To many of us following the 3G saga in India play out over the last three-four years, things have become quite frustrating over the past eight months. There has been a consistent push from government ministries to increase the base price for the 3G spectrum auction, and since licenses and spectrum are linked, it is likely that the auction will not be about spectrum but market entry for yet another telecom operator. That may push up prices again.

But let’s be very clear about two things: firstly, that the 3G auction is about spectrum. And secondly, that 3G spectrum will merely marry high bandwidth with mobility, and there will be no jadoo (magic). 3G is not about applications or video as some will tell you: it’s just taking bandwidth that you get on your broadband connection, and making it mobile. Sure, there might be some services hosted remotely, similar to Hello Tunes/CRBT, but a majority of the applications will need to be actively accessed by users, and can be data heavy.

The persistent fear is that 3G in India will not be about higher bandwidth, but about voice, since telecom operators are focused on a “land-grab” of subscribers. That would be a mistake: more spectrum – 3G or otherwise – will be coupled with a decline in average revenue per minute as subscribers get added, since most of the new subscribers will be at the lower end of the ARPU pyramid. It will lead to fewer network issues and dropped calls, and at best, it may help the average cost per minute decline, though the cost of spectrum is a cause for concern.

Incremental usage – and one that provides higher margins than voice – will come from data. Data usage is tricky on the mobile phone; at last count there were 85 million GPRS enabled handsets in India, and a yarn has been spun over the last year and a half about Indias massive mobile data usage. It is likely that a minority of power users are consuming a lot of data on the mobile. When there is spectrum to spare, it will be wasted if users are not making calls. When there is spectrum to spare, the focus should be on increasing an individual users mobile usage during the day – if they’re not using voice, then they should be using data.

However, the learning curve for data usage on the mobile is steep, and the form factor of the device doesn’t encourage long and sustained hours of usage. It is important that telecom operators encourage users to start with data usage as soon as possible, because when they finally do get the spectrum – for the time it will take in building usage – spectrum will be under-utilized. Telecom operators, except maybe Aircel, appear to be doing little to encourage the growth of data usage.

I think that the telecom operators in India need to look back at how they grew SMS usage; SMS currently contributes to around 5% of revenue of listed telecom operators, while non-SMS (voice services, music and data) contributes almost as much. But like voice, SMS will have limited usage, and limited potential for growth. The mobile Internet has the potential of the Internet.

For a few months, telecom operators need to make data free for everyone: promote it and let it spread by word-of-mouth, let people get addicted to data, and then flip the switch to 3G once the spectrum becomes available. Habits would have been formed, and higher speeds would mean greater data utilization and growth in overall revenue per minute.

The worry is that flipping the switch will be a difficult decision to make, because of the cost of the 3G spectrum which will force telecom operators to skim the market, or offer premium content services, which won’t find many takers. Amp’d Mobile is a case in point, but you don’t need to look too far beyond MTNL and BSNL to see that premium content on 3G has not worked. Though I would recommend they start now, I think we will see telecom operators push data usage over the next few years. There isn’t much choice.

Note: please feel to critique or add to the points made. In case you have a take on what else telecom operators can do, please do share with us.