Pricing Broadband services - India

An important factor in the successful selling of broadband services in India is the pricing point for broadband services. Let us attempt to derive a pricing point for broadband services in India.

Let us consider Broadband penetration in the United States. The lowest cost of broadband connectivity in the US is around US$ 20/month. Let us assume an average cost of broadband connectivity to be around US$ 30/month. 55% of the households have Internet connectivity. 45% of the 113100 households in the US have broadband connectivity. Let us assume that the 45% of the households that have broadband connectivity are also the top 45 percentile in the household income category. Using demographic data for household incomes from the Bureau of Census, the percentage expenditure for broadband connectivity of the household with the lowest income in the top 45 percentile of the households in the income category is less than 1% ( 0.8%). This means that of the households that can afford broadband connectivity in the US spend approx. 1% of their annual household income on broadband internet connectivity. From now, let us assume a thumb-rule that a household will on an average be willing to spend 1% of its income on broadband connectivity.

India is a large country with 200 Million households. The government’s target is 9 Million broadband households by 2007, up 40 times from the 0.25 Million subscribers in November 2004. Assuming the 1% thumb rule, and using the NCAER-UNDP survey (circa 2001) data for household incomes shown

1. It should be possible to reach the target of 9 Million broadband households by 2007 if broadband connectivity services are offered at around US$ 5 ( INR 250)/month.
2. Today, the lowest and typical cost for broadband connectivity in India offered by BSNL, a telecommunication company owned by the government, is INR 250
3. The typical cost for broadband service from other operators is INR 500 (US $ 10)/month
4. If the 1% thumb rule holds good, the next 10 million broadband subscribers will be added if the service is priced at US $4 (INR 175 –INR 200)/month.


Note:
Services providing data rates in excess of 256Kbps are referred to as “Broadband data services” in India. 1.5GB- 2GB is the typical download limit on all the service plans of most broadband service schemes

Broadband packaging - India

One of the biggest factors impeding the growth of Internet adoption in India is the PC penetration. 2005 estimates of PC penetration are 10 per 1000 ( 11 Million PCs). Internet penetration is pegged at 4.5 per 1000( 4.93 Million subscribers). Broadband Internet penetration is 0.21 per 1000 ( 0.23 Million subscribers ) Courtesy: Convergence India
Clearly, India has missed the first bus on the Internet highway. But with the arrival broadband Internet, its time to redress this. However, high prices have made PCs unaffordable for the majority of the population. While low-cost PCs ( $225 or INR 10000) are in the pipeline, a "right here right now" solution is needed to simultaneously boost PC and Internet penetration. This is exactly what MTNL, a state-owned telecom company in India intends to do for as low as INR 451 ( $ 10 ) a month under the Tri band broadband scheme.

The PC-Broadband Internet package will initially be available only in Delhi, the capital city. HCL Infosystems, an information enabling and integration company is partnering with MTNL and offering their HCL PCs with the Windows OS. The EMI will range from INR 451 ( $10 ) to INR 939 ( $ 21) for the configuration chosen by the subscriber and can be paid over 40 months. The PC prices in the offer are in the range from INR 18490 ( $430) to INR 38990( $885), carry a 3 year warranty and with free installation of the broadband services. This service can be booked at HCL Infosystem dealer locations, MTNL locations and the HCL and MTNL websites.

By 2007, the PC penetration is expected to grow 2.5 times to reach 25 Million. Internet penetration is expected to grow 3.6 times to reach 18 Million subscribers. The number of broadband subscribers is expected to grow 40 times to 9 Million broadband subscribers. Broadband packaging schemes like this will definitely help reach these targets.

This bundling of a PC with a broadband connection is the first of its kind in India. It will be worth watching MTNL's subscription figures for this scheme in 2006.