India, Not Unplugged: The State of the Fixed Broadband Nation
How broad was my band? Not much…
Internet penetration is quite low in India. However, with the recent launch of Reliance Jio, there has been a meteoric rise in the number of broadband subscribers in the country. Broadband subscribers include both wireless as well as wired subscribers in India. Historically, and even now, the number of wireless broadband subscribers in India has been far greater than the number of fixed broadband subscribers. As of 31 March 2017, there were 18.24 million fixed broadband subscribers in India as compared to 257.71 million on wireless broadband.
Fixed broadband, India: A need for speed
The best way to measure fixed broadband penetration in India is to see the number of connection(s) present in India for every household. Every fixed broadband connection to a single household is usually shared among the family members of the household. Therefore ideally, in a fully penetrated market, there should be one fixed broadband connection for every household. As per the 2015 census data, there were 248.4 million households in India. This translates into a fixed broadband penetration of 7.34 percent. By comparison, wireless mobile telephony services have much better penetration in India. There are close to 600 million ‘unique’ wireless mobile connections in India for a population of 1.2 billion which implies a penetration of 50 percent.
There is no doubt that fixed broadband penetration is very low in India. Going by Wikipedia, fixed broadband penetration in India is pretty much the worst amongst all major Asian economies and only marginally better than certain African countries. This lack of fixed broadband penetration has huge opportunity costs for a number of Indians. While wireless broadband has been steadily improving in terms of speed, it can never truly be an alternative for fixed broadband. A crucial reason behind the Internet’s success is the ecosystem of creators and consumers that exist on the Web.
While most consumers can do away with wireless broadband, content creators require excellent quality fixed broadband connections. If you are a YouTuber or a professional gamer or a blogger (like I am), then access to high-speed fixed broadband is extremely crucial in order to ensure that you can put out the best quality content for people to consume. In fact, pretty much everyone benefits in one way or another through high-speed fixed broadband.
But India has not just a low penetration of fixed broadband but also one of the lowest speeds all over the world. While the US has mandated that for any connection to be called broadband, its speed should be greater than 25 Mbps, in India, the definition of broadband is still 512 Kbps which, to be honest, is comical in today’s world.
The (not thirteen) reasons why!
The simple reason for this is the lack of competition. Unlike the wireless segment where a lot of operators have been competing, competition in fixed broadband is almost non-existent in India. There are several places in India where the only option for fixed broadband is BSNL. The state-run telecom operator commands a whopping 56.1 percent of the fixed broadband market in India, with the second-largest competitor, Airtel, having just a 15.8 percent share. Unlike the wireless market where no telecom company has been able to garner more than 35 percent market share both in terms of revenue as well subscriber base, the fixed broadband market has been a tale of monopoly.
The prime reason why BSNL and Airtel have such a dominant status in the fixed broadband market is that these companies were the leaders during the landline era and had laid copper wires all around India to connect houses. When mobile phones took over, those copper wires were re-purposed for delivering broadband.
As landline growth kept declining and mobile data kept becoming better, the interest in laying copper wires to connect houses started decreasing. This left BSNL and Airtel in a situation where they were pretty much the only companies that had their copper wires connecting a house. This has led to a monopoly-like situation which has, in turn, led to a decline in competition and slow growth in terms of penetration and speeds.
In contrast, a number of companies participate in spectrum (the carrier of wireless networks) auction which leads to healthy competition in the wireless space.
But what about ACT, Hathway, Tikona, etc.in?
Competition in the fixed broadband market in India is area-dependent to quite some extent. If you happen to be someone who lives in a plush apartment in a popular area of a metro city, then the chances are that you have 3-4 fixed broadband players offering you service at dirt cheap prices. However, if you are someone that lives in a Tier 2 town or a lesser known area of the city, then chances are that BSNL is your only choice. Considering the size of India, more often than not, BSNL ends up being the only option for fixed broadband.
Which begs the question: why don’t other players expand like BSNL or Airtel?
