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OVERVIEW

The Internet is back! There’s a buzz among entrepreneurs as venture capital companies are putting money into companies focused on the Indian market. Online advertising (display, search and classifieds) is growing. Users are starting to spend on transactions going beyond ticketing. All in all, the long-promised boom of the Indian Internet is underway. What needs to be done to ensure that the boom isn’t just a transient bubble?

There are, in reality, two Internets’ segmented by the access device and the type of connectivity. The PC-based wireline Internet has about 30-40 million users, with a majority of the users using cybercafes. With only 7 million computers in Indian homes, this Internet is still a long way from becoming a utility in people’s lives. The mobile-centric wireless Internet can potentially reach a significant portion of the 165 million cellphone users in India. However, the reality is that other than voice, there are only two services which touch a large fraction of this user base - SMS and ringback tones. The mobile-as-India’s-computer paradigm still has a long way to go.

Looking at it another way, for the real boom, the wireline Internet needs more devices (home computers) and the mobile Internet needs more services. What will it take to make both happen?

To solve the device problem, one needs to rethink computing in a world where broadband exists and thus make computers affordable and manageable. For this, the answers lie in borrowing two ideas from the mobile industry, create a device that costs Rs 5,000, and combine it with a monthly service charge of Rs 500, and make the device simple to use without requiring its owner to become a technology expert!

The solution to these twin challenges lies in thinking ‘thin’ computers for Indian homes connected over DSL or cable to servers over high-speed networks. All the computational processing is done at the server-end, and the network computers become simple ‘on-off’ devices without compromising on the performance that current desktop computers offer.
To make the mobile Internet a reality in India, two changes need to happen, and they have to be driven by the mobile operators since they are the ‘gatekeepers.’ First, an open publishing platform is needed to allow anyone to create a mobile website that is accessible by everyone just like on the PC Internet.

Second, mobile operators need to change their billing philosophy for value-added services. The bulk of the revenue that users pay must be given to the content providers. Mobile operators should, instead, charge for packet data flow through their ‘pipes.’ At a broader level, just like NTT Docomo did with its i-mode service in Japan in 1999, Indian mobile operators need to encourage the creation of a value-generating ecosystem.

Taken together, these innovations can help build India’s digital infrastructure, create a framework for other emerging markets to emulate and provide a large domestic market for companies to finally think India First.

PC INTERNET

Let us start by taking a look at the PC-based wireline Internet. We have 7 million computers in homes in India, growing at around 2 million a year. (India’s total installed base of computers is about 20 million, growing 6 million annually.) Compare that with the mobile industry: it is growing at 7 million a month, or over 80 million a year, over an installed base of 170 million.

Because of the low home computer base in India, people largely use cybercafes to access the internet, paying between Rs 10 and Rs 40 per hour. India’s Internet user base is estimated at be around 25-45 million (depending on which source one believes). Broadband access in India too has been slow to grow in part because most new investments have focused on the mobile infrastructure. But the bigger issue has been that the new home computer market is only a couple of million. That severely limits the target market for broadband providers. (Yes, there are about 5 million computers still not connected by broadband. If these people have not gotten broadband access to the Internet now, then I can only surmise that either access is not available or they have no reason to get one.)

Of course, broadband in India is not really broadband. Although the advertised bandwidth may be 256 or even 512 Kbps, actual speeds are often a fraction of that. Furthermore, since access plans often have very low data transfer limits, broadband in reality is at best an (almost) always-on narrowband connection.

With MTNL and [1] BSNL controlling the most-effective form of access in the form of DSL over copper (telephone cable), private providers (ISPs and the telcos) find it hard to get ubiquitous coverage and provide cost-effective connectivity. Cable companies have got into the fray but reliability remains a big challenge.

The Internet has myriad services. New sites keep popping up daily. It is almost trivial for anyone to create an Internet presence. So, even as services mushroom, the growth of the Internet in India is hobbled by the lack of connected access devices.

