KPMG India Mobile Internet 2015

KPMG India Mobile Internet 2015 from Marc Morelli

KPMG India Mobile Internet 2015

1. 1. India on the Go: Mobile Internet Vision 2017 A study by KPMG – IAMAI July 2015 kpmg.com/in
2. 2. 1 TableofContents Message by KPMG 3 Message by IAMAI 5 Executive summary 7 Mobile Internet in India 11 • India and the Internet 13 –– Internet penetration in India 13 –– Internet connection growth led by wireless connections 13 • Increasing mobile phone penetration 14 –– Mobile phones awaiting a rural fortune 15 • Mobile Internet – Taking connectivity to the masses 15 –– Adoption of high speed Mobile Internet fueling growth 15 –– Rural India – The engine of growth for Mobile Internet 16 • The Mobile Internet ecosystem 17 –– Telecom operators 17 –– Handset OEMs 17 –– Technology providers 17 • The Mobile Internet ecosystem 17 –– Content and service providers 18 –– The ecosystem’s contribution to GDP and employment 18 Indian Mobile Internet ecosystem 19 • The Indian telecom sector 21 –– The Big Macro 21 –– The Tailwinds 21 –– And the Headwinds 22 • The handset market 24 –– The Big Macro 24 –– The Tailwinds 24 –– And the Headwinds... 27 • Content and service providers 29 –– On-deck mvas 29 –– Off-deck content 30 –– Social media 31 –– Mcommerce – business on the go 32 –– Online classifieds 33 –– Mobile gaming 34 –– Mobile advertising 35 Mobile led services (mServices) for a larger social impact 37 • mAgriculture – Giving conventional agriculture a make over 39 –– Potential Benefits of mAgriculture services to farmers 40
3. 3. 2 –– Barriers to success 41 • mFinance – Means to financial inclusion 42 –– Potential Benefits of mFinance 41 –– Barriers to success 44 • mHealth – Towards affordable rural healthcare in India 45 –– Potential Benefits of mHealth 46 –– Operating models in India 47 –– Barriers to success 47 • mEducation for quality and affordable education across the country 48 –– Potential Benefits of mEducation solutions 48 –– Barriers to success 49 • mGovernance – On track for inclusive development 50 –– Potential Benefits of mGovernance in India 50 –– Barriers to success 51 • Is the Indian market ready for mServices? 51 The way forward 53 • The foundation for solution roadmap 55 –– A four pillar approach 55 –– Key focus areas for recommendations 56 • Enabling Technology Landscape 59 –– Supporting vernacular content 59 –– Data compression for efficient bandwidth management 59 –– Using small cells to provide connectivity 59 –– Building common technology platforms for interoperability and cross-delivery of mServices 60 • Effective and sustainable business practices 60 –– Invest in expansion of the technology and infrastructure backbone 60 –– Successful cases of ppp in building infrastructure from across the globe 61 • Collaboration between telcos and handset manufacturers for ‘affordable’ bundled services 62 –– Building enablers for growth and adoption of mservices 62 –– Collaborative operating models between the ecosystem players 63 • Supportive regulatory/Policy environment 65 –– Spectrum management 65 –– Amend the M&A policy to promote industry consolidation 66 –– Encourage entrepreneurs by presenting enabling policy environment 66 –– Progressive regulatory framework for content 66 –– ‘Make in India’ for Handsets 66 –– KYC norms and BC policies in mFinance 67 –– Institute and regulate data standards 67 –– Strengthen the data security and privacy policies 67 • Develop human capital 68 –– Developing human capital in mobile R&D, user experience (ux) and applications design 68 –– Train illiterate users on usage of Mobile Internet 68 –– Focus on increasing awareness of Internet 68 Conclusion 69 About 71 Acknowledgement 77
4. 4. 3 Message by KPMG Message by KPMG
5. 5. 4Message by KPMG The number of Mobile Internet users in India is expected to grow to 314 million by the end of 2017 with a CAGR of around 28 per cent for the period 2013- 2017. This impressive growth would drive India to become one of the leading Internet markets in the world with more than 50 per cent of Internet user base being mobile-only Internet users. The key factors that would lead to this growth are initiatives by the government, collaborative ingenuity of Mobile Internet ecosystem and innovative content and service offerings from mobile based services players. Increase in smartphone penetration and increasing demand for Internet based services such as chat, social media, video and music through the mobile medium suggest a paradigm shift in content consumption preferences that is, in turn, would accelerate the growth in Mobile Internet usage. This report covers the developments, challenges and opportunities in the Mobile Internet landscape and provides insights and recommendations to enable the Mobile Internet ecosystem achieve its potential. In addition to this, we have brought in a wider perspective on mobile led services (mServices) and their positive impact on the Indian society at large. We have identified headwinds and tailwinds impacting various players in the Mobile Internet ecosystem. The challenges identified in this report cover infrastructure issues, policy regulations, limited