Well, the economics of providing fixed broadband depends primarily on two factors: population density and willingness of people to pay. It is only after evaluating these two that fixed broadband players decide where to expand. In order to provide fixed broadband, companies need to lay down either copper or fiber, and the cost of laying down copper and fiber is very high in India. Taking our first criteria into consideration, i.e., population density, an apartment block instantly ends up becoming more appealing to a fixed broadband player than an independent house or bungalow. An apartment is bound to house (pun intended) more families than a stand-alone house that might have just one or two families. If the fixed broadband player has a particular cost for laying down fiber or copper, then that cost is better recouped from an apartment block than an independent house.
Then comes the willingness to pay. Someone living in a posh area of a metro has much higher disposable income and therefore is more likely to spend on fixed broadband as compared to someone who lives in a Tier 2 town. Combining the two criteria, one can reasonably expect that someone who lives in an apartment in a posh area of a metro city has many more fixed broadband providers to choose from than someone who lives in an independent house in a Tier 2 city.
As a result, most ISPs like Hathway, ACT, etc., focus exclusively on the posh areas of metros so as to maximize return on investment. Therefore, people living in these areas have numerous choices to choose from and access fast Internet (sometimes at dirt cheap prices). Meanwhile, people who live in Tier 2 cities have no option other than BSNL.
Broadening fixed broadband: follow the UK Model?
The current fixed broadband model followed in India is similar to that of the US, where every broadband provider has to lay their own copper or fiber in order to reach a household. Most ISPs in India are not willing to make the investments required to deepen their reach towards suburbs as they feel that the return on investment is not commensurate with the effort required.
India perhaps needs to follow the UK like model in order to spur competition in the broadband market. In the UK, the infrastructure for fixed broadband is owned by a company called Openreach which is a subsidiary of the BT Group. Anyone who is interested in providing fixed broadband in the UK can lease the infrastructure of Openreach at reasonable rates and start providing broadband without making massive initial investments in advance. This is the reason why Amazon began testing fixed broadband services as part of Prime in the UK first and not in the US.
The same can be applied in India. BSNL’s fixed broadband infrastructure can be spun off into a different company so that other ISPs can lease BSNL’s infrastructure to provide Internet services. BSNL already has a wide copper network all over India that reaches far deeper than anyone else’s, and if this copper infrastructure is made available to everyone to lease, it could boost competition in India.
Currently, the biggest reason why companies do not want to expand their fixed broadband access beyond metro cities in India is because of the massive investment required and the volatility in terms of return on investment. If they could bypass setting up infrastructure on their own every time they decide to expand geographically and could just lease BSNL’s infrastructure to see if a particular area is viable or not, then it would allow them to expand quickly without spending a lot of money. Meanwhile, BSNL could also find a way to monetize its infrastructure. While BSNL would have to face competition for its own broadband offerings, it would end up expanding the fixed broadband market, thereby helping everyone involved.
The second major cost for fixed broadband providers in India is data exchange costs. Currently, a lot of media that we consume on the Internet is hosted on servers in other countries, and every time we access that data, our ISPs have to pay an Internet exchange rate to the Internet exchange that is facilitating the transfer of data between the foreign country and India. If more and more content is hosted locally and peered with ISPs, then there would be effectively no money involved in the transfer of data. Indie projects like NIXI were supposed to do this but have so far failed.
How broad is my band right now?
While there’s no guarantee that India would follow a UK-like model for broadband or that NIXI would step up its game, there does seem to be relief coming in the form of Jio. Just as the Mukesh Ambani-owned company spent USD 25 billion on creating a 4G wireless network before even generating a penny in terms of revenue, the company has similarly spent enormously on its fixed line services as well.
JioFiber is expected to provide broadband in 100 cities of India at very affordable prices. Jio’s entry into the wireless segment made 1 GB data/day the norm for most Indian consumers who were used to just 1 GB data/month before Jio launched. Not surprisingly, the company is expected to do something similar in the fixed broadband market. And indeed, if Jio launches with a disruptive tariff, then Airtel and BSNL would have no choice but to respond, considering the size of the company. This, in turn, would lead to a race where companies keep undercutting each other so as to provide the best benefits at the lowest prices to the consumer.
Now, that would be something indeed. Until then, it is monopoly time when it comes to fixed broadband in India.