China
China is one of the most unique telecom markets in the world. While in most countries, telecom started as a state owned monopoly, private investment was allowed at some of time nonetheless. China though, has never allowed private investment in Telecom. There are three telecom operators in China namely China Mobile, China Telecom and China Unicom. All three of them are owned and operated by the government. The biggest of them is China Mobile with a subscriber base of around 837 million as of 30th June. China’s internet is censored and this should hardly come as a surprise to most of the people reading this. The Chinese government wants to suppress information. Considering that the internet is an ocean of information, building a strong 3G network was not in the government’s interest. Voice calls were already taken care by 2G GSM networks and hence not much incentive was present to build a 3G network. However, what really compelled the Chinese to build a 3G network was the 2008 Olympics in Beijing. China wanted to portray itself as a modern and developed country and the lack of 3G would make foreigners think that it was poor and backwards. This terrified the Chinese elite who wanted to keep face (respect). China Mobile which was country’s largest and preferred state owned carrier was ordered to build the 3G network for the Olympics. So far so good, however it is at this juncture that the story starts taking a nasty turn. The 2G GSM standard was largely the result of Europe wanting a common telecom standard to facilitate roaming among its countries. Considering that all European countries were ordered to use GSM as their telecom standard, GSM caught critical mass much early and was adopted worldwide including China. However since almost all the development related to GSM happened in Europe, several European companies held significant patents related to GSM and charged royalties for it which the Chinese did not want to pay. In case of 3G, a process called IMT-2000 kicked inside ITU (International Telecommunications union). The goal of IMT-2000 was to prescribe specifications as to what constituted a 3G network, these specifications included stuff like minimum speed required, latency etc. Two standards were developed around the specifications of IMT-2000. These two standards were UMTS and CDMA2000 respectively. UMTS was developed by the 3GPP association while CDMA2000 was developed by Qualcomm. UMTS evolved over the years into what is today knows as HSPA/HSPA+ and CDMA2000 evolved into what’s today known as EVDO. When the UMTS standard was being developed by 3GPP, two kinds of air interfaces were proposed, namely WCDMA and TD-SCDMA. The WCDMA air interface made it to the final release of UMTS, while TD-SCDMA was left out in the cold. The WCDMA air interface was originally invented by NTT Docomo but was later on championed by Ericsson and Nokia respectively. Meanwhile the TD-SCDMA air interface was developed by Siemens. WCDMA related patents were now owned by Ericsson and Nokia while EVDO related patents were owned by Qualcomm as these companies were the ones that put their R&D dollars behind these standards. If China deployed either WCDMA or EVDO, they would be compelled to pay royalties which they didn’t want to. China had made it very clear that it would not be using any of the already present LTE standards but would rather develop their own LTE standard from scratch. China now had a troubling situation in its hands. On one hand it needed to have a 3G network ready before olympics while at the same time develop a brand new 3G standard. Developing standards for a particular telecom generation is a very time consuming and resource intensive process. China neither had the skill nor the time to develop it own 3G standard. So China took a shortcut. Remember we said that in case of UMTS there were two air interfaces namely WCDMA and TD-SCDMA and how TD-SCDMA never saw the day of the light? Well China just went ahead and bought the TD-SCDMA standard from Siemens. China now had its “own” 3G standard ready. Soon China Mobile, China’s dominant and more beloved state owned carrier was asked to roll out a telecom network based on TD-SCDMA. However TD-SCDMA was a broken standard. The speeds and consistency of TD-SCDMA was hardly anywhere near that of WCDMA or EVDO. The biggest irony is that the Chinese forgot to factor in device compatibility in the grand plan. Devices sold outside of China never really supported the TD-SCDMA network. So when foreign athletes came to China for Olympics in 2008, their smartphone never really worked with China Mobile’s TD-SCDMA network. Rather foreigners during 2008 and even today use