First some details on the current situation in India:
- Population: 1.1 Billion
- 80% live in rural areas and survive on agriculture
- 39% are illiterate
- 27% live below the poverty line
- 77% live on less than US$0.50 per day
- The economy is growing at around 8-9% annually (and has done so for a few years), similar to China, but is still far behind in infrastructure – traffic congestion is throttling and there is not yet a metro/underground in the main cities, although some are being built.
- 2% PC penetration
And from a mobile phone perspective:
- It’s all 2G. No 3G licences have yet been awarded.
- It’s GSM. Both the CDMA technology operators (Reliance and Tata) who have a combined share of around 20% are said to be planning GSM technology rollouts, because the technology is cheaper and there is a wider range of handsets.
- It’s growing faster than anywhere else. Over 9 million new subscribers every month, with around 180million subscribers reported today. That’s still a huge growth to catch up with China, which has almost 500M subscribers, increasing by some 4M/month.
- Around 200,000 towers, with around 20% of towers hosting more than one operator’s basestation equipment.
- ARPU figures vary, with a lot of the newer subscribers probably in the US$ 2-4/month bracket, although overall the industry makes around $8/month
- Call rates are in the order of US 2 cent/minute.
- Yankee reports operator share of Bharti 30%, BSNL 18%, Reliance 17%. Vodafone (formerly Hutch) is growing quickly.
- 2G cellular data cards, using fixed price data plans, are becoming popular in a similar way to 3G cards/USB dongles promoted in developed countries. The data rates and capacity are more limited.
Yet from a wired broadband internet position:
- 3 million broadband DSL subscriptions
- 8 million copper loops capable of delivering broadband.
- 10 million dialup internet users.
- Fibre is being laid across the country, but fibre-cuts remain a regular fault
So if we look at the potential for 3G femtocells, we find there is little comfort:
- No 3G licences available yet – this is probably some years off, whilst the country focuses on basic 2G voice/text rollout.
- Virtually no wired broadband to support significant volumes.
- Any 2G femtocells would likely conflict with the tight spectrum reuse and frequency planning of the macro network, so would be discouraged except where deployed and managed directly by the operator in extremely high capacity locations.
- The business case for coverage fill-in doesn’t stack up – broadband is unavailable in areas which don’t have cellular coverage.
- The business case for data in the home is even more difficult, with relatively low levels of domestic computer penetration. There is more likely demand for mobile broadband access via macrocells, using the new HSPA, HSPA+ and LTE technologies when 3G spectrum is made available.
So it’s not a question of deployment of 3G femtocells in the Indian market coming a few years after the developed world. The complete lack of copper loops, and the changing technology that makes it more feasible to deploy wireless broadband than dig up and lay new copper loops. The services that femtocells would offer are therefore more likely to be delivered over the macrocellular network (with microcellular support) in the medium and long term for any developing country. There is some interest in 2G picocells which would be deployed by the operator in enterprise situations to handle high traffic concentrations, but this is a different application, technology and market segment from the 3G proposition.
So what does this say about market segmentation for femtocells? Key factors which would make the product more attractive include:
- Wireline broadband availability/penetration (or even copper loop capacity)
- Mobile subscriber penetration
Some factors which could be considered, but are probably more ancilliary:
- Prepaid versus postpaid mix. This is more related to the adoption of banking services in a given market than anything. So countries where few people have bank accounts, or where credit checks are not easily performed, have been successful with prepaid mobile for up to 99% of customers. This is different from developed markets, where prepaid is considered low ARPU (but not necessarily low profit), increasing market penetration by making it available to almost everyone regardless of credit record, age or fixed abode. Mainly prepaid markets such as Italy should not find this
- PC penetration. Globally, there is somewhere around 1 Billion PC’s used by the world’s 6 Billion population, compared with about 3 Billion mobile phones and 1 Billion fixed lines – we’ll ignore the double counting of work/home PCs or phones to keep it simple. But as we’ve said above, in countries with more PCs and/or laptops the more significant factor is how these can be provided with a broadband connection. If there is no existing copper loop or cable modem, then macrocellular wireless is the only way to go.
So to summarise:
3G femtocells are irrelevant, both now and in the future, for developing countries. They are much more appropriate in countries with higher ARPU, high broadband, PC and mobile takeup, especially North America where there are coverage gaps and high internet usage.