After showing modest but double-digit growth in the early part of the decade, the number of fixed broadband connections in India has flatlined, and that is terrible news for the Internet industry in India and the country’s economy. Furthermore, the existing Internet connections offer some of the slowest speeds in Asia and the world, and the rate of improvement has also been slowing down.
The state of the Internet in India is reflected in how much Indians use it. Compared to the rest of the world, Indians engage with the Internet well below average. According to Comscore, an analytics company, on average Indians spent 33.5 mins on news/information sites compared to a global average of 69.7 mins. Indians spent an average of just 28.4 mins on online retail versus 84.3 mins worldwide. For blogs it was 10.3 mins in India vs. 29.5 mins worldwide. Where Indians did spend more time was with online travel, 26.7 mins compared to 25.6 mins. Much of the time spent on travel sites was accounted for by Indian Railways, which could just be explained by the site’s well publicized slowness.
One possible explanation for this lower-than-average level of engagement could be the slow speed of Internet connections in India. Akamai reported the average connection speed in India in Q4 of 2013 was 1.5 Mbps. Most people might already guess that Internet access speeds are low in the country, but the magnitude of the penalty that this imposes may not be clear. Slow speeds can limit people to watching short video clips rather than feature videos, can make online shopping frustrating and can put their data in danger because to download a OS update may take too long to bother. Slow speeds may also persuade people that an Internet connection is not worth having. Lower engagement and a complete disconnect from the Internet could set the entire Internet economy back by years. Imagine a brand new shopping mall with few shops, no parking and limited hours of operation. It would be a disaster!
India may already be experience the effects in other ways. A recent Times of India article notes that Internet startups in India are shutting down, but gets the cause wrong when it says, “With India’s e-commerce industry growing at warp speed, many portals are falling by the wayside unable to keep up with the nature of the beast.” In a “warp-speed” growth environment, we should expect hundreds of startups to be getting millions of transactions. Rajan Anandan Chairman, IAMAI & Managing Director, Google India, said recently that 20 million Indians make online purchases. Yet, according to the TOI article, only 5% of the 900 e-commerce ventures in India are doing a healthy volume of transactions on a daily basis. That comes out to only 45 sites, which is an astoundingly small number. China has approximately ten times as many broadband users as India, and it’s online retail economy is estimated at $106 billion, as compared to India’s $2 billion.
The wider economy as a whole also suffers from a weak Internet economy. In a May 2011 report McKinsey estimated that the Internet contributed about 3.2% to India’s GDP growth in 2009 and 5% during 2004-2009. However the contribution had fallen to 1.6% in 2011, the Business Standard reported in December, indicating that the initial effects of getting connected were wearing off as the pace of connection slowed.
So in the past two years the hype has shifted to mobile as being the driver of the Indian Internet economy. At an initial glance the spectacular growths in the number of wireless Internet subscribers and smartphone owners does seem to bear up the exhilarating predictions about the growth of the wireless Internet. However, as experts also acknowledge, many challenges face a mobile-led Internet, and ultimately, a wireless Internet cannot meet the requirements of an Internet enable society.
The initial challenges faced by a wireless Internet lie on the mobile operators’ side, since they need to build the 3G and 4G infrastructure necessary to support millions of high-speed mobile data users. As of the end of November 2012, only 96,212 base transceiver stations (BTS) had been installed to provide 3G services, out of a total 736,654 BTSs in the country. Most of these 3G-enabled stations are located in the four metros and larger cities, so the country as a whole is quite a way from blanket coverage.
Of course, progress is being made. It is estimated that Indian telecom companies will spend USD7.6 billion in 2014-15, or 6.6% of the global total, on gear excluding handsets, on top of similar amounts in 2012-13 (and presumably 2013-14, though that was omitted). And just one operator, Idea Cellular, reported in April 2014 that it added 4,241 3G cell sites over the past four quarters. However, Idea reported 104,778 2G cell sites, which will eventually need to be converted to 3G. At a rate of four to five thousand a year, full 3G coverage is a couple decades away. It is likely that the other mobile operators are in a similar position. Furthermore, at some point the 3G sites will need to be upgraded to 4G/LTE, again requiring investment and time.
Delving deeper into the challenges posed by wireless Internet infrastructure, note that a 3G-enabled BTS provides just the last mile high-speed connectivity between the user’s handset and the tower. Thereon the BTS also has to be connected to the open Internet via a high-bandwidth medium, referred to as backhaul. By one estimate, only 30,000-35,000 of India’s towers are connected via fiber optic cable, which is ideal for its enormous bandwidth capacity, but it is also exorbitantly expensive. A practical alternative is to use microwave backhaul. The TRAI has just released a consultation paper seeking input on how more microwave spectrum should be allocated. Therefore, the actual allocation and subsequent utilization of this spectrum is still some time away.
There are challenges on the consumer side as well. The most obvious one, prevalence of devices, especially smartphones, that are capable of providing a rich Internet experience—be it via browser or apps—appears likely to be met. India added 100 million smartphone owners in the past three years, though the quality of the hardware, software and user experience is currently unknown. Next, these device owners need to subscribe to mobile data plans. Here again, the numbers appear quite good, with one report suggesting 86 million subscribers who have accessed the Internet on their mobile phones in 2013 and another suggesting 110 million. However the TRAI pegged the number of monthly mobile broadband (3G) users at about 40 million.
Yet the biggest challenge may be the cost of wireless data and the volume required to meet user demand. Coming back to the wired Internet, the average total broadband traffic per wired access, according to the OECD Communications Outlook 2013, ranged from 16 GB to nearly 51GB in 2012 in OECD countries. This is the figure that ultimately cuts through all the other numbers and hype and noise to raise one incontrovertible point: The wireless Internet will not suffice to meet the data requirements when people fully engage in using the Internet for entertainment, shopping, news, banking, bill payment, and the rest.
Some simple math illustrates the point. Streaming video of acceptable quality currently requires about 675MB for one hour of content, or 1.5 hours per GB. Even if the video quality were to be reduced to save bandwidth by half and new technology further cut the bandwidth requirement by half again, that would amount to six hours of video per GB. If people are truly going to shift viewing to mobile, they will need 10GB of data allowance to watch 2 hours of video per day. Other Internet usage will require additional data allowances on top of video consumption. The problem is that this can start to get expensive.
The largest private operator in India currently charges Rs1500/month for a 10GB 3G data plan, or USD25 at Rs60 to the dollar. In OECD countries a 10GB 3G data plan averages USD37.15, and while lower cost plans exist, the speeds also drop to sub-optimal. Across operators in India, 3G plans cost about 1.5 times 2G. Therefore, while data plan costs may come down, they are unlikely to get significantly lower. Even at Rs1000/month, the wireless Internet will appear too costly mobile subscribers who on average spent about Rs112/month as of December 2013
Around the world, widespread availability of a wired Internet is seen as crucial. Recently a former advisor to President Obama called for the US government to provide universal high-speed Internet access in that country. Chinese officials have articulated lofty goals for their country, including covering 70% with 4Mbps broadband. Even in India, not all have given up on this goal. At a recent IAMAI summit, Rahul Khullar, Chairman of TRAI, said on the subject of broadband Internet, “We have done a terrible job.” He did hold out some hope, though, saying, “You will see the authority come out with a paper on broadband in the next 3-4 months on how to get things going.” If the wired Internet doesn’t get moving again, India will be adversely affected by the digital divide, both with respect to other countries and within the country, with a small set of those who have wired Internet reaping benefits closed to the have-nots.