Unlike the US and China, where landline and broadband penetration is high, India’s 2013 landline-broadband penetration was 12% / 6%. With limited investments expected by telco operators in these areas, we do not expect penetration to materially improve from these levels. Even PC penetration in India was around 10% in 2013. On the other hand, 2013 mobile penetration in India was 72%. Expect smartphone penetration to continue to show strong growth driven by increasing affordability and declining smartphone prices.
The mobile opportunity in India to be bigger than landline as many first time users will access internet on mobile in our view. We hence expect the internet companies to focus on mobile first strategies and estimate that in the next 2-3 years, the Indian internet companies will have higher proportion of interactions via mobile platform when compared to US and China companies.
Indian internet companies (listed ones where financial disclosure is in public domain barring the Flipkarts, Myntras, etc) are currently growing revenues at 20%-30% YoY and we expect them to go through a high-growth phase in coming years driven by: a) affordable internet plans and devices; b) comfort in transacting and making payments online; and c) internet companies offering a better value proposition to consumers for transacting online.
It is difficult to pin-point the exact year of inflection (which will drive massive internet usage), we believe that over a period of five years all the ecosystem enablers like affordable devices / tariffs, decent credit-card penetration, well-known internet portals and delivery mechanism will be in place. In such a scenario, we do not rule out the possibility of “hyper-growth” phase playing out.
In the next five years with consumers online spend as a percentage of total spend will increase. We also expect consumers to gradually move away from “cash on delivery” to paying by credit card/debit cards. Investments and Customer Experience will hold the key as companies will focus on easy-to-use Apps (improving consumer experience) and “mobile first strategies”. This will likely provide a “differentiated value proposition” vs. traditional offline companies. There will also Likely be some disruption in traditional offline only businesses which will be forced to have a relook.
The launch of 4G service from Reliance Jio will act as a catalyst for the uptake of internet access in India as we expect: a) the company to improve affordability and provide high-speed bandwidth services, and b) competitors like Airtel / Idea to respond and thus help increase the affordability of high-speed telco services.