teamwork within the ecosystem, all of which ultimately impact availability and reliability of Mobile Internet. However, the existing opportunities outweigh the issues in the ecosystem. We believe that this is no time for battening down the hatches and weathering the storm. Rather, it is time to make the best of the potential opportunity afforded by connecting the population of 1.26 billion. Finally, the report puts together insights and encourages a way of thinking for various stakeholders to take cognizance of in order to enable connectivity, create opportunities and pave the way forward. We have identified key focus areas for action and some short term fixes for long term issues in order to enable a faster growth in the Mobile Internet ecosystem. I encourage you to study this report to understand the opportunity at hand as various strata of society come into the fold of connectivity. I welcome feedback on our findings and recommendations within this report. Akhilesh Tuteja Partner and Head Technology Ashvin Vellody Partner Management Consulting
6. 6. 5 Message by IAMAI Message by IAMAI
7. 7. 6Message by IAMAI It gives me immense pleasure to present the research report ‘India on the Go: Mobile Internet Vision 2017’. This report provides a detailed analysis of the state of the three major stakeholders: telecom companies, Internet content and services companies and handset manufacturers who collectively shape the Mobile Internet ecosystem. The opportunity and challenges that each of these segments face are discussed threadbare and recommendations made for future course of action. There are 159 million Mobile Internet users in India and the report projects this to double by 2017. Given that mobile is going to be the primary mode of accessing Internet, the stakeholders need to nurture and grow the ecosystem collectively and synergistically. Since Mobile Internet is the most potent instrument for realisation of Digital India mission, the report suggests that the government too has a very important role in nurturing the ecosystem. Given the dynamic nature of the ecosystem, the authors of the report are very conscious that views and suggestions made in the report are relevant to the context of today and are likely to change with changing circumstances. On behalf of IAMAI I would like to thank all those industry leaders who found time to share their views for preparing this report. A special thanks to the KPMG team for their hard work, perseverance and patience. The report reflects the thorough and meticulous work put in by the KPMG team led by Ashvin Vellody and Varun Gulati. Thanks are also due to my colleagues at IAMAI, Mehul Gupta and Nilotpal Chakravarti who worked as the connector between industry and the researchers. I also thank the sponsors of this report, Webaroo Inc., One97 Communications Ltd and Omidyar Network for their support. We hope the readers will find the report informative and of value to them. Dr Subho Ray President Internet and Mobile Association of India
8. 8. 7 Executive Summary Executive summary
9. 9. 8Executive Summary
10. 10. 9 Executive Summary The advent of the Internet has radically transformed the world of communications, information exchange, entertainment and business. India has the third largest Internet user base in the world out of which more than 50 per cent are mobile-only Internet users1 . However, the Internet penetration in India at 19 per cent is quite low compared to other developed and developing economies2 . The number of Internet users was 278 million in 2014 and the number of Mobile Internet users was 159 million by October 2014. The number of Internet users is estimated to reach 302 mn by December 20143 . There is a significant opportunity for growth in penetration and usage base in India. With a growing Internet penetration, India is likely to become one of the largest Internet markets in the world and this growth could be mainly driven by the growing number of mobile device connections. The proliferation of mobile phones in India seems to be bridging the digital divide by connecting millions of people. The number of people who own mobile phones is greater than the number who own personal computers4 . This reinforces the belief that the mobile handsets could have the single most important role in bringing Internet access to the unconnected sections of the population. The Indian government is committed to setting up a robust digital infrastructure and to promote adoption of Mobile Internet and related products and services. In 2014-15, the Government budgeted INR 500 crore for building infrastructure as per the National Rural Internet and Technology Mission with an additional INR 100 crore budgeted for improving e-governance5 . This is a step towards increasing the wireless Tele-density in rural areas which is still low at 43.27 per cent as of March 20146 . As the majority of the population resides in the rural regions7 , it is imperative to provide Telecom services to these regions to increase the overall penetration. While the rural growth story will likely be written by 2G, urban India, demands high speed technologies such as 3G and 4G. Many Telecom operators are investing in developing 3G and 4G networks to cash in on this demand. It is estimated that there were approximately 42 million 3G subscribers in India by the end of year 2013 and the number is projected to reach 284 million by end of the year 20173 . To increase user adoption, several Telecom operators reduced their 3G tariffs by 80-90 per cent in the second half of the year 2013 and brought 3G prices comparable to 2G prices8 . 