Calling the bluff on India's internet penetration hype

If India is known for anything today in the business realm, it's for its rapidly growing, mobile phone-toting, Wi-Fi-using populations that represent a business bonanza for companies that are able to successfully tap into those markets.

Consequently, the Internet and Mobile Association of India (IAMAI) trumpeted 2013 to be the "Year of the Internet" in India. Its press release proclaimed that India was finally becoming "inclusive", as reflected by its 213 million internet users, 130 million of whom were accessing it via their mobile phones. Also hailed was the accompanying phenomena of e-commerce, which flowered from $1.35 billion 2007 to approximately $10 billion by the beginning of 2014.

So, what's the problem here? This editorial claims that there is more hype than reality behind these promising numbers. First, actual broadband penetration is still abysmal, at less than 20 million. Secondly, the internet having achieved cross-sector disruption is largely a myth, with most of its rural and urban poor as well as other underprivileged groups yet to avail of the benefits of the net.

Meanwhile, the article points to the plan to connect every rural village in India through fibre-optic cable, which still hasn't happened despite it being forged more than seven years ago. E-governance is also yet to reach any kind of significant scale. And as far as e-commerce is concerned, most outfits are home grown, struggling, and surviving thanks to massive cash infusions by their VC sugar daddies. They could be more successful if internet speeds were faster and more reliable, but scaling operations on current bandwidths would be a useless enterprise.

All of this means that the internet in India is basically a "nascent channel of commerce, information, and development" — a high-potential, low-maturity sector that will go nowhere without appropriate infrastructure development and reform.

This didn't prevent the Department of Telecommunications (DoT) from finally reclassifying broadband speed — up from 256Kbps to a fast 512Kbps. This could be a significant upgrade, even if it means that the numbers of people with broadband were to drop.

However, the reality is, talk of higher broadband is largely useless. My 3Mpbs connection with the largest telco here still gives me a maximum of 256Kbps. It's not bad, and most YouTube videos at 720p play reasonably well. But it's not consistent, or what's advertised. And as far as 3G is concerned, it's largely a joke, with big problems in loading videos seamlessly.

So, whether the problem is congestion at the Tata Communications gateway that every telco is forced to ultimately go through, or telcos unable to provide speeds advertised because of their desperate attempts to ramp up data services without forking out additional commensurate capex on equipment, one thing is certain: The quality of the internet experience for most people in India far lags the promotional hype behind it.

And it just may explain why there haven't been any significant e-commerce listings or VC exits as of yet, compared to other markets with similar potential.