Photo: Reuters
Photo: Reuters

Bridging the digital divide in India

The growth of mobile Internet hinges on bringing the benefits of the Internet to the larger populace

Sponsored data or zero-rating offerings as a concept, where data charges resulting from certain types of usage are billed directly to the sponsoring company and not to the customers, is witnessing fanfare globally. As a result, the data used by the app or service is essentially free to customers. Conceptually, it is similar to 800 toll-free numbers, which have high adoption rates world over. Zero rating has become increasingly popular in both developed and developing countries, but plays a particularly important role in developing countries, where the costs of mobile data services are higher relative to the per capita incomes.

Operators around the world are enthusiastic about the potential of sponsored data and backing the capability it has in evolving business models in times to come. According to a study conducted by Allot Communications, approximately 49% of operators globally have offered a plan that exempted certain apps or traffic from customers’ data buckets. According to Rewheel, there are about 75 sponsored data offerings from 38 operators in Europe. Sponsored data is gaining traction even in emerging markets such as China, Indonesia, Brazil, Nigeria, Tanzania, Cameroon, Ivory Coast, Moldova, Uzbekistan, Pakistan and India, with services ranging from advertising, free access to online commerce apps, games and app stores, free access for banking apps, support for bring-your-own-device (BYOD) by enterprises, education and healthcare.

Zero-rating programmes in general represent an economically efficient mechanism for increasing consumer welfare, which makes it beneficial for operators to offer lower prices and other incentives to expand the coverage of the market, especially in developing countries where incomes, and market penetration, are low.

Zero rating improves economic efficiency by supporting continuing investment and innovation in both networks and content while expanding Internet access to consumers who would otherwise be unserved. More importantly, zero rating holds the promise of encouraging more people to go online, boosting the potential audience for all online apps and services.

The idea could also hold promise for corporate app developers, particularly those aiming at low-income and underserved communities. E-commerce, m-health, m-education, m-agriculture and mobile payment services, for example, might be profitable enough to subsidize mobile data access that would increase the pool of potential customers.

The Philippines, for example, a country whose mobile operators actively engage in zero rating, has recently begun to enjoy a prosperous Internet start-up culture. A basic search online shows a large and wide variety of Filipino Internet companies, offering services such as digital queuing, selling products and helping citizens monitor their electricity use in real time. Tech incubators are springing up, and injecting Internet businesses with capital.

It is not a coincidence that of the estimated 4.5 billion people worldwide still unconnected to the Internet, 90% or over 4 billion are in the developing world. While more than three out of four people are online in the developed countries, one out of three is online in the developing world. According to a 2014 report, developed countries have about 84 active mobile subscriptions per 100 people, compared to about 21 per 100 people in developing countries.

Consider that, as of 2014, fewer than 20% of India’s 1.2 billion population used the Internet. A major reason for this is cost. Even in areas where fixed or mobile broadband is accessible, the price for a mobile broadband subscription is simply too expensive for marginal customers, compared with per capita income. At the same time, relatively few Indian businesses have participated in the Internet business boom, meaning Indian-based businesses have very little local or global presence on the Internet.

The power of zero rating to nourish an Internet ecosystem in developing countries such as India comes from its potential to increase connectivity for both people and businesses quickly and at low-cost. First, free access to popular sites such as Google, Twitter, Wikipedia and Facebook encourages more people to sign up for data plans, and enables greater data freedom to explore local content.

Second, the increase in demand for local content spurs local businesses and entrepreneurs to create new online products and services for example, information on disease outbreaks, weather warnings, or even wait times at local stores and government offices. Moreover, the higher share of population online justifies efforts of government agencies to go digital, which in turn encourages more businesses and individuals to join the Internet ecosystem.

Taken together, zero rating can effectively jumpstart a virtuous feedback loop that moves the local economy into a high-connectivity equilibrium.

Prime Minister Narendra Modi envisions a digital India having 600 million broadband connections and 100% rural tele-density with access to information without barriers by 2020. The growth of mobile Internet in India hinges on bringing the numerous benefits of the Internet to the larger populace and driving usage. Digital revolution is fundamental to inclusive growth of the country and sponsored data or zero rating is the pathway to realizing the Digital India dream.

Prashant Singhal is global telecommunications leader at EY.

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