4G user base is also expected to grow at an annual growth rate of 344 per cent and a CAGR of 103 per cent from 2013 to 20189 . The Mobile Internet ecosystem comprises of telecom operators, handset manufacturers, and content and service providers. Telecom operators are responsible for the overall quality and reliability of the network which operates as the backbone of a mobile service. Many Telcos have made heavy investments in the last decade for setting up the network infrastructure. Initiatives such as USOF levies and joint ventures between the government and the operators are focussed towards development in the rural areas. The target is to achieve a rural tele-density of 100 per cent by the year 202010 . Many handset manufacturers are making their contribution towards the Mobile Internet growth by churning out affordable handsets supporting vernacular content. The median price of handsets has dropped significantly making Internet enabled devices affordable for the masses. Several domestic handset manufacturers are contributing to the increasing trend of smartphone usage by selling high end phones at lower price points11 . Smartphones seem to deliver a better user experience and can accelerate the adoption of Mobile Internet. India has become the third largest smartphone market in the world. The number of smartphone users is expected to reach 369 million by the year 201812 . Meaningful and compelling content can be an important driver for enabling adoption of Mobile Internet. The role of the content and service providers is thus of paramount importance. Traditional services like voice, SMS are gradually being replaced by mobile data services. Indian mobile content usage is dominated by email, social networking, chat, games and news13 . While these categories gained popularity because they fulfill multiple needs of consumers, the positive social and economic impact of the Internet is probably manifold. The mobile data services would help to tackle key issues plaguing education, health, finance, agriculture and governance in 1 Avendus-India Mobile Internet: The revolution has begun, 2013 2 Internet Live stats, eMarketer; KPMG in India Analysis 3 IAMAI-IMRB Mobile Internet in India 2014 Report, KPMG-FICCI M&E industry report 2014 and 2015 4 Avendus-India Mobile Internet: the revolution has begun report, 2013 5 India Annual Union Budget announcement 2014-15, 10 July 2014 6 TRAI Performance Indicator Report, July 2014 7 Indian Census 2011, http://censusindia.gov.in/ 8 http://www.moneycontrol.com/news/cnbc-tv18-comments/telecom-data-wars-idea- cuts-2g-3g-data-tariffs-by-90_987659.html 9 Cisco VNI report 2014, Industry discussions 10 http://www.trai.gov.in/WriteReadData/userfiles/file/NTP%202012.pdf 11 KPMG-FICCI M&E industry report 2014 and 2015 12 KPMG-FICCI M&E industry report 2015 13 Nielsen mobile consumer report, a global snapshot 2013
11. 11. 10Executive Summary India. From giving access to financial transactions to the people who do not have a bank account to providing health services in the rural areas, a simple mobile phone is being touted as one of the greatest mediums of change. While benefits are broadly appreciated by several players, there are multiple challenges that the ecosystem faces. Leading Telecom operators pay almost 28-29 per cent of their revenue as license fees, charges and levies14 . With high spectrum cost, several Telecom operators find themselves cash-strapped in making heavy investment for network infrastructure upgrade. The uncertainties around regulatory and policy primarily concerning M&A guidelines, spectrum management and tax regulations further add to the operators’ woes. The content and service providers despite being a source for cutting edge innovation face significant challenges such as slower and overloaded telecom networks, experimentation with monetization models and underdeveloped billing and customer care systems. Customer’s apprehensions around security of payment platforms and data privacy are areas which also need to be addressed. Though the ecosystem is marred with several deep seated problems, it is the availability and reliability of Mobile Internet connectivity that can trigger an accelerated adoption rate for Mobile Internet. In India, the users face slow speeds, signal disruptions, and call drops. Even the best content and app may not appeal to a user if the network backbone does not support the intended user experience. Development of infrastructure, deployment of high end network technology, small cells in congested and rural areas, central QoS body for off-deck content, supportive regulatory policies can lead to improved data connection and thereby better user