India's consumer eco-system will go through a unique transformation over the next 36 months, led by a telecommunications revolution toward fourth generation or 4G mobile services. The consequences are revolutionary. The 4G mobile revolution will transform India the same way that cars changed America 100 years ago but at ten times the speed. Companies need a mobile-first strategy to create value in India in the coming decade.
Telecom= Mobile, Internet= Mobile
Starting from a very low base in 2000, by July 2016, virtually every Indian had a telephone and access to text messaging. This change was driven by the lowest calling rates in the world. Specifically, India had 1.03 billion telephone connections for its 1.25 billion population; 97.7% of these connections were mobile. About 150 million Indians had "broadband" internet connections and over 93% of these used mobile phones and some dongles. In other words, landline phones, personal computers and laptops are a rounding error in India's consumer ecosystem.
If the 4G penetration rate reaches even half that of mobile telephony, it implies a customer base that is almost twice that of the US population.
About 80% of the telecom market was divided among just four companies, led by Bharti Airtel at 25% and followed by Vodafone of the UK. Reliance Communications plus Aircel (the two companies merged in 2016) and Idea Cellular, each with about 18%.
For telecom operators, Average Revenue Per User (ARPU) in India is well under $4, among the lowest in the world. Unlike China, India has generally abided by global telecom standards and also encouraged competition among state-owned operators (MTNL and BSNL), Indian players and global entrants, including mobile operators, handset makers and backend providers such as Alcatel Lucent, Ericsson and Qualcomm. But quality of service of the largely 2G network has plummeted under the volume of traffic. India has about ten times the subscribers compared to the United Kingdom with just one fifth of the mobile spectrum available to operators, according to Saurabh Goel, a former vice president at Airtel. Many Indians carry handsets that support "dual SIMs" so that they can have simultaneous access to services from two or more competing mobile carriers. Until recently, the 4G service in India has been targeted largely at upscale or business subscribers in the major cities.
The Disruptor: Reliance Jio
In this environment, a new 4G-only player entered with an initial investment of $20 billion in network and market infrastructure. Jio is a unit of Reliance Industries Ltd, whose leader, Mukesh Ambani, is India's richest man. Sending a 5 megabyte file in 2G takes eight minutes but the same file can be transferred 100 times faster in 20 seconds using 4G.
In an attempt to disrupt the relatively mature telecom ecosystem, Jio offered free voice calls for life and began with an offer of free accounts, 4G handsets under $50, and free roaming until 31 December, 2016 (now extended to 31 March, 2017) as well as aggressively priced data service bundles. Jio hopes to grow to 100 million customers in less than a year. As of today, Ambani already claims 53 million customers with Jio.
Of course there has been a strong competitive reaction from the incumbent players. Telecom Lead reported that Bharti Airtel may be the primary player that can withstand the competitive pressures of the Jio offerings. Airtel commercials dominated the airwaves across India since the launch of Jio.
A country as vast as India is also quite heterogeneous and 4G creates leapfrog opportunities in large and previously underserved pockets. For example, the northeastern part of the country connected to the mainland by a "chicken neck" did not benefit from data carried on optical fibre laid across India. Goel, the former Airtel executive points out that the "proliferation of 4th generation technologies is to benefit this region the most. When 4G services were first launched in Shillong, the per site data consumption jumped up dramatically, and became second only to Delhi at that time on a per tower usage basis."
A country as vast as India is also quite heterogeneous and 4G creates leapfrog opportunities in large and previously underserved pockets.
In November 2016, the Indian government announced the sudden demonetisation of ₹1000 and ₹500 currency bills, which accounted for 86% of the cash circulating in the country. This move, intended as a shakedown on black money, corruption and counterfeiting, has had the unintended consequence of millions of Indians turning to mobile payment services (such as Paytm and MobiKwik), which do not require exchange of physical currency bills. Paytm claimed that 45 million Indians used its service by 21 November, 2016 and MobiKwik reported a 40% jump to 35 million Indian customers. Many of these new customers are likely to upgrade to 4G services, having tasted the benefits of data usage on their phones.
