Friday, August 21, 2009

Is Indian Broadband Overpriced?

New World of Communications: India Broadband: Under-fulfilled Potential

Price of Broadband services, it appears from the poll & comments I heard from various people, is the biggest inhibitor to adoption of the service in India. So, let's examine the pricing issue here.

Since pricing is directly linked to what is being purchased, we need to make some assumptions.

Mr. Novice has recently purchased a computer and wants to figure out what the Internet is all about. He is quite OK with 256 Kbps onwards speeds and does not need more than 2Gig downloads per month. On the other hand, Ms. Savvy has been on the Net for long and has recently got a office laptop that she wants to connect from home. In addition to work stuff (email mostly), she is also looking forward to improving her online social networking, as well as getting some latest content for her iPod. She would like at least 512 Kbps (perhaps more) and expects her data transfer to be about 5Gig a month. Finally, Master Gamer has just convinced his father to get the home PC connected to the Net, and can now avoid those trips to the cybercafe for his dose of WoW. He knows all about Internet speeds and service levels, and prefers an unlimited connection of at least 1 Mbps; his only concern is that he lives in a distant suburb of a mini-metro.

Based on my evaluation of various service providers and tariff plans, I would recommend the following choices:

1. Mr. Novice is better off taking a 256K DSL connection on his landline at an additional cost of Rs 500 (total about Rs 600 with voice). If DSL were not available, the next best alternative would be a data card (not 3G) with a plan cost of about Rs 700 per month, but an upfront CPE cost of about Rs 1500.

2. Ms. Savvy could take a 512K DSL connection or a fixed WiMax connection (if DSL were unavailable) at about Rs 1000 to 1300 per month; alternatively a 3G data card would have an upfront cost of about Rs 2000 to 3000, and a monthly charge of about Rs 1000 with the added advantage of mobility for the laptop.

3. Master Gamer would be lucky to get a DSL or Fiber connection at his home; his only option is likely to be a fixed WiMax 1Mbps connection (a 3G data card could work but may not give him the assured high speeds that he requires for gaming). This would cost nearly Rs 2000 per month for unlimited data transfers.

First of all, it is not at all easy to determine what is the appropriate pricing / plan available from service providers. While there is value in choice, too much of it can also lead to confusion.

Now, let's compare the price-points with other benchmarks. I first checked Singapore and USA, but most operators in those markets had plans of several Mbps... ahem, not easy to compare our 256K plans. I looked towards China next (our favorite comparison) but I had to go back a couple of years to a period when 512kbps was the most popular connectivity there. A typical 512Kbps unlimited plan cost about Rs 1000; current prices are at similar levels but for more bandwidth.

In 2007, according to this article, average prices in North America & Western Europe for 4Mbps speeds were about Rs 2500 per month; while tariffs are not necessarily proportional to bandwidth, this should translate to about Rs 600 per 1Mbps. Eastern Europe had prices of about Rs 2000 per 2Mbps, or Rs 1000 per 1Mbps.

(Note: these are are just rough calculations using public info for benchmarking, directionally correct, I believe.)

From the above, it is clear that tariffs in India are more than what many other markets have, but there is one big difference: all these markets have either a very strong DSL market or have a competitive cable industry (in some cases like USA, both). If we look at a market like South Africa that has very high mobile/wireless penetration and low fixed line coverage, we find that price-points for 3G data cards are at about Rs 1500 per month, which are not dissimilar to the India plans.

Prices in India are perhaps somewhat higher than what they ought to be, but not by a large margin, given where we are on the adoption curve/scale and infrastructure availability. So, while price is stated by most as the inhibitor to adoption, the real issue must lie elsewhere. Otherwise, every market that started with high tariffs (including Indian mobile) should have stalled like Indian Broadband has...

We will continue looking for answers...

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