experience. Reliable accessibility is the killer app which will bind the ecosystem together, increase adoption and enable innovations in business models around voice and data services. It is, therefore, essential that the government participates in developing the infrastructure through public-private partnership. The government must also focus on creating a friendly and transparent business environment for the industry stakeholders to operate in. Further, the ecosystem can reap substantial benefits by creating standards for technology platforms. Cross- Platform, cross-device and cross-region compatible technology platforms could help in interoperability between different systems and services possibly leading to delivery efficiency. There seems to be limited collaboration between the different pillars of the ecosystem; each component is trying to take the challenges of demand, supply and customer satisfaction head-on by itself. Even with shared interests and problems, the Mobile Internet value chain still remains loosely connected and even disjointed in few cases. To overcome various challenges, the business models of various players in the ecosystem would need to be redefined. A sustainable and effective business practice may require collaboration at different levels of the value chain. Better collaboration, right partnership and the right service package can accelerate the market growth and help in evolving the ecosystem further. Collaboration between telecom operators and handset manufacturers to offer bundled services could prove beneficial to the customers. The telecom operators and the content and service providers can use each other’s strength to effectively benefit from the market. The Telecom incumbents should assess their capabilities and determine how to leverage them in working with the other players of the ecosystem. Similarly, the content and service providers should consider the extensive network, marketing and billing capabilities of the Telecom operators for launching vernacular and innovative products. In conclusion, Mobile Internet penetration in India is growing fast and holds a promising future with every player in the ecosystem having their own important role to play and contribution to make. While the sector faces challenges, the opportunities present outweigh the issues. Collaboration amongst the stakeholders with the government providing a supportive business environment can facilitate in ironing out the problems and put the ecosystem on a phenomenal growth trajectory. 14 http://articles.economictimes.indiatimes.com/2014-05-28/news/50149676_1_vodafone- india-ceo-marten-pieters-outstanding-loans
12. 12. 11 Mobile Internet in India Mobile Internet in India 01 SECTION
13. 13. 12Mobile Internet in India
14. 14. 13 Mobile Internet in India India and the Internet The Internet user base in India has grown from strength- to-strength, year-on-year and lately powered by mobile, has changed many a thing for the average Indian. Over the last decade, the preferences for communication, financial transactions, information exchange, search and even shopping have changed radically in India. This shift has been driven by use cases afforded by Internet technologies and more importantly due to penetration and adoption of Mobile Internet. This section reports the state of Internet (including Mobile Internet) in India, components of Mobile Internet ecosystem and the ecosystem’s contribution to the Indian economy. Internet penetration in India Even as the Internet and especially Mobile Internet growth are attaining new heights each year, Internet penetration in India, up until now, has remained relatively unimpressive. India’s Internet penetration stands at a mere 19 per cent, accounting for 8.33 per cent of the total global Internet user base. However, even with relatively lower Internet penetration, India has the third largest Internet user base in the world and is expected to become the second largest this year15 . When compared with key developed markets (almost nearing saturation) or other comparable developing markets such as Brazil and China, India has a long way to go with a sizeable portion of the population still devoid of Internet access. Internet penetration Country Internet Penetration 2014 89.6% 86.8% 86.0% 53.4% 46.0% 19.2% Australia USA Japan Brazil China India Source: Internet Live stats, eMarketer; KPMG in India Analysis Internet connection growth led by wireless connections The Internet penetration in India has increased from 13.7 per cent in 2013 to 19.19 per cent in 201416 . The increase in Internet penetration is due to the increasing number of Internet users and connections in India. As of October 2014, the total Internet user base in India was approximately 278 million17 . It is estimated that the number of Internet users in India will touch 302 million by December, 2014 and 503 million by 2017 17 . By the end 15 KPMG-FICCI M&E industry report 2014, IAMAI-IMRB Mobile Internet in India 2014 Report, www.Internetlivestats.com 16 http://trak.in/tags/business/2014/06/05/india-lowest-Internet-penetration-at-17-4-highest- user-growth-asia-pacific and http://www.Internetlivestats.com/Internet-users-by-country
