India’s internet story is at a tipping point, underpinned by favourable demographics, expanding access to high-speed wireless networks, cheaper broadband connections, and a proliferation of cheaper devices. By 2015, we estimate India’s internet user base to rise to 300m, almost 3x the current base. Large, single-ticket deal sizes of private equity and venture capital funds indicate that well positioned companies are set for rapid growth.
A number of enabling factors for driving up India’s internet penetration are now in place. Affordability has increased due to lower access charges (average user charges are down more than 40% in the past two years) and rapid proliferation of internet devices (smartphones, tablets, netbooks) that are becoming cheaper by the day
Demographics – India is likely to be a beneficiary of changing technology. The increasing speed of wireless internet could remove one of the principal bottlenecks for India’s internet penetration. In addition, demographics have always been favourable, with more than 50% of the population under 25 years of age.
Proliferation of cheaper access devicesThe cost of accessing the internet is reducing dramatically. Prices of internet access devices are falling. The most notable feature is the change in access devices—internet access has rapidly spread to mobile devices (phones and tablets) from PCs/laptops. This reduces the cost of internet access devices from Rs25,000-30,000 even two years ago to as low as Rs7,500 now. Furthermore, a growing variety of consumer electronics devices, from refrigerators to televisions to entertainment consoles in automobiles, are being net-enabled, thanks to the emergence of post-PC/modular operating systems such as Android.
Cost of High Speed BroadbandThe launch of 3G and 4G services in India has taken high-speed internet to the masses; the cost of wireline internet is also reducing. Over the past two years, the speed of fixed-line internet access has nearly doubled and its cost has fallen by more than 40% in many metro cities. Improving last-mile connectivity has driven the increase in access speeds.
We expect internet penetration and access speeds to be the primary growth enablers for internet businesses in India. We expect the internet user base to triple to more than 300m over the next 3 years.