Internet Usage - India vs China

TABLE OF CONTENTS

Topic Page No.
Introduction 2
Research Methodology 3
India - Internet Access 4
China - Internet Access 7
India & China compared to World Market 10
Porter’s Five Forces Analysis 13
India China Comparison 18
Recommendations for India 32
Conclusion 37
Appendix 39

1

INTRODUCTION

This study is intended to highlight the importance of the Internet access in the context of India and China,
which together are home to approx 40% of world’s population. It compares the recent trends in the
growth of Internet users and Internet connections in the two countries. It explores the problems
encountered in its proliferation and examines the factors, which might play crucial role in its future
growth. China holds the clear edge over India in terms of number of Internet users and Internet hosts;
India is better rated when it comes to e-readiness. Internet is still out of reach of rural population in both
the countries and both need to have low cost local language based computing devices for the use of rural
population to access Internet.

Internet has become an important enabling technology. It can improve governance by raising efficiency,
transparency and by increasing people’s participation in the governing process. It offers huge economic
opportunities through development of information and communication technology. It can help in
improving environment management through Geographical Information System and early warning
systems. Social and human right conditions can be improved by expanding access to better education and
healthcare. It can help in knowledge sharing and creating awareness among people. Above all, it can help
in reducing poverty by opening new opportunities for woman, the poor and rural population. This is
particularly important for India and China, both of which have a large percentage of impoverished people
with a large part of the population living in rural areas lacking even basic telephone services. While China
has pursued a policy of strong government initiative coupled with encouraging competitions among
government owned organizations, India has set policy through publicly visible task forces. Which policy
remains effective in long run remains to be seen. This study compares Internet in India and China with
reference to the efforts being carried out in the diffusion of Internet in the national economies, number of
users with characteristics and bandwidth availability, relative advantages and disadvantages of Internet in
each country, and the future potential of Internet expansion.

The intention of the study is to identify key learnings that India can have from observing the Internet
growth patterns in China. What should be the future strategies and areas of focus, for India inorder to
increase its Internet penetration and widen Internet Access and Usage? What is the role that Government,
Corporates and Consumers can play inorder to make the best use of the potential of Internet? An attempt
has been made to indentify solutions to these questions in the report.

2

RESEARCH METHODOLOGY

• The Research Methodology has been primarily reviewing Secondary Data. The current statistics of
the Internet Access Market in India and China have been obtained from Datamonitor. Inorder to
maintain consistency of data, Datamonitor has been used as the prime source of current as well as
forecasted statistical information. Inorder to ascertain whether Internet Access market is growing in
India and China at a fast pace, the growth rates in both the countries have been compared to that of
the world.

• A Porter’s Five Forces analysis of Internet Access Market in India was done to understand the
dynamics of the Internet Access market in India and get a snapshot of the current situation.

• Followed by this, Internet Access in India and China has been compared based on the following 6
parameters : -

o Pervasiveness

o Geographic Dispersion

o Organizational Structure

o Connectivity Infrastructure

o Sectoral Absorption

o Sophistication of Use

• After analyzing, how India and China fare in each of the above mentioned parameters, key focus
areas for India have been indentified for enhancing the Internet Access Market. The future steps that
India ought to take inorder to match steps with China and other global players have been enlisted.

3

INDIA – INTERNET ACCESS

The Indian internet access market generated total revenues of $33.7 billion in 2008, representing a
compound annual growth rate (CAGR) of 37.6% for the period spanning 2004-2008. The number of
internet subscribers increased with a CAGR of 25% between 2004-2008, to reach a total of 11.1 million
in 2008. The performance of the market is forecast to decelerate, with an anticipated CAGR of 18.3% for
the five-year period 2008-2013, which is expected to drive the market by the end of 2013. Indian internet
access market has exhibited strong growth over the previous five years, but will continue to slow in its
growth towards 2013 as internet access penetration becomes more saturated. The Indian internet access
market generated total revenues of $33.7 billion in 2008, representing a compound annual growth rate
(CAGR) of 37.6% for the period spanning 2004-2008. In comparison, the Chinese market grew with
CAGR of 20% over the same period, to reach respective values of $18.6 billion and $4.8 billion in 20081.

The number of internet subscribers increased with a CAGR of 25% between 2004- 2008, to reach a total
of 11.1 million in 2008. The number of subscribers is expected to rise to 25.7 million by the end of 2013,
representing a CAGR of 18.3% for the 2008-2013 period. The performance of the market is forecast to
decelerate, with an anticipated CAGR of 18.3% for the five-year period 2008-2013, which is expected to
drive the market to a
value of $78.1 billion by
the end of 20132. The
Indian internet access
market grew by 29.2% in
2008 to reach a value of
$33.7billion. The
compound annual growth
rate of the market in the
period 2004-2008 was
37.6%. (Refer Appendix
A)

1
Datamonitor - Internet Access in India - June 2009 - http://www.marketlineinfo.com/library/Download.aspx?R=94CB0657-
D9B8-4C96-A51C-
2
D9B8-4C96-A51C-

