special: 3G takeoff

afaqs! attempts to decode what 3G will mean for telecom operators and consumers, and how that might change the nature of marketing communication.

A product category that did not exist 15 years ago is now among India's top ad spenders. Last year, 2009-10, telecom marketers spent an estimated `1,400 crore in communicating to their consumers.

According to media agency Mindshare, about Rs 1,000 crore went into television with print getting Rs 195 crore and radio Rs 104 crore. Mindshare estimates digital spends of about Rs 30 crore and industry estimates peg out of home budgets at another Rs 100 crore, taking the total to around Rs 1,400 crore.

Now that 3G is upon us and is expected to change the telecom business in a fundamental way, will it also affect the nature of the media plan?

3G will be a big business as evidenced by the fact that seven private players bid and won licences across all the 23 circles in India, paying over `65,000 crore between them. These seven include Vodafone, Bharti Airtel, Reliance, Tata, Aircel, STel and Idea Cellular. MTNL and BSNL introduced 3G last year but failed to create much buzz.

People in the telecom business are both excited and nervous about what 3G could mean. All of them have been brought up in the 'voice' era and are trying to adjust to the reality that growth will now come from 'data' (that is, everything other than voice). To complicate matters, there isn't a single telecom player who has got a 3G license across all circles. Pricing and service delivery will be a complex issue. Some form of collaboration between service providers across circles seems inevitable.

There is excitement because, in the simplest terms, 3G will enhance the mobile telephony experience. In voice, this means greater clarity and fewer call drops while in VAS (value added services) 3G spells efficient interactivity on the move, with outstandingly fast speed for internet access, downloads, photos and video sharing and more.

afaqs! attempts to decode what 3G will mean for telecom operators and consumers, and how that might change the nature of marketing communication.

A whole new world

In just 15 years, mobile telephony in India has been through a lifetime. In the early days, the task was to educate consumers about easier mobility and talking on the go, which later became a fight to gain critical mass and penetration. The coming of Reliance opened up the market for the common man. Unrelenting competition brought rates down, making India one of the most affordable mobile telephony markets in the world.

As rates fell, telecom service providers turned to other forms of earning revenue, known in the business as VAS. Though technically a part of VAS, peer to peer SMS (that is, messages from one consumer to another) is low value and not much of an improvement over voice. Of the rest, the only other VAS service to have really taken off is ringtone downloads.

The one recent exciting development is the mobile web which has grown by over 300 per cent in the last 12 months. Beyond that, the success of VAS has been limited.

It is currently a pale reflection of what it ought to be: one may talk of cricket, Bollywood and 'Astro' alerts but these are just 'scratching the surface' variety of applications.

In a voice-dominated business, VAS currently contributes around 10-12 per cent of the total revenue. According to telecom analyst Kunal Bajaj, director, Analysys Mason, VAS' share is expected to reach 20 per cent by end of 2014, with the average for the 3G user being higher than the one using 2G.

Experts believe 3G will be more about enhancing the VAS experience. "Voice clarity will be slightly better, but it won't be much of a discernible difference for a consumer," reckons Mahesh Prasad, president, Reliance Communications. "Speed is where 3G will make a difference," he adds.

Punitha Arumugam, group CEO, Madison Media, which handles the Airtel media account, adds that 3G won't increase the now stable voice revenues "for sure". "In fact, fewer call drops means I won't land up calling the same person ten times, so hey, where's the revenue?" she quips. "As far as 3G goes, the excitement around VAS is what will lead to revenues."

TG for 3G

Popular notion has it that 3G is aimed at only the top 10 per cent of the subscriber base. Within this, media planners predict that youth and business executives will adopt 3G quickly, and should be ideally targeted. The typical ARPU (Average Revenue Per User) today is around `200 per month but for the top 10 per cent it is about `900-1,000. College students are tech savvy and will guide growth in mobile social networking but many others don't know how to use data services and will need to be guided through marketing communication.

"3G won't be cheap at all," states Kapil Arora, senior vice-president and country head, Team Vodafone at Ogilvy India, because the government has offered a limited amount of spectrum and companies have paid a fortune for it. Players cannot afford to 'massify' it.

However, another school of thought says targeting just the cr�me de la cr�me won't work - 3G after all, is not a service in itself, but a technological enabler of services. Which socio-economic strata are targeted could well be an equation of the mix of services a telecom operator chooses to promote on the back of 3G.