Computers at Rs 15,000 or more are, relatively speaking, much more affordable than they were a few years ago. The starting prices of computers have come down and income levels for the middle-class have gone up. Yet, people have not adopted computers like they have done with mobiles. I think there are two reasons for this beyond the affordability dimension. First, they lack desirability; they are not must-have devices. And second, they are perceived to be complicated to operate.

One could argue that the new generation of mobiles are in fact multimedia computers. While that’s partly true, the experience of the big keyboard and display of a computer cannot be replicated with today’s mobiles. One can imagine teleputers mobile phones which have the ability to connect to external keyboards and to large external displays. But that’s not available today and perhaps lie some years into the future.

What’s needed for the PC-based Internet to take off in India is a solution that combines the affordability and the manageability of mobiles. With such a solution, it will be possible to take computing to 50 million Indian homes in the next five years.

MOBILE INTERNET

There are 170 million mobile users in India, but only just over 1% of them use their mobiles for Internet access. Of course, not all mobiles have the ability to access the Net, but from a technology standpoint, I would estimate that at least 30% of the phones in India on GSM and CDMA would be able to access the Internet. And yet, few of us do. We seem quite happy just using the mobile for phone calls and SMSes. Some of us use the operator portals to get ringtones, wallpapers and games. But that’s about it. Why not more?

There are a number of reasons. First, while CDMA phones have a convenient button dabao (press the button) to access a portal, the GSM phones need some extra configuration to get connected over GPRS. Second, mobile operators want to keep the users who do get connected within their walled gardens. So, they become the gatekeepers for the services. So much so, it is almost impossible for any independent service provider to create a portal that can be accessed by all users who have active data connections. Third, short-sighted pricing plans for data ensure that the ones who do want open access will have to pay a high price for it.

In addition, no one in India is really promoting the mobile Internet. Mobile operators are busy focused on new customer acquisition after all, every new $3 ARPU (average revenue per user per month) customer adds anywhere between $500-1,000 to their market cap! The handset makers like Nokia focus mostly on features that are native on the handset like a great music experience. The mobile value-added service players have still not gone out and determinedly create independent off-deck brands which attract users presumably, because they know few can access them as of now. The PC Internet companies are, well, focused on the PC Internet.
Put it all together and we have a mobile Internet that has neither users nor services. Can this logjam be broken If so, how? Can the mobile become like a magic lamp fulfilling all our wishes? What are these wishes? When the Nokia N95 ad asks if is this is what computers have become? why don’t we feel like going out and buying one? Is there really an opportunity for mobile data services beyond the downloadable ringtones, wallpapers and games?

For the mobile Internet to happen, mobile operators need to believe that Data, not Voice, will change the direction of the ARPU trajectory assuming of course that ARPU matters. In India, currently, everyone is happy focusing only on the minutes of usage. A time will come in the not too distant future when voice will go to zero-margin and then to zero. It is for that world that mobile operators need to learn from the PC Internet that creating an open platform can foster innovation in a way no closed environment can.

NETWORK INTERNET DEVICES

So, we are in a funny situation in India in the context of the Internet. The mobile industry has plenty of devices but very few services. The PC industry has plenty of services but very few devices. As such, the real benefits of the Internet both for consumers and businesses aren’t easily visible and accessible. For urban consumers, the Internet can help ease life’s daily inconveniences. For rural consumers, the Internet can help increase incomes by providing access to information and markets. For businesses, the Internet can accelerate information flows and speed transactions creating real-time enterprises. And yet, for all practical purposes, the Internet has still not become an integral part of Indian lives. What needs to change?

For the PC Internet to take off, we need to get computing devices into Indian homes connected to the Internet cloud via DSL, cable or wireless broadband networks. (Given the regulatory realities and technical challenges, the best near-term bet is on DSL offered by the two government-owned telcos, MTNL in Mumbai and Delhi, and BSNL everywhere else.)

These computing devices need to be affordable and manageable just like mobiles phones. To make this happen, we need to think of thin clients or network computers. These are computers which will strip away the costs and complexity of todays desktops, without compromising on performance. At a sub-$100 (Rs 4,000 or so) price point, they will be affordable for the large Indian middle class. People will not have to make do with a few minutes of cybercafe usage every once in a while they will have a computer in their home for use whenever they want. This is what will make computing and the Internet a utility in their lives.