4

The Indian internet access market grew by 19.6% in 2008 to reach a volume of 11.1 million internet
subscribers. The compound annual growth rate of the market volume in the period 2004-2008 was 24.9%.
(Refer Appendix B)

In 2013, the Indian internet access market is forecast to have a value of $78.1 billion, an increase of
131.7% since 2008. The compound annual growth rate of the market in the period 2008-2013 is predicted
to be 18.3%. (Refer Appendix C)

5

In 2013, the Indian internet access market is forecast to have a volume of 25.7 million internet
subscribers, an increase of 131.7% since 2008. The compound annual growth rate of the market volume
in the period 2008-2013 is predicted to be 18.3%3. (Refer Appendix D)

3
D9B8-4C96-A51C-

6

CHINA – INTERNET ACCESS

The Chinese internet access market has also exhibited strong growth over the previous five years, but will
begin to slow slightly in its growth towards 2013 as internet access penetration becomes more saturated.
The Chinese internet access market generated total revenues of $18.6 billion in 2008, representing a
compound annual growth rate (CAGR) of 20% for the period spanning 2004-2008. In comparison, the
Indian market grew with CAGR of 37.6% over the same period, to reach respective values of $33.7
billion and $4.8 billion in 2008. The number of internet subscribers increased with a CAGR of 20%
between 2004-2008, to reach a total of 77.7 million in 2008. The number of subscribers is expected to rise
to 155.3 million by the end of 2013, representing a CAGR of 14.9% for the 2008-2013 period. The
performance of the market is forecast to decelerate, with an anticipated CAGR of 14.9% for the five-year
period 2008-2013, which is expected to drive the market to a value of $37.3 billion by the end of 20134.

The Chinese internet access
market grew by 19.9% in
2008 to reach a value of $18.6
billion. The compound annual
growth rate of the market in
the period 2004-2008 was
20%. (Refer Appendix E)

4
Datamonitor - Internet Access in China - June 2009 - http://www.marketlineinfo.com/library/Download.aspx?
R=926A4ADC-4335-4419-A29C-

7

The Chinese internet access market grew by 19.9% in 2008 to reach a volume of 77.7 million internet
subscribers. The compound annual growth rate of the market volume in the period 2004-2008 was 20%5.

(Refer Appendix F)

In 2013, the Chinese internet access market is forecast to have a value of $37.2 billion, an increase of
to be 14.9%6. (Refer Appendix G)

5
R=926A4ADC-4335-4419-A29C-
6
R=926A4ADC-4335-4419-A29C-

8

In 2013, the Chinese internet access market is forecast to have a volume of 155.3 million internet
subscribers, an increase of 99.9% since 2008. The compound annual growth rate of the market volume in
the period 2008-2013 is predicted to be 14.9%7. (Refer Appendix H)

Thus, though the growth rate of Indian Internet Access Market is currently higher and is forecasted to be
higher than Chinese market, the number of Internet users in China currently as well as forecasted in 2013
is much higher as compared to that of India. The geographic penetration of China is much higher as
compared to India.

7
R=926A4ADC-4335-4419-A29C-

9

INDIA & CHINA – COMPARED TO WORLD MARKET

It is also imperative to understand how is India and China’s growth as compared to the growth of Internet
Access in the world. The global internet access market grew by 13% in 2008 to reach a value of $184.8
billion. The compound annual growth rate of the market in the period 2004-2008 was 14.9%8. (Refer
Appendix I)

8
Datamonitor - Global Internet Access- June 2009 - http://www.marketlineinfo.com/library/Download.aspx?
R=F85BBC63-3025-4BED-9AA8-

10

In 2013, the global internet access market is forecast to have a value of $298.8 billion, an increase of
to be 10.1%9.

Thus, the growth rate of both India and China is much higher as compared to the growth rate of Internet
Access Market across the globe. India and China both fare well in terms of current as well as future
growth rate.

When compared against
countries within Asia-
Pacific, India leads the
internet access market, with
48.6% of the total revenues.
In comparison, China
accounts for a further 26.9%
of the market's revenue.10

9
Datamonitor - Global Internet Access- June 2009 - http://www.marketlineinfo.com/library/Download.aspx?
R=F85BBC63-3025-4BED-9AA8-
10
D9B8-4C96-A51C-

11

By comparing, Indian Internet Access Market growth rate with that of Chinese, it reflects that the Indian
market is growing faster than the Chinese market. But it would not be prudent to conclude that this
indicates that the Indian Internet Access is performing better. India has currently just 11.1 million
subscribers, whereas China has already 77.7 million internet users. Given, the similar population size and
demographics of both the nations, this is a huge difference, indicating that India is lagging behind China
is the Internet Access market and has a long way to go before it catches up with its neighbour. In the latter
sections of the report I have to tried to identify the primary areas in which China has performed better
than India, which has led to greater internet penetration.

However, first let us try to understand the Internet Access market situation in India currently. This can be
ascertained by using the Porter’s five forces analysis as described in the next section.

12

PORTER’S FIVE FORCES ANALYSIS

Summary

Figure 1 : Forces Driving Competition in the Internet Access Market in

The internet access market has been analyzed taking Internet Service