China Unicom or China Telecom depending on whether their smartphones support WCDMA (China Unicom) or EVDO (China Telecom). For years, users of China Mobile were stuck with a broken 3G network. It’s unclear why China Mobile users didn’t migrate to China Unicom or China Telecom which had better 3G networks, but if we were to take a guess we think it was because all the three Chinese carriers are state owned which means there is zero competition between them. Also the fact that in China, telecom operators sell devices themselves so devices sold by China Mobile were based on TD-SCDMA and there was no way they could work on China Unicom or China Telecom. Plus MNP was never introduced in China and the first trial started only around 2014 or so. To quote a South China Morning Post writer But by October 2013, China Mobile started deploying 4G. Although in case of 3G, China Mobile was making use of a broken TD-SCDMA standard, but when it came to 4G, China Mobile was using LTE which was a globally accepted and well developed standard. As of today around a million LTE base stations have been deployed by China Mobile for LTE. For years, China Mobile users had used terrible 3G and despite the terrible 3G, they had only grown more reliant on their smartphones because of apps like WeChat that helped them do everything from their smartphones. So when Chinese users who are one of the most obsessive smartphone users in the world got the opportunity to jump from the broken 3G network to a much superior LTE network, the result was massive migration. To give an idea of how massive the migration was, consider the comparisons mentioned in the next paragraph. Between May 30 – June 30, around 21 million subscribers were converted to 4G by China Mobile. In just a month, China Mobile converted 21 million customers. Airtel, India’s largest telecom operator took at least three years since the launch of 3G in India to cross 20 million 3G customers in India. All the top four telecom operators in the US do not add 20 million post paid phone subscribers combined in a year. As of this month, more than 50% of China Mobile subscribers are on 4G. The number of 4G subscribers is 4 times more than that of 3G customers. Take a look at the pic below obtained from China Mobile’s website
This chart from Counterpoint also shows the stark difference between 3G uptake and 4G uptake in China.
India
India did not have a technological problem like China. Indian telecom operators deployed proper WCDMA networks in India. However what affected India was a seismic shift in market dynamics. When it came to 2G, Indian telecom operators just had to apply for a UASL license. Just by paying a fixed fee, Indian telecom operators could get a UASL license and spectrum was bundled with the license. What’s more is that extra spectrum allocation was done when the telecom operator hit a certain subscriber base. This made the cost of spectrum essentially negligible to Indian telecom operators as far as 2G was concerned. Apart from this, the 2G spectrum scam, although wrong, significantly expanded competition in Indian telecom market which brought down prices even more and increased voice volumes even more. When it came to 3G, it was decided that 3G airwaves (2100 Mhz) would be auctioned instead of being allocated administratively as was the case with 2G. In 2010, the government decided to auction 3G airwaves in India. Only 3-4 blocks of spectrum was available for auction in all circles of India. For these 3-4 blocks of spectrum, 7 operators were bidding. These 7 operators were Airtel, Vodafone, Idea, Reliance, Airtel, Stel and Tata Docomo. 6 of these operators had cash rich parents who were optimistic about their future in India and wanted to get as much 3G spectrum as possible. The result was a pricey auction. No single telecom operator was able to gain 3G airwaves on a pan India basis and even those who got 3G airwaves in 10-13 circles won it at really expensive prices. Telecom operators had to take loan to finance the payment of auction prices and for the roll out of 3G networks as well. Considering the significant investment that went into buying 3G spectrum and rolling out 3G networks, telecom operators had priced their 3G data packs equally high in order to recoup investments. What telecom operators got in return was lukewarm response. Considering that every circle had 3-4 telecom operators, competition led to price cuts and that did help in growing adoption a little but considering the amount of loans these operators took for 3G, the interest of the loans itself started cutting into free cash flow significantly. Soon operators like Aircel, Tata Docomo, Reliance etc