Broadband user base still has a long way to go

Abhishek Goenka, partner, BMR Advisors, who leads the firm’s real estate and information technology practice, agreed.
"While the over 100 million users comprise less than 10% of India’s population, it is 20-30% of the urban population, which is an exciting enough number," he said.

India and China are strengthening their position in the global Internet ecosystem rapidly, a May 2011 McKinsey report had noted.

"Both countries show growth rates of over 20%," said the report, even as it pegged the total (estimated) worldwide contribution of the Internet at $1.67 trillion (2.9% of total gross domestic product).

It added that public expenditure on the Internet—including spending for consumption and investment by the government on software, hardware, services and telecoms—ranged widely from 5% of the total GDP contribution in India to more than 20% in the UK, the US, Brazil and Russia.

Despite the optimism in the industry, there is a consensus that unless broadband numbers and speeds increase, meaningful commerce on the Internet will not happen in India.

Broadband subscriber figures stood at a mere 12.69 million in August, according to the Telecom Regulatory Authority of India (Trai). In contrast, China had around 364 million broadband users (98.1% penetration) in 2010, according to InternetWorldStats.

This has a bearing on growth—a 2009 World Bank report suggested that GDP expansion in developing countries gets a boost of 1.38 percentage points for every 10 percentage point increase in broadband penetration.

An October 2011 report by Ericsson, Arthur D Little and Chalmers University of Technology in 33 Organisation of Economic Cooperation and Development (OECD) countries, confirmed that doubling the broadband speed increases GDP by 0.3% which, in the OECD region, is equivalent to $126 billion. The study also revealed that further doubling speed can yield growth in excess of 0.3%.

Kartik Hosanagar, an associate professor at Wharton School of the University of Pennsylvania, and co-founder of Yodle Inc., agreed that the definition of broadband in India (256 kbps and above) should be upgraded to international standards (1 Mbps and above) while adding that the 100 million mark "is a very important number, since it provides a big enough market for large firms wanting to play in it".

Sunil Abraham, executive director at the Centre For Internet and Society said the broadband volume was small and that India was not a big market like China.

He rued that the government had not done enough to facilitate broadband adoption, the way it did for mobile phones. There were around 866 million wireless connections till this August and 70% of them were active, according to Trai.

Shree Parthasarathy, senior director, Enterprise Risk Services, Deloitte India, listed weaknesses in the 100 million-plus Internet user base, with most people still using it to check email and social sites.

In the 30 urban cities where the survey was conducted, 89% use it to access email, 71% for social networking, 64% to search education-related content, 55% for chat and 49% to access video, music and images, according to the latest IAMAI report.

Online transactions are not a significant part of this as yet. "It will increase in years to come, particularly when people begin to see more value in e-stores than brick and mortar stores," Parthasarathy said.

Murthy of Pinstorm offered a different perspective—the reach of the Internet now rivals television, he said. "To reach an upscale audience in India, the Internet is now the only mass medium—TV is a niche medium here. This is a reversal of traditional roles."

Goenka of BMR Advisors, however, said the comparison of Internet penetration with the reach of TV sets was unfair and that the two markets were very different. "TV units are also found in semi-urban and rural areas, whereas the 100 million Internet (users) are indicative of the spending powers of these users. It is a good indication for e-commerce companies."

Analysts like Goenka of BMR Advisors and Raghav Anand, associate director, Ernst and Young India, contended that smartphones and 3G networks would accelerate the growth of the user base.

“The 120 million Internet user base indicates that the run rate is good, and it could be 200 to 250 million in two to three years,” Anand said. “The numbers are significant and anyone looking at investing or scaling up should do it now. The growth rates are making Internet play very interesting.”

Since 75% of the users are young, adult males, “it is a very attractive segment for advertisers also”, he said. Of the 250 million Internet users in three years that he predicts, “120-130 million would be through phones.

This article by Leslie D’Monte & Deepti Chaudhary was originally published in Livemint on 15 November 2011. It can be read here