What Ails Broadband In India

Every year we are presented with a rosy picture of how the internet will explode in India in terms of growth and usage. Even though this scenario has remained unchanged from the times of bubble 1.0, active users in India has never gone over 100 million by even the most liberal of estimates. In the years since 2005 this story changed to hang all its hopes on 3G as the one-stop-solution to all the penetration woes. While the 3G auctions may have made the government's books look a lot nicer, it has done little to further the cause of truly empowering India on the digital front. Meanwhile, with 3G pricing showing little recognition of market realities, the new saviour in town has switched to LTE. I won't hold my breath for that one to work either.

So what really ails broadband in India? I have looked previously at the product aspect of the issue, so I won't go over it again. In this post I will cover policy and pricing instead.

Policy: For a nation that can benefit hugely from a well-connected population, we have policy and governance that does little to foster it. The astronomical rates at which 3G auctions have gone will ensure that telcos have little inclination or incentive to price their 3G offerings at a reasonable rate. Even though there are plans that are as cheap as Rs 99 per month, they have such low usage caps that with any real-world usage, users will wind up paying many times more that amount.

We need to remember that the current environment is one where the bulk of customers are generating less than Rs 300 in ARPU. These are the people who make up the majority of the market and expecting them to pay even Rs 100 on a whim on data is being ridiculous. So you can imagine what a non-starter the severely capped/priced plans are going to be. For the larger market to use digital services liberally, the pricing needs to be much more realistic. Yes, the regular users are using the internet more these days, but we need more non-regular users to be online.

Internet in India has the potential to be transformational beyond belief. We have made positive strides in e-governance and digitizing parts of the government machinery, but the government needs to do more to provide the platform on which a vast majority of our can access information, education and services. The current levels at which the services are priced, they don't ensure either unfettered use or they wind up being unaffordable.

Pricing: There is considerable pressure on margins for telcos from voice. Since voice APRU is not exactly shooting through the roof and VAS having now gone past its glory days the squeeze is truly on in data ARPU. Even in 2009, the ARPU for data on Airtel was $13-$14, which even by today's standards is considerably higher than what most telcos earn on voice. In 2009, you could easily find more than a handful of plans priced under Rs 1000 per month.

By Airtel's own admission its current popular plans are Rs 1299 and Rs 699 per month. By 2009 the company had completed work to make its network 100% ADSL2, which meant that any further increase in infrastructure cost would have been because of the upgrading their network to VDSL2 in select areas. The other cost component, backhaul, does not seem to be a major problem since they were easily allowing 100GB caps on lower end connections earlier, which they are now scaling down to 20GB – 50GB, depending on the plan you are on. Moreover, the network has inbuilt capacity to support IPTV, which requires about 8Mbit of sustained connectivity. So, the story of network capacity being a bottleneck does not hold too much of water.

Looking at the figures, it is easy to understand why the company is going hammer and tongs and after getting more margins out of users. It is easier to get a data user to shell out an extra Rs 500 per month than to get a voice user to do the same. This, though, is an awful thing since it is now leading to a situation where due a lack of transparency and bad pricing usage will go down in the longer term as users are forced to shell out more for less.

Looking at Wimax, which is the only realistic option that can get the internet to areas beyond the big cities, the situation is no better. You will rarely find plans here that cost less than Rs 1000 per month. In economic classes where the spends between all family members combined on voice is less than Rs 1000, how can you expect them to shell out Rs 1000 for data alone, especially when there is a lack of compelling applications to even get them started in the first place?

Conclusion: The big Indian digital story requires us to get most of the population hooked up to the internet. Right now, at even moderate usage levels, that will cost at least Rs 700 per family. This is unrealistic and the root cause of why the proclamations of 'the year of internet' in India has never come true. At this point in time neither the telcos are willing to help the situation alter its course by introducing pricing conclusive to growth and usage nor is the government doing anything to ensure that they have every incentive to do something like that.