Building India’s digital highway
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The next few years will be definitive for the evolution of India’s digital infrastructure and the role it can play in the country’s growth. There is significant unfinished business—India is ranked 91st among 139 countries on the Networked Readiness Index 2016, compiled by the World Economic Forum (WEF). Only 15 out of 100 households have access to the Internet, and mobile broadband remains for a privileged few, with only 5.5 subscriptions for every 100 people, according to the WEF. However, India has skipped a generation in telecom technology—going from no connectivity to over 350 million mobile Internet users—in less than two decades. This needs to be factored in while planning the democratization of digital access in India.
The impending growth of digital assets will present India with many unique opportunities to leapfrog its traditional deficit in physical infrastructure. It will help enhance the economic conditions in remote areas, spur new businesses by enabling access for a large number of small and medium enterprises (SMEs), creating a strong digital identity for the country. Above all, digital infrastructure growth can empower the government to embrace and enable innovation, provide resources to help increase agricultural productivity as well as enable improved healthcare access for rural areas, potentially reducing mortality levels. It can also bring financial services to the unbanked rural and underprivileged communities and help fulfil the country’s longstanding goal of ‘education for all’.
Digital literacy in smaller towns and villages can create employment in sectors such as business process outsourcing (BPO), retail, IT, telecom and financial services. Digital India can also ensure citizens have ubiquitous access to government services. While mobile technology has begun to make a transformative impact, digital access in Internet dark areas, could have a larger socio-economic impact.
While the story of the potential value that India’s digital infrastructure can add, has been told many times, developments in this sector have so far lagged expectations. The government’s flagship project—the National Optical Fibre Network (NOFN)—is yet to fulfil its promise for rural India. In this scenario, we continue to trail the world’s major economies in telecom infrastructure maturity and penetration. Network investments by mobile operators are being held back, due to the poor economics driven by low tariffs and a high level of competition. This has hit carriers’ ability to upgrade consumer services, meet demand in highly populated urban areas and expand networks to provide coverage to rural areas.
The next few years could see unprecedented changes in the ‘quantity’ and ‘quality’ of digital access. Few would argue against the need for a robust digital infrastructure in India. However, one must realize that the economic barriers to that are very high. The following factors will be key to achieving India’s digital infrastructure dream:
Expanding spectrum assets: Few policy changes have a greater impact on infrastructure creation, than optimizing spectrum availability over time by releasing unlicensed spectrum, revising allocations and enabling free sharing and trading. Spectrum is a scarce resource. The ever-increasing projections of mobile traffic growth in India, make a compelling business case for allocating more spectrum for mobile usage. These allocations need to include licensed and unlicensed spectrum bands to accommodate both network coverage and capacity needs.
While India has taken a few steps in the right direction such as the department of defence releasing spectrum in the 1,800-2,100 MHz bands, it still needs a better and more comprehensive spectrum policy. India lags behind many developed and emerging markets in per-capita availability of spectrum. Also, the cost of spectrum here is one of the highest in the world. The primary goal for policymakers should be to maximize the use of spectrum, rather than focusing on its short-term value. Also, the more harmonized the spectrum used by mobile operators, the more economically viable the overall solution to improving Internet access. This calls for effective synchronization of India’s spectrum planning, allocation, network design, financing and construction. Also needed is a national policy to enable access densification in areas with low-income but high-growth potential.
Creating broadband infrastructure: Let us turn our attention to the resources required for the creation of broadband infrastructure. India currently ranks low in broadband penetration, even among developing countries. Internet access has grown, driven by a higher penetration of mobile handsets and wireless infrastructure in urban and tier I and tier II towns, but broadband penetration in the larger part of the country is still dismal. Current estimates show that broadband only reaches approximately 600 corridors, largely in and around the top 50-100 Indian cities. On the other hand, the country aspires to create a ‘Digital India’ with a broadband highway offering a 100-Mbps connectivity to 250,000 gram panchayats. The funds needed to create a national IP backbone and ensure ‘last-mile connectivity’ have not been supported by a strong underlying business case. The creation of ‘Digital Bharat’ calls for radical changes to regulatory frameworks, allowing the generation of viable business models for inclusive broadband growth. There is significant public funding involved in making NOFN come true, but private sector operators have so far seen little value in pursuing fiber deployment beyond the top cities. This calls for the creation of robust models of public-private partnership, driven by a combination of rights of way, release of spectrum and creation of a content ecosystem to spur revenue generation via digital infrastructure.
Enhancing technology adoption: This is the other side of the story, where industry participants need to get their act together. Over the last few years, new and existing players have made significant investments in transforming the infrastructure for 3G/4G/LTE roll-outs. In a country with relatively low average revenue per user (ARPU), carriers will need to continue focusing on infrastructure build-outs to increase coverage and improve customer service quality. With a large part of the data consumption moving indoors, the industry needs to move towards small cell deployments. White-labelled small cell deployment makes great economic sense for all high-demand concentration centres. Further, developments in software-defined-networking (SDN) and network-function-virtualization (NFV), have the potential to redefine the economies of infrastructure deployment for operators. Virtualization needs to become business-as-usual. This will make infrastructure deployments simpler (commodity hardware with centralized software), more cost effective, agile, reliable (battle-proven commodity hardware) and flexible (digitally defined network topology and functions). These virtualized networks will be at the core of the telecom industry’s digital transformation, redefining our infrastructure into a programmable platform for a variety of new services. As an example, business-to-business connectivity business models are already being completely disrupted with software-defined wide area networks.
Ultimately, the economics will work when there is demand for services and development of new use cases. The creation of the content and services stack in remote locations, will be key to drive adoption. There are multiple areas where digital infrastructure can play a big role in creating opportunities. These include public and law enforcement records, health data including patient and insurance records and academic and employment records. Other areas include location services, digital identity including identifiers and demographics, communications and local content. Multiple stakeholders need to come together to create an effective ecosystem of content, services and governance that will increase usage, ultimately creating the business case for a robust public-private investment.
But implementation of such initiatives is fraught with constraints related to consumer privacy, ownership of data, data security and protection. Digital India will become a reality only if we can create the data ecosystem required and find solutions to overcome these constraints.
Over the next few years, we need to prevent market failures in digital infrastructure creation—failures that are borne out of unfavourable economics and lead to suboptimal development of digital infrastructure and issues in both ‘quantity’ and ‘quality’ of digital access. The scale of change required to make this happen is disruptive and unprecedented. For digital infrastructure to take root and flourish in India, all stakeholders will have unique roles to play. For individual business leaders, it will mean overcoming technical, economic and business model-related growth challenges in a transformative way. Ultimately, the combination of public-private funding, progressive government policies and freeing up of spectrum assets will determine whether India is able to fully address the digital divide. The initiative will also hinge upon faster adoption of new, cost-effective technologies by industry players and the creation of compelling business use cases. Now is the time for all stakeholders to come together to transform India into a digital economy.
Kanchan Samtani and Sumit Sarawgi are partners and directors at BCG.
Twenty-five years after liberalization, and 20 years after it entered India, The Boston Consulting Group collaborates with Mint on a series of articles on what lies ahead for the country over the next 20 years.