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How India Leading on Mobile Internet Revolution

by Kelly Marsh · 0 comments

A McKinsey study report published in 2011 predicts that India would become the world’s leading mobile internet user by 2015 with over 450 million users. This report came as a surprise to many people as only 7 percent of the population in India has access to the internet compared with 32 percent in China and 77 percent in the US.

The McKinsey report suggests that India could leapfrog the intermediate step of accessing the internet through personal computers and move directly to the use of mobile internet. This would be similar to the vast rural population in India having adapted to mobile phones without first having used land-line phones.

India is a difficult market to gauge

The Indian mobile phone market is very different from markets in other parts of the world and is therefore difficult to predict. The Telecom Regulatory Authority of India (TRAI) estimates a total of 621 million active mobile phone users at the end of 2011. The mobile phone operators claim to have close to 800 million subscribers. The gap in numbers is too large for logical explanation.

Some 183 million mobile handsets are estimated to have been sold during 2011, with over 150 brands competing in the market. Of these, only an estimated 11 million are smartphones, suggesting that only around 6 percent of phone users access the internet. Smartphone sales in 2011 grew 77 percent over the previous year and their share of the total phone market will grow rapidly. Smartphone prices in India are already below $125 and are dropping further. Many Chinese brands tailor a smartphone to the Indian customer, eliminating features like Bluetooth or memory to reduce cost but building in internet surfing capability.

The Indian mobile phone user also appears to change phones more frequently than users in other parts of the world. In urban areas, users appear to change phones every 8 months on average and in rural areas change every 18 to 24 months. The change of phone is unrelated to phone performance or features but primarily as a style statement. This frequent change of phones has led to the growth of a vast used-phone market. A used smartphone sells at a 40 to 60 percent price discount and looks new enough to remain a style statement.

Indian phone users also appear to be hungry for digital content. The global mobile phone advertising industry says that in the month of March 2011, over 50 million Indian mobile phone users accessed 2.4 billion banner ads on the internet, representing 10 percent of all ads accessed around the world. The Kolaveri Di song had 10 million downloads from Indian phone users in a space of 3 weeks from its first appearance on YouTube. Indians are avid watchers of movies, music videos and cricket telecasts and all of these are now available on the mobile internet.

Several interesting new applications are emerging that could trigger wider use of mobile internet content. Some phone service providers are already providing rural phone users with the facility to talk to a doctor by phone for medical consultation. Internet access could enlarge this popular feature. Academic coaching through tutorial classes is a major industry in India. Some tutorial institutions are now offering web-based coaching though the internet.

The Indian mobile phone industry is however in deep trouble

Bharati Airtel, the largest mobile service provider in India recently reported its ninth consecutive quarter of profit decline. The industry has been rocked by the cancellation of 2G licenses awarded to 22 service providers and the court directive to auction these licenses. The reserve price for spectrum allocation set by the TRAI could end up raising mobile phone tariffs in an extremely price sensitive market where voice call rates are the lowest in the world at Rs 0.20 a minute.

Internet content will depend on the roll out of 3G services by the mobile operators. The licenses for 3G were obtained at very high prices at the bidding auction and unless the user base expands very rapidly, the revenues to amortize these costs may not come in. The Indian consumer is extremely price conscious and could resort to alternative approaches to enjoy digital content without paying the mobile operator. For example, it is already common for street side small shops to download music or video on one smartphone and then transfer it to multiple users by Bluetooth or SD card at costs significantly lower than the data download costs of mobile service providers.

For wider penetration, mobile internet content has to be available in the 23 major Indian languages. The value added service providers for content in the Indian languages are still too few for the size of the market.

India certainly has the potential to become the world’s largest mobile internet user as the McKinsey report suggests but the time horizon may be closer to 2020 rather than 2015. The recent travails of the mobile phone industry could cause a setback to these projections as the problems do not have easy solutions. The non-availability of content in the major Indian languages is also a significant barrier.

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