didn’t have the financial muscle or were rather not interested in expanding their 3G networks anymore. By 2014, only three operators namely Airtel, Vodafone and Idea were seriously investing in their 3G networks. These three operators had formed a cartel in India and would never undercut each other in terms of pricing. If Airtel increases its pricing, Vodafone and Idea would follow up in a few weeks. Similarly if Idea were to decrease pricing, Airtel and Vodafone would follow up in a matter of weeks. But considering the amount of debt operators had taken for 3G and the capital intensive nature of telecom, Airtel, Vodafone and Idea only increased prices from 2014 onwards. Aircel, Reliance and Tata did have cheaper data packs but their lack of investment in 3G networks meant they didn’t pose any credible threat to the AVOID (Airtel, Vodafone, Idea) cartel. The result of all this has been poor uptake of 3G. Sure one could argue that ever since 3G has launched in India, uptake has only increased, but considering India’s total mobile subscriber base, this uptake is measly. Only 12% of Airtel’s subscriber base are on 3G/4G connections. It has been almost 6 years since Airtel launched 3G in India. This all boils down to a conversion rate of 2% per year. However slow uptake of 3G wouldn’t have been a problem for Indian carriers had it not been for Reliance Jio. If Reliance Jio was not present, current Indian telecom operators could have delayed the rollout of 4G and continue to squeeze more revenue from the 3G networks. However Reliance Jio is present and already has a 4G network whose coverage is better than the 3G network of current operators. This has forced Airtel, Vodafone and Idea to speed up the roll out of their own 4G networks. Thanks to the advent of Chinese smartphone manufacturers, prices of 4G smartphones in India have declined rapidly. Counterpoint estimates that 2 out of every 3 smartphones sold in India are now LTE capable. LTE is inherently better than 3G technologically and no telecom operators is charging a premium for LTE. If you do a 3G recharge and your phone is LTE capable, then you’ll automatically be switched to the operator’s LTE network. Once Reliance Jio launches in India, LTE adoption will grow even more. There are many people who’ll be leapfrogging from 2G to 4G directly. Many feature phone users would be jumping on the smartphone bandwagon for the first time in the coming years. The falling prices of LTE smartphones coupled with the impending launch of Reliance Jio and the expedite 4G roll out by Airtel, Vodafone and Idea should lead to good 4G uptake in the coming years.
Pakistan
Pakistan’s story is also a little twisted. 3G and 4G licenses were auctioned simultaneously in Pakistan 2-3 years back. Zong (China Mobile’s Pakistan subsidiary) and Warid had won LTE licenses in Pakistan. But Pakistan’s dominant operators namely Mobilink and Telenor had initially started with only 3G. But in a series of moves, Mobilink merged with Warid to form what’s known as Jazz which has both 3G and 4G in Pakistan. Zong has 3G and 4G from the very start. Soon enough, even Telenor got 4G spectrum in Pakistan and now all the top three telecom operators in Pakistan have 3G and 4G networks within a short span of time. At least in India, there was a 4-5 year gap between roll out of 3G and 4G, giving 3G at least some leeway. In Pakistan, the gap between 3G and 4G roll out is almost non-existent. Currently, 3G subscribers far outnumber 4G in Pakistan but again taking into consideration falling 4G handset prices and lack of meaningful price differentiation between 3G and 4G, it’s difficult to see how 3G would survive in Pakistan over the longer run especially since it doesn’t even have a head start over 4G. Below is a graph showing growth or rather slowing growth of 3G additions in Pakistan obtained from ProPakistani (Note some of it is because of the recent biometric verification drive in Pakistan)
Conclusion
While in China, 4G has already trumped 3G by a huge margin, the same is yet to happen in India and Pakistan, but considering how emerging economies often leapfrog to newer technologies and often skip technologies in between, we wouldn’t be too surprised if the same was the case with 3G and 4G. For example, China totally bypassed credit cards and jumped directly to mobile payments. Same is expected to happen in India thanks to companies like PayTM. Sure, there are a few million people in India that do have credit cards, but mobile wallets are expected to be dominate cashless transactions and in some ways already do considering PayTM’s 100 million users. Consider 3G as credit card and 4G as mobile wallet.