The $100 upfront cost will be complemented by a $10-12 monthly (about Rs 400-500) charge for connectivity and basic software and content services. The server infrastructure to complement the thin client will be at the telco exchange and thus, there will be no incremental cost for the last-mile bandwidth used. Besides the underlying operating system to provide the desktop, video and other bandwidth-intensive services can be co-located at these ?mini-Grids? in telco exchanges to ensure fast access.

In fact, the network computing model also creates interesting opportunities for additional revenue through value-added services. The desktop could be made up of a collection of icons from different commercial entities each paying for the privilege of offering customers one-click access to their websites. One can think of this as analogous to the value-added services that exist on mobiles and account for 5-10% of revenues for the mobile companies.

For the network computing model to become a reality, MTNL and BSNL need to think of themselves as more than mere pipe providers and think of themselves as computing service providers. In doing so, they will resuscitate their landline business and create the computing infrastructure for PC-based Internet services to thrive. By leveraging their billing relationship with customers, they will also share in the upside as customers do transactions.

If MTNL and BSNL do not want to do this, they should, at the very least, allow BVNOs (Broadband Virtual Network Operators) to use their network to offer services in return for carriage charges. Either way, we need 50 million Indian households to experience the joys of home computing in the next five years.

MOBILE DATA SERVICES

Indian mobile operators need to think of themselves as running two businesses. One targeted at top and middle India, and the other at bottom of the pyramid India. While the latter has huge growth potential (an untapped market of 250-300 million Indians in the next 3 years), the former is stagnant, addressing a saturated market with flat ARPUs and little growth.

All of the mobile operators strengths are in building out the user base in India. They have done this very well in the past few years and continue to do so. They also have plenty of work left in this regard hundreds of millions of Indians left out of the telecom revolution are finally going to get connected. Creating the infrastructure to get these millions on the network is a huge challenge.

In doing so, they need to rethink their role for the existing user base. This user base has been mobile for a few years now and are hungry for new services. India has a world-class wireless data infrastructure but it is barely talked about. By closing their walled gardens, the mobile operators are making a big mistake. This user base can pay a lot more after all, there were many who paid Rs 8-16 per minute for phone calls (as against Rs 1-2 today). They have money to spend. But the services available to them are limited even though for many, the mobile is the primary or even the only interactive device in their lives.

Mobile operators need to do two things to make the mobile Internet a reality in India for the first user base. First, they need to open up their data networks so consumers can go to any website they desire. Second, they should encourage the creation of a cornucopia of services by creating a business model which has more favorable revenue share terms for the service providers. Mobile operators can still make a lot of money and I would argue, that this will be a magnitude higher than what they do today by billing consumers for data traffic on open access. In other words, instead of thinking of themselves as media and worrying that they will just become bitpipes, mobile operators need to think of themselves as services pipes. If they do this, consumers will see them as the genie that made the mobile into a magic lamp.

There is a lot at stake for India. The Internet is core and necessary digital infrastructure if we are to continue to develop. Home computers and mobiles are the two necessary devices which will become the windows to the world of services. Even though we are not there yet, forward-thinking organisations and entrepreneurs can take us there.

About The Author:

Rajesh Jain considers IndiaWorld, to be one among his successful venture which was launched by him in 1995 and was acquired by [2] Sify in November 1999 for USD 115 million. Today IndiaWorld is the largest collection of India-centric websites, comprising [3] Samachar, [4] Khel, [5] Khoj .

Rajesh is a member of Sify’s Advisory Board, and Managing Director of Netcore Solutions, an Enterprise Messaging Solutions Company.

Rajesh has done his M.S. in Electrical Engineering from Columbia University, New York in 1989. Having worked at NYNEX Science and Technology for 2 years he returned to India in 1992 He currently writes his personal blog at [6] Emergic and looks forward to offer cost-effective technology solutions for small and medium enterprises (SMEs) in emerging markets like India.

Views expressed here belong to the author and do not represent those of the ThinkingStreet or the author’s employer