Demand Drivers for Broadband: Global Experience and Learnings for - - PowerPoint PPT Presentation

Demand Drivers for Broadband: Global Experience and Learnings for India

National Broadband Initiative Workshop 16th April 2010

2

Confidential

China: Local language content and websites

Inflexion points in Internet / broadband growth across markets have been triggered by different drivers

Internet / Broadband Penetration, Inflexion Points and Primary Drivers (USA, UK, Brazil, China and India)

2009 BB Penetration 29% 23% 7% 20% 0.7%

0% 15% 30% 45% 60% 75% 90% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 United States United Kingdom Brazil China India USA: Multiple Applications: Hotmail, ICQ, AOL Messenger, Napster UK: Reduction in Access prices by Cable and ADSL providers Brazil: PC financing provided by Government to retailer Source: Analysys Mason, News Articles; google.com/publicdata

3

Confidential

Internet adoption in late 1990s in the USA was driven by emergence of variety of web-based applications

Adoption Trends of Different Applications in 90s1

• In the mid to late 90s, multiple applications

and services emerged - webmail (Hotmail), instant messenger (ICQ / AOL Messenger), file sharing (Napster), shopping (Amazon)

• These applications saw immediate

adoption as consumers saw the convenience in being able to communicate / share / transact instantly

• In addition, there were other enablers

such as graphical use interface OS (Windows), that enabled a layman to use a PC, together with declining prices for PC making them affordable as a household item

Applications

10 30 55 52 68 95 113 80 50 136 25 50 75 100 125 150 1996 1997 1998 1999 2000

mn Exponential Growth in Late 90s From 1 mn to 50 mn in 7 months

Source: Analysys Mason, Report by University of Cambridge Hotmail: Delivering E-mail to the World , 2001

Internet Subscribers

4

Confidential

In UK, ~40% reduction in access charges triggered a 25% increase in internet penetration in one year

Broadband Price per Month for 512 kbps (2002)

Broadband Subscription

~ £ 40

Before Reduction

Cable Modem ADSL £ 25 – 30 £ 22 – 25

Price reduction in 2001; 45% HH coverage Price reduction in April 2002; 60% HH coverage

• Broadband subscription prices were

reduced by up to 45% in 2001 / 2002

• Cable modems gained nearly 60% of UK

broadband subscribers due to 2001 price reductions

• April 2002 reductions in BT's wholesale

prices (by 40% for its main residential product) encouraged the ADSL market

• In addition, self-installation kit with

instruction manual increased user convenience and decreased dependence

• n engineer and truck-roll cost for service

providers

Access Price Source: Analysys Mason, Report by Parliamentary Office of Science & Technology Broadband Internet Access , July 2002

5

Confidential

Driver for internet adoption in Brazil and Mexico was low cost financing of PCs by Govt. and service providers

• Under Government’s Popular PC project, financing

is given directly to retailers to be passed on to consumers

• Sales of PC increased by up to 400% for retailers

who managed to get the financing from Government (strict ownership condition and computer cost limit were put on the firms for receiving financing)

• Government’s promotion had an indirect impact on

sales of other retailers (without financing support)

Government Initiative to Finance PC in Brazil

Device Price

• Telmex, the leading service provider in Mexico,
• ffered PCs at 12, 24 and 36 month plans; no

subsidies were offered & PCs were sold at original cost

• Service positioning: Instant credit approval, no credit

card is required, reasonably priced PCs with low-cost financing; subscription to broadband optional

• 25% incentive discount given to existing and new

broadband customers

• Nearly 100% of PC buyers were converted to

broadband subscribers to benefit from the 25% discount

Service Provider Initiative to Finance PC in Mexico

Sales in 2 weeks for a retailer1 with financing from state owned bank

2,800 14,000 Before Financing After Financing

400%

Source: Analysys Mason, News Articles, Report by Pyramid Research Changing Broadband Landscape in Latin America, Nov 2009

6

Confidential

In addition to other enablers, local language sites were a key growth driver for the China internet market

Local Language

Cumulative Number of Websites Registered in China

27.7 37.2 59.6 66.9 69.4 84.3 150.4 287.8 100 200 300 2001 2002 2003 2004 2005 2006 2007 2008

Unit: 10,000

• Local language is the norm for websites

in China; there were 2.87 mn websites whose domain names were registered in China by 2008

• Adoption of leading information search

sites such as Yahoo! and Google was slow due to the availability of Chinese equivalents such as Baidu

• Availability of information / content in local

language can be seen as a key driver for internet adoption in countries / regions with limited English language capabilities

Source: Analysys Mason, China Internet Statistics, CNNIC, 2009

7

Confidential

In summary, the adoption drivers are lower device and access prices in addition to relevant content / apps

Device Price Device Price

• High PC price is a barrier to internet /

broadband adoption by mass market Access Price / Experience Access Price / Experience