15. 15. 14Mobile Internet in India of 2013, India was home to approximately 174 million Internet connections shared between wireless and wireline connections17 . Driven predominantly by wireless access, this number is estimated to reach 429 million by the end of 2017. By the end of 2013, wireless connections constituted about 86 per cent of the total Internet connections in India and they continue to grow at a faster pace compared to the growth rates of wireline connections17 . Given the projected growth rates, wireless connections are expected to increase their share in the total number of Internet connections to 93.7 per cent by 2017. The Internet penetration, connections and user base may continue to grow in India driven largely by the growing penetration of mobile devices. Increasing mobile phone penetration The global mobile phone penetration (connections per 100 citizens) was measured at 93 per cent in Q1 of 2014. In India, the mobile phone penetration was measured at 73 per cent as of March 2014 falling well below the world average18 . While the mobile phone penetration in India is on the rise with a steady growth rate, the country still has a long way to go in comparison with other developing and more mature Internet markets. India Internet connections 2013-17 (P) (In millions) 150 210 273 337 40224 20 22 25 27 2013 2014[P] 2015[P] 2016[P] 2017[P] wireless connection wireline connection Internet users in India 2013-17(P) (in millions) 189.6 278 354 427 503 2013 2014 2015(P) 2016(P) 2017(P) Global mobile phone penetration (as of Mar 2014) Source: Global mobile phone penetration (Source: Ericsson Mobility Report June 2014), KPMG in India analysis, 2015 17 IAMAI Internet In India 2014 and Industry Discussions, KPMG-FICCI M&E industry report 2015 18 Ericsson Mobility Report June 2014 144% 127% 116% 107% 105% 102% 90% 73% 73% 93% Central and Easten Europe Western Europe Latin America Middle East APAC (including China and India) North America China Africa India Global Source: IAMAI Internet In India 2014, Industry Discussions, KPMG-FICCI M&E industry report 2014 and 2015
16. 16. 15 Mobile Internet in India 19 IDC press release, June 2014 20 TRAI Performance Indicator Report, July 2014 21 Avendus-India Mobile Internet: the revolution has begun report, 2013 22 IAMAI estimates, FICCI-KPMG M&E industry report 2014 & 2015, KPMG in India analysis, 2015 and Industry Discussions Mobile Internet – Taking connectivity to the masses In India, the number of people who own mobile phones is greater than the number of people who own desktops or personal computers. Thus, it is only logical that in India, Internet finds its way to reach the masses through mobile devices. In fact, in India more than 50 per cent of Internet users are mobile-only Internet users21 . The number of users accessing Internet via their mobile devices is growing continuously and it has become a key driver for increasing the overall Internet subscriber base in the country. The number of Mobile Internet users in India was approximately 159 million in 2014. This number is expected to continue to grow rapidly and reach 314 million by end of year 2017 registering a CAGR of 27.8 per cent for the period 2013-201722 . Mobile Internet users in India 2013-17 [E] (in millions) 110 159 213 236 314 2013 2014 2015(P) 2016(P) 2017(P) Source: IAMAI-IMRB Mobile Internet in India 2014 Report KPMG-FICCI M&E industry report 2015 Mobile Internet is referred to as any form of Internet accessed through any mobile device. While GPRS, 3G, 4G/LTE, naturally, fall under the ambit of this definition, Wi-Fi connections from fixed-line as well as dongles would also fall in this category if accessed through a mobile device. Adoption of high speed Mobile Internet fueling growth High speed Mobile Internet has become the need of the hour as many services such as social media and mobile video/TV that are popular with the consumers are pushing demand for high speed Internet. These services are able to deliver the expected user experience to the customers only over high speed and consistent data networks. Mobile phones awaiting a rural fortune Growing mobile phone user base, especially Internet enabled mobile phones is the key propeller for growing penetration of Mobile Internet. India’s current mobile phone user base is predominantly composed of basic phones and feature phones with steadily growing per centage of smartphones. Smartphone shipments surpassed the feature phone shipments in the first quarter of 201419 . As more consumers access Internet enabled smartphones in the future, the Mobile Internet usage and adoption is expected to improve. However, the mobile penetration in Rural India leaves much to be desired. The contribution to mobile penetration in India comes majorly from the urban areas where wireless Tele-density has reached 142.39 per cent. On the other hand, the rural wireless Tele-density still shows poor performance at only 44.32 per cent as of September 201420 . To increase the overall figures for Tele- density, the penetration of mobile devices in the remote rural markets has to increase.