Telecom analyst Mahesh Uppal prophesies that in the initial stages, the top end would be the ideal TG as it is more familiar with gadgets and data services. But elements like Bollywood, cricket and religion generate huge interest, so in small towns perhaps 3G can help capitalise on the craze for such information and entertainment.

Low-spend consumer in small-town India could be enchanted because they can't get enough of big-town India. "If 3G can be a facilitator on that count, it will excite all of India," thinks brand consultant Harish Bijoor of Harish Bijoor Consults. If the price is right, it could get in people who have never gone online leapfrogging to use the mobile web.

Another marketing consultant, Delhi-based Samit Sinha, in fact thinks that "the moment we have mobile phones giving an enhanced experience and bigger screens, things will explode. The internet consuming population on mobile phones will probably double overnight!"

It may be realistic to assume a '3G for all' scenario, the way tariffs are getting competitive already, with the launch of Docomo's 3G service at 0.6 paise per second. "It won't be a terribly niche technology. There will be substantial numbers. It isn't just about better data services, it is also about leading to the spurt of better devices, larger screens and applications. So, the 3G reach will be better as affordability and devices get better," says telecom analyst Bajaj.

Pricing: it's all about money

In 2008, it was assumed that the top 15 per cent of the subscribers would turn to 3G within five years of launch. That figure is now being revised to about 20-25 per cent. As time passes, the belief that 3G is unaffordable is being questioned and market forces predict that competitive pricing will shape its future. There will be bundled offers - applications for free, advertising of co-branded handsets and devices (like music devices).

Prashant Gokarn, senior executive vice-president, Reliance Communications (which will roll out its 3G services by 2010-end), says that services on 3G will be for every class of consumers. The latest music video by a popular artiste will cost more than a low resolution Hindi song video, for instance. There will be affordable services for the lower classes and the media mix will vary accordingly.

3G poses different challenges for newer and well established players. While established players struggle to get their high-end subscribers to warm up to the concept, newer players might bleed a little more as they try to get the higher revenue subscribers to migrate to them, especially in view of imminent number portability.

Affluent and perhaps urban audiences will like a good mix of entertainment and utility services, while the less privileged and rural audiences will prefer mostly utility services, feels Ravi Kiran, the outgoing CEO, Starcom MediaVest Group, South Asia.

There will be affordable services meant for the lower SECs as well - today, 3G-enabled handsets are available at price points as low as `1,900. Clearly, 3G need not be a premium offering, if a customer sees value in it, he will pay for it.

What it means to advertising

How will all of this change the nature of telecom advertising? A lot of layering will be involved when one talks of the manner in which 3G is presented to the public. Telecom experts agree that educating people about 3G is extremely important, and the initial stages of communication perhaps ought to be about the general experience of 3G without getting too technical. A prime job will be to make current 3G-enabled handset owners understand what they can do with 3G, and convince non-believers - or who are unaware - to make the switch.

Abdul Khan, senior vice-president, marketing, Tata Teleservices, feels the advertising should highlight access to entertainment whenever and wherever one wants at mind-blowing speeds.

"Communication will be more about the services mix one uses," he says. 3G will encourage telecom players to increase their allocation for online and mobile advertising significantly.

Arumugam of Madison Media says it is difficult to predict media plans since these will depend entirely on a marketer's game plan. "There will also be a big push on experiential marketing, since a lot of 3G service benefits will need to be demonstrated person to person," opines Kiran of Starcom.

So the judgement at this stage on how telecom operator's new media plans will look: television will continue to be the driver medium with support from the print.

However, as telecom operators try to reach the young as well as business executives to build the early mass of 3G converts, spends on online media, mobile advertising and experiential media will increase significantly.

(Based on interviews with Abdul Khan, senior V-P, marketing, Tata Teleservices, Anand Halve, director, chlorophyll, Harish Bijoor, brand expert and CEO, Harish Bijoor Consults Inc, Kapil Arora, vice-president and country head on Vodafone at Ogilvy India, telecom analyst Kunal Bajaj, director, Analysys Mason, Mahesh Prasad, president, Reliance Communications, Mahesh Uppal, telecom consultant, Prashant Gokarn, senior executive vice-president, Reliance Communications, Punitha Arumugam, COO, Madison Media, Ravi Kiran, the outgoing CEO, Starcom MediaVest Group, South Asia, and Samit Sinha, managing partner, Alchemist Brand Consulting).