Monday, April 09, 2007

Broadband Revolution in India

[This is based on the presentation I made in Barcamp Bangalore 3, March 31st 2007]

Mobile revolution

We have seen the Mobile Revolution in India. It is still happening. There are enough indicators to suggest that Mobile penetration will exceed 400 million subscribers in India in the next few years. Let’s pause and go back a few years, say 2001. Could any analyst predict that we would have 200 million subscribers by end of 2006? Could anybody in the industry predict that we would be adding more than 5 million subscribers a month?

The growth of mobile penetration is mind-boggling and is quite dramatic. It came about because of some of the factors listed below. Note that it is always easy to look back and analyze why it happened. That’s what I am doing here.

Key Factors for this explosion

* Late start
* Cheaper equipment

* Pent up Demand

* Innovative and Bold Deployment Strategies
* Population

First, India embraced cellular when 2G systems were already deployed in most parts of the world. Having completely skipped 1G because of late start, India went straight to the superior 2G systems. Most of the lessons learnt by the European deployments could be transferred to India. Second, India embraced GSM nearly eight years after it was taken up in Europe. Most of the equipment had already become very cheap by then. This allowed for mass deployment in the country. Third, there was huge pent up demand for basic connectivity which was not served by fixed-line telephony. Fourth, India embraced certain bold strategies- like that of Airtel which has outsourced complete network deployment to Ericsson and management of networks to IBM; it has introduced pre-paid subscription like no other country. However, a note of caution here- they were quite stupid not to have implemented sharing of tower infrastructure right from day one. They seem to have woken up quite late on this. Fourth, with a billion people anything you do seems to pick up volumes. All these factors put together has resulted in mind-boggling and dramatic mobile penetration in India.

State of Broadband in India

Take a look at current broadband penetration in India? It’s a mere 2.5 million subscribers (or less). That’s less than 0.25%. Most indicators of technology penetrations, such as telephone, PC, mobile, broadband, have a direct correlation with increase in the GDP and per capita of a nation. However, India’s broadband penetration seems to be extremely low. Is it that we are going to skip broadband the way we skip 1G and the industrial revolution?

The penetration of broadband will increase in the next few years and will catch like a wildfire when suddenly the cost of adoption and network deployment and maintenance will turn out to be extremely low compared to the kind of market demand it has.

The drivers will be-

# Decreasing cost per line
# Decreasing operating expense
# Decreasing cost of PC (or similar device)
# Social attitudes and habits embracing broadband facilities
# More Indian content

Broadband Revolution in India

In effect, I believe that there is a very big room for growth of broadband penetration in India. With the decreasing cost of PCs to under Rs. 10,000 and then to under Rs. 5,000 soon, and with increasing in content for Indian masses, the broadband penetration will be going through a revolution, and I call it the Broadband Revolution in India. The cost per line will dramatically reduce from the current Rs. 7000-10,000 per line to around Rs. 1,500-2,500 per line by 2010.

The pieces of puzzle are falling into place. With advent of wireless broadband (such as WiMAX and WiFi), with decreasing costs of PC, we will see the penetration grow slow and suddenly, when the price points have achieved that critical milestone, it will take a dramatic upswing and go on an exponential path for the next few years. In my estimation, by end of 2011, Indian will have more than 35 million broadband subscribers and by end of 2013, we will have nearly 1 million subscribers.


My question to all of us

Indian telecom operators are smarter than the rest of us. They usually wake up quite early to realize the potentials of Indian markets. They will definitely get themselves geared up for this oncoming Broadband Revolution. However, will the Indian entrepreneurs, Indian telecom vendors, Indian VCs, Indian startups wake up to this? When Indian Mobile Revolution happened, it was foreign telecom vendors which benefited. They supplied the radio access network equipments, and they supplied the core network equipment. They also supplied the mobile handsets and PDAs. Indian telecom operators had no choice but buy equipment from these foreign players.

Operators like BSNL, Airtel and Reliance throw open tenders worth billions of dollars, and most of these monies are taken up by foreign companies. Almost no domestic company seems to wake up to capture some of this market share. We could give ourselves an excuse that Indian ecosystem was not conducive to create such suppliers in India. That we didn’t’ really anticipate or predict the oncoming Mobile Revolution to benefit from it. Will we give ourselves the same excuse for missing Broadband Revolution, or will we do something about it?

2 comments:

Rajiv said...

Nice article. I really hope it happens.

I a way the VC's and entrepreneurs have seen that the internet revolution (which is the side effect of the broadband revolution) is going to happen. That is why you see so many Internet Consumer companies and Travel Portals getting funded.

Savita Kini said...

Sujai,

Your projections about the growth of broadband is becoming based on some of the assumptions you are making and I would love to know what they are.

Also, while the mobile penetration is increasing, and the broadband is also increasing, I believe what we will see in India actually is going to be very unique - that is broadband to the mobile phone. I strongly believe that the cost of the PC while it will drop, the features that are getting added to the phones for the current price points of Rs 5k-10k is much more. I don't see why we cannot leverage that to increase the access to content.

The interesting companies that will really be able to capture the most value and become great successes will be those who will upfront make the commitment for a online+mobile strategy.

Again, this is how I see things emerging.