17. 17. 16Mobile Internet in India 23 KPMG-FICCI M&E industry report 2014 24 Cisco VNI report 2014 25 IAMAI-IMRB Mobile Internet in India Report 2014, KPMG in India analysis, 2015 26 IAMAI-IMRB Mobile Internet in India Report 2014 The Indian market, as of June 2014, had an estimated 114 million, 67 million and 4 million 2G, 3G and 4G users respectively. 3G user base stands strong constituting about 36 per cent of the overall Mobile Internet user base, while 4G is only beginning to set its foot in the market with a 2 per cent share as of June 201422 . However, 3G and 4G LTE are expected to drive higher adoption of Mobile Internet in the future. 2G user base in India is projected to decline in the coming years as more and more customers are expected to migrate from 2G to 3G. The 3G user base in India is rapidly gaining market and is projected to grow at a CAGR of 61.3 per cent from 2013-17. There were approximately 82 million 3G subscribers in India by the end of year 2014 and the number is projected to reach 284 million by end of year 201723 . To increase user adoption, many Telecom operators reduced their 3G tariffs by 80-90 per cent in the second half of year 2013 and brought 3G prices comparable to 2G prices. The objective of converging tariffs is to propel the first time smartphone users to subscribe to 3G network and move existing 2G users to 3G. Further, 4G user base is expected to grow at an annual growth rate of 344 per cent and a CAGR of 103 per cent from 2013 to 201824 . India 3G subscribers 2013-17[P] (In millions) 42 82 146 219 284 2013 2014[P] 2015[P] 2016[P] 2017[P] 3G subscribers Source: KPMG-FICCI M&E industry report 2014 It has also been observed that the growth in 3G and 4G subscriptions in many regions of the globe is being driven by increasing smartphone penetration. Smartphones entering the partially tapped rural markets could also contribute to the growth in 3G and 4G user base in India. Rural India – The engine of growth for Mobile Internet Rural India is slowly but steadily moving towards a more Internet friendly and exploratory mind-set. Up until now, the rural market had largely been untapped although it offers good potential for high Mobile Internet growth. As of 2014, the Active Internet User (AIU) base in rural India was 6.7 per cent of the overall rural population of 905 million and accounted for 61 million users. 4.4 per cent of the total rural population used a mobile device to access the Internet; a figure that stood at a meagre 0.4 per cent in the year 201225 . The rural growth story in the coming years will likely be written by 2G technologies. 3G and 4G may continue to be primarily an urban phenomenon for the next few years. Increased Internet enabled device penetration, decreasing handset prices and data plans tariffs are helping to create a suitable environment for a rapid growth of Mobile Internet in India, with rural India set to take the lead. As of June 2014, nearly 50 per cent of the AIU in rural areas accessed Internet using mobile phones, Community Service Centers (CSC) and Cyber Cafes. 38 per cent of the Active Internet Users use Mobile phone as the main access point26 . Rural India-Internet access points 3% 2% 2% 27% 38% 26% 3% 7% 19% 36% 48% 49% Post Office Other Public Installed Computer Friend's Home Home Mobile Phone CSC/Cybe Café All points Main points Source: IAMAI-IMRB Mobile Internet in India Report 2014