While it will take many months for the dust to settle and the winners to emerge, one thing is clear: India will soon have one of the largest pools of 4G users in the world. If the penetration rate reaches even half that of mobile telephony, it implies a customer base that is almost twice that of the US population. Nimble companies and organisations will stand to gain by this unique opportunity.
Which industries will benefit from 4G?
India's unique economic, demographic and distribution ecosystem will lead to many winners as a result of this 4G revolution. Companies should abandon PC- or laptop-based business models and instead focus on digital businesses using the mobile platform. Here are just a few possible opportunity sets.
India's entertainment industry produces the highest number of movies compared to any other country in the world—several times more than those produced in Hollywood—but rampant piracy has limited revenues to genuine producers. Digital rights and viewing habits are much easier to manage on mobile networks, and revenues are likely to start expanding as more and more people view their entertainment on mobile devices. Much of this entertainment content in India targets millennials who are likely to consume entertainment content at hours when business loads are light. Thus, 4G has the potential to transform the entertainment industry.
Financial services industry
India is a cash-based economy and most Indians don't have active bank accounts. Setting up brick and mortar banks in India's hinterland is a challenge. Mobile banking has been touted as a solution but results so far have been limited.
The short-term crisis caused by demonetisation further opens the door for new players to provide niche financial services.
Over the last six years, India has managed to issue over 1 billion biometric Aadhaar cards to provide secure identity verification; earlier this year India's retail banks collaborated with the Reserve Bank of India to release the Universal Payment Interface which provides a basis for secure mobile transactions linked to the Aadhaar identity and has security features based on iris and fingerprint images. 4G will accelerate the proliferation of active mobile banking in India with a better way to deal with such encrypted and image-based data. This move creates myriad opportunities in India's financial services industry. The short-term crisis caused by demonetisation further opens the door for new players to provide niche financial services.
Education, skill development and training
The country's youth has a huge appetite for education, skill development and training. With affordable mobile video, it is likely that non-classroom-based courses will find a platform to expand dramatically in India. These benefits could flow to legacy players such as public and private universities, corporations such as India's NIIT and California-based Coursera, nonprofits such as the Khan Academy, or perhaps new startups that will rise to close the education gap using 4G enabled smartphones.
Physicians and hospitals in India are already using telemedicine to diagnose and triage patients. Two-way video on a 4G platform will enable urban patients to avoid traffic, and rural patients to consult remote specialists while making providers more productive with their time. Telemedicine has the potential to explode in India.
E-commerce is already growing at exponential rates in India. Amazon, Alibaba and venture capitalists have invested billions into Indian e-commerce. Over 90% of India's brick and mortar stores are tiny, single location shops (not part of chains or franchises). It is very likely that future top retailers in many categories will be e-commerce companies, not big-box chains. This will have a huge impact on foreign consumer product companies such as Colgate and PepsiCo eyeing the market in India as e-commerce reaches scale in India.
App-based consumer services
There are significant opportunities in the emerging app-based consumer services. Already, India has eServices for kitchen cleaning, sprucing up the house, cleaning clothes, hiring a driver for your car for some hours (in Indian city traffic, it makes sense to sense to hire someone to drive the car). With 4G, the eServices space is poised for explosive growth.
Bottom line: the 4G revolution is a fast train which companies must get on or be left behind.
Since liberalisation in 1991, media of all kinds has grown rapidly in India, including newspapers, magazines, radio, television, and billboards. It is likely that this growth will be muted in the next decade as Indians turn to mobile media as the largest form of consumption. Social media in India, including Facebook, has been largely a mobile-led phenomenon. Computers, laptops and tablets will be marginalised as India leapfrogs to mobile 4G media by 2020. B2C companies like PepsiCo and Colgate, B2B companies such as Rolls Royce and Deere, and technology companies such as Corning and GE will shift advertising budgets from TV and newspaper channels toward mobile 4G
These are just a few examples of industries where new business opportunities will be created in the next decade. Startups, and fast moving incumbents from anywhere in the world can take advantage of this unique "perfect storm" happening in India today. Bottom line: the 4G revolution is a fast train which companies must get on or be left behind.