• Access price has to come down, without a

deterioration in end user experience Local Content / Applications Local Content / Applications

• Availability of locally relevant content will

increase the utility of internet / broadband

1 1 2 2 3 3

Source: Analysys Mason

8

Confidential

Device financing, bundling and shared access could be the mechanisms to increase device affordability

Initiative Description Bundled Devices

• Devices bundled with service plans: Due

to a monthly relationship with the consumers, carriers are well positioned to offer bundled devices

• In Europe, almost all netbooks are sold

by carriers bundled with a data plan

Financing Options

• Similar to the initiative in Brazil,

Government can finance the distributor / retailer to boost PC sales

• USO fund can be used to extend this

financing scheme

Shared Access Device

• Government has plans to create 116K

CSCs as access points for 600 K villages; 40 K CSCs have already been rolled out

• Implementation of such initiatives should

be accelerated coupled with consumer education

1 1 Entry Level PCs and Netbook Prices in India (INR ‘000s)

14 27 12 Desktops Laptops Netbooks

Source: Analysys Mason

9

Confidential

In addition, broadband access price needs to decline to increase acceptance by the middle income segments

2 2 Broadband Access Price as % of Monthly Income

16.0% 8.0% 4.0% 1.0%0.5% 1.0% 3.0% 5.0% 0% 5% 10% 15% 20% Unlimited Plan Lowest Cost Plan

Annual HH Income <90K 90 – 200K 200 – 500K > 500K Household 54% 41% 4% 1%

• Broadband prices have reduced to INR 125

per month with usage limit of 125 MB; initial deposits / installation charges of INR 875

• However consumers are not comfortable

with fixed plans as they are wary of their usage and the actual charges they may have to pay

• Unlimited plans start at INR 500 per month;

this forms more than 8% of monthly income for 95% of the households

• On average, Indians spend 12% on housing

& utility and 2 – 3% on communications

• Broadband access cost has to decline

further for majority of households to incur it as part of monthly expenses

• For the urban areas, this is likely to be driven

by market competition; in rural areas, Government initiatives are required to make access more affordable

Source: Analysys Mason, BSNL, Tapping into the Indian Consumer Market, McKinsey & Company, June 2007

10

Confidential

Given the low levels of English literacy, availability of local language sites will help drive adoption of internet

Languages Spoken in India (Number of speakers, mn) Indian Language Websites

551 125 91 85 84 200 400 600 Hindi English Bengali Telugu Marathi 713 153 117 97 40 38 34 57 200 400 600 800

Marathi Punjabi Kannada Gujrati Bengali Telegu Tamil Hindi

• Only about 10% of the population is English speaking, however there are only 1,250 non-English sites
• Low number of local language sites reflects the poor availability of localized online content to be

accessed by semi-urban and rural masses

• Initiatives are required to create local language content relevant for majority of the population

3 3

Source: Analysys Mason, IAMAI Report, Number of Local Language Sites in India stands at a Pathetic 1249!, Jan 09

11

Confidential

Policy initiatives and market interventions are required to grow the broadband market in India

Projected Broadband Subscriber Growth

2009 7.8 mn 2014 45.5 mn DSL / Fiber: 33% Cable Modem: 14% 3G / WiMAX: 53%

• Market changes required
• Reduction in broadband access prices
• Bundling of devices with service plan
• Development of websites in local language
• Policy initiatives
• Usage of USO Fund for financing /

subsidizing access devices

• Policy initiatives to encourage development
• f websites in local language

483%

Source: Analysys Mason

12

Confidential

To kickstart this growth potential, all Govt transactions beyond a certain value can be mandated to be electronic

Demand Draft Indian Postal Order Treasury Chalan Issued at bank branch Issued at Post Offices Issued at Treasury Offices

Modes of Payment to Government of India

• Currently, all payments to Government

authorities are either through demand draft, postal order, treasury chalan or

• nline payments1
• Non-online processes are cumbersome

and requires the payee to visit a bank, post office or the treasury office. Only few entities use the online system

• Payment from Government is also mostly

check based

• If it can be mandated that all Government

transactions beyond a certain level (e.g. INR 50K) be electronic, any entity dealing with the Government and Government

• ffices will require internet access and

electronic banking for conducting ongoing business

Online Payment

Cash Account Cash Cash Cheque Bank Account Credit / Debit / Prepaid Card Note 1. Online payments is only for some transactions such as payment of property tax that can be online

Source: Analysys Mason

13

Confidential

Analysys Mason Limited BD - 4th Floor, Big Jo's Tower Netaji Subhash Place, Pitampura New Delhi 110034 India Tel: +91 11 4700 3100 Fax: +91 11 4700 3102 www.analysysmason.com Kunal Bajaj kunal.bajaj@analysysmason.com