Mobile internet is changing fast in India, but don’t let vanity metrics mislead you

India is the world’s second biggest market for chat apps. Photo credit: Swaminathan.

News mills have made noisy predictions: hockey stick growth in internet adoption and free fall data pricing. At Lightspeed India Partners, we invest in early stage technology companies that benefit from data adoption. Reliance Jio, a telecom operator, changed the status quo this September, when it launched mobile 4G services with an offer to provide free connectivity for three months.

To form a first-principles viewpoint about the impact of Reliance Jio, we spoke to a wide spectrum of stakeholders. Our observations and hypotheses based on the current scenario are in the infographic below the article – we’d love to start a dialogue with you as this market evolves.

The story of 10x vs 2x

There are 300 million data subscribers in India, but this is just a vanity metric. The ‘real’ data user base is 50-60 million who consume 1GB or more per month – this is the segment that generates over INR 500 (US$7.3) of combined voice and data ARPU (average revenue per user). This user base will rapidly grow 2x to 100-120 million, and will consume 5x data by 2020, driven by low data costs and better data coverage. That’s 10x data consumption.

Overall data penetration, on the other hand, will grow more gradually by 2x to 600 million by 2020, driven by shifts in awareness and affordability. Case in point – over 9 out of 10 Jio users are existing data subscribers.

There are 300 million data subscribers in India, but this is just a vanity metric.

Not all data users are equal. The first hundred million users include people like you and me. At current tariffs, we believe that the data consumption in the INR 500-750 (US$ 7.3 to 10) voice + data ARPU segment – currently about 39 million users – will grow 3.5x within the next 12-18 months. This is the data-hungry Indian user.

However, further reduction in data prices at lower segments is needed to catalyze internet adoption among the second hundred million users. Catchy offers of 1GB data at 50-odd rupees need upfront payments of INR 1500 (US$22) a year, which locks out mass uptake. Even with the best of promotions, 100MB at the lower segments costs INR 12 (US$0.17), which is more than twice the rate at higher ARPU plans. Voice and SMS are extra. The third hundred million users will probably need assisted internet access to become active data users.

There are over 50 million 4G handsets in the market, buoyed by the influx of cheap Chinese phones. Handset prices will come down a further 20 percent next year. However, half of the new phone sales are still feature phones – an average feature phone costs INR 900 (US$13) vs INR 3,500 (US$51) for a smartphone.

User behavior is changing

Video is driving most of the new data consumption – YouTube overall usage has grown over 26x since Jio’s launch. At Google wifi-powered railway stations, more than half the data consumed is video.

Photo credit: gmast3r / 123RF.

While startups may feel compelled to start producing more video, content traction is not a given. Daily soaps and movies enjoy natural traction because it’s the same old TV content now on mobile. But beyond that, internet native video categories are completely untested with the consumer: video delivery for commutes or waits between tasks will need new content packaging and design.

Going to the mass market will require solving for offline sharing, data efficiency, and intermittent connectivity. My Chitrahaar (Hindi music show) user will need much more than just data to be ready for Saavn (music streaming service).

Data quality could make or break this momentum