Overpriced Internet and Low Speeds Prevent Broadband Growth in India

In the area of broadband, India has a lot of catching up to do. According to Point Topic, India has fewer broadband connections than Hong Kong, a region it out-populates by nearly a billion people. Broadband penetration is estimated to be at 3% in India. By February 2008, India has only 3.47 million broadband subscribers, far short of the target of 9 million by 2007 set by the broadband policy.

Internet subscribers stood at 9.22 million for the quarter ending 30th June 2007 as compared to 9.27 million during the preceding quarter registering a decrease of approx 0.50%, according to TRAI. The growth is negative as compared to a positive growth of 8.03% during last quarter. Broadband penetration is estimated to be at 3% in India, and the country added only 750,000 broadband connections between October 2006 and September 2007. By February 2008, India has only 3.47 million broadband subscribers, far short of the target of 9 million by 2007 set by the broadband policy.

Besides this, several neighboring countries including China, South Korea and Malaysia are far ahead of India in the broadband penetration. India has 0.3 broadband connections per 100 persons, while South Korea and even China have much better penetration numbers with 29.9 and 5.0 respectively.

Causes for These Discouraging Figures:
Despite the 19% jump in urban domestic Internet usage, home access is still a novelty in India. This is true especially in the case of broadband. The two biggest barriers for the growth of the broadband in India are affordability and the quality. Broadband in India is very expensive when compared to Western Europe and USA.

A 3 MBPS speed unlimited download broadband connection in US is available from a premier ISP like Verizon at $29.99 or Rs.1200 per month. A 512 KBPS speed, unlimited download Internet connection from VSNL or Airtel or Reliance is available from Rs. 1499 or $37.5 to Rs.1799 or $45 per month. This is 6 times slower and 25 to 50 percent costlier than in US. In India, the monthly charge for a broadband connection accounts to 47 to 56 percent of the per capita income*, while it is less than 1 percent in the USA

There should be no reason for such overpricing in India. Especially, when the wages are a fraction of costs in the US – the minimum wage in US is approximately Rs.232 per hour, where as in India, it is only around Rs.25. Most Internet service providers in the USA built their infrastructure when the telecom equipment prices were at their peak several years back. Right now, Indian ISPs are able to purchase equipment at far lesser prices. Unlike earlier, the last few years saw an abundance of capital for Indian companies with booming equity markets and hundreds of FII’s and Private Equity companies actively investing in India. It is also unlikely that Indian ISPs are paying higher costs for high speed Internet links to connect to the Internet worldwide.

Essentially the ISPs have not passed the benefits of lower operating costs in India to the customers. Until such profiteering is indulged by ISPs, Internet prices will be beyond the reach of most Indian and Internet usage will not become common. You have to remember that mobile usage became viable for the common man only after both the mobile equipment prices and the mobile usage charges became one of the cheapest in the world. That led to the rapid growth of mobile users.

The worrying aspect of the disappointing Internet growth in India is that it will result in lagging of eCommerce in India. This would also lead to loss of job opportunities in the new age industries in a country aggressively looking to create jobs. Further, it would make the Indian eCommerce market lag not only against developed countries but also against the Asian ones. There are also other factors leading to the slow growth of Internet and E-commerce in India that we will discuss in the next article.

* Nominal per capita incomes of India and US are taken as $965 and $45,594 respectively, according to IMF – 2007.

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