Mobile data services are growing rapidly in India. Data services have breached double-digit revenue share contribution for leading mobile carriers (Idea Cellular has announced data services contributing to 10.1% of its overall revenue in its latest quarter, while for Airtel that number is 11.1%, almost doubling y-o-y). In comparison, VAS contribution to mobile carriers’ revenue was stagnant at 7%-8% for a prolonged period of 4 to 5 years leading to 2010-11.
This is primarily due to the exponential growth of internet users (the number of active internet users in India have more than doubled between early 2012 and late 2013), and most of these users being mobile internet users (as per Convergence Catalyst estimates, 82% of total internet connections in India were on mobile as of June, 2013). In 2013, the total mobile data traffic (payload) grew by 87% y-o-y. 3G-based traffic formed 43% of the total data traffic for Indian mobile carriers in 2013, increasing from 33% in 2012.
For mobile carriers, it is not only imperative to onboard more number of subscribers on to broadband services, but also encourage the growth of per-capita data consumption. In India, unlike voice, there doesn’t exist pent-up demand for broadband services and it needs to be created.
From a consumer usage and adoption perspective, we believe that the mobile broadband services can be broadly classified into three categories:
- Communication based services
- Consumption based services and
- Creation based services
We believe that the adoption and usage of mobile broadband services will happen in three key stages and the number of active users and the per-capita data consumption will vary across the three stages and service types.
First, the existing mobile consumers will onboard data networks using communication based services. Later, a portion of them will evolve into broadband multimedia consumption, thus increasing the per-capita data consumption. Finally, once the consumers are comfortable with communication and consumption based services, a subset of them will start generating their own content and share it with their peers and social groups. This is the most evolved stage of mobile broadband consumer and his/her average data consumption will be at its peak.
Communication Based Services: The need for communication and interaction with others is fundamental among human beings. This fundamental need was also the primary driver for growth of ~900 million mobile subscribers (primarily on voice services) in about 15 years in India. Even among mobile data/broadband adoption, we believe that services that enable communication and interaction (such as Mobile IMs – WhatsApp, WeChat, Kik, Line, Hike, etc and social networking sites such as Facebook) will witness adoption early and by maximum number of users.
These services are not (yet) data heavy and their traffic payload is relatively lower. Among various communication based mobile broadband services, WhatsApp and Facebook are most popular. WhatsApp has over 48 million users in India, while WeChat and Line have over 15 million and 18 million users. According to our research, the per-capita data consumption of 3G smartphone users on WhatsApp is 1.33 times that of Facebook. However, the number of Facebook 3G smartphone app users is 2.7 times WhatApp users.
Consumption Based Services: Multimedia consumption based services such as YouTube, Vuclip, Vimeo, iTunes, Saavn, Raaga, etc are data heavy and are cautiously consumed by price and value conscious Indian consumers.
Of the various multimedia consumption services, YouTube is the most popular among 3G smartphone users in India. The average YouTube per-capita data consumption by 3G smartphone users is approximately 3 times the WhatsApp usage. However, the number of YouTube users form 35% to 40% of the total WhatApp plus Facebook smartphone app users on 3G. Apart from YouTube, we have also witnessed significant usage of iTunes by iPhone users in India. And, the average per-capita data consumption on iTunes is 3.5 to 4 times the YouTube data consumption by smartphone users on 3G networks in India.
Apart from YouTube and iTunes, usage of other forms of multimedia services (such as music & video streaming) by smartphone users on 3G networks is primarily on browsers, and not through apps. And, this consumption is sporadic, inconsistent and opportunistic, indicating early days of multimedia consumption on mobiles in India.
Creation Based Services: User generated multimedia is still very niche in India. Even on the conventional internet accessing platforms (such as PC’s and laptops), creation of content is very low in India. This is primarily due to poor networks, experience and high broadband tariffs in India, historically. We believe Digital Natives, who are currently in their teens will be the early adopters of creation-based services in India. Specific mobile optimized apps such as ‘Video on Instagram’, YouTube Channel apps, etc will enable this adoption to be mobile-first.
The per-capita data consumption of a mobile data/broadband consumer using creation based services will be the highest as he/she will be an evolved user and an existing multimedia consumption and communication based mobile broadband services consumer.
Supply Side Overview of Mobile Broadband in India
To enable wide adoption and increased usage of various mobile broadband services, seamless and improved user experience is very important. And, two key supply side parameters that impact this user experience are Coverage and Capacity of mobile broadband networks.
Coverage: Of over 625K mobile base stations deployed in India currently, only ~100K are 3G enabled base stations. Currently, 2G mobile networks cover ~92% of population and ~87% of geography in India. In comparison, only in top 50 cities, an additional 25% of 3G base stations are required to match the current 2G network coverage. Moreover, both the spectrum bands (auctioned and currently being used) for 3G and 4G services in India (2100 MHz & 2300 MHz) have inherent issues of in-room penetration and reliable in-building coverage.
Capacity: Although technically, the HSPA (3.5G) and TD-LTE (4G) networks currently deployed in India can provide throughputs of 7.2 Mbps and 26 Mbps respectively, the actual throughputs received by the consumers are much lesser. As per Convergence Catalyst estimates, the maximum number of subscribers that can be serviced with existing 3G spectrum (4 blocks of 5 MHz spectrum in 2100 MHz band, among all carriers), with a dedicated 1 Mbps throughput, is 8% to 9% of the current subscriber base in India. And, the 2300 MHz spectrum (for TD-LTE) can serve a maximum of 13% to 14% subscribers (with the afore-mentioned quality of service). Some of the leading 3G carriers are already throttling the throughputs to their mobile broadband subscribers basis multiple parameters (including tariff plan, age on network, device type, type of service being used, etc). It is due to this severe spectrum crunch and inadequacy to offer high quality mobile broadband services with existing resources, some of the carriers are planning to launch FD-LTE (4G) services on 1800 MHz spectrum and 3G services on 900 MHz spectrum.
Apart from spectrum, one of the key parameters adversely affecting the mobile broadband capacity and user experience is insufficient back haul. Most of the 3G & 4G base stations in India are still connected through Microwave, due to poor intra-city fiber networks in India.
It has been three years since the rollout of 3G networks and services in India. And, the carriers are still catering to the existing demand. Globally, three years is the average time for stabilization of mobile broadband networks and businesses. We’ve also observed in many international markets such as Australia, Singapore, Taiwan, Hong Kong, Malaysia, etc adoption and usage of 3G services grew proportionally with the increased rollout and coverage of 3G networks.
There exist multiple regulatory, business, strategic, financial, operational, resource and technology specific issues for Indian carriers to grow the mobile broadband ecosystem and market. And, most of these issues are unique for each player, and for each geography. However, Convergence Catalyst believes that with precise planning and methodical execution, the Indian telecom players can untangle these issues and successfully evolve the mobile broadband ecosystem in the country.
Note: All per-capita usage and adoption numbers are based on leading carrier’s 3G network data for a metro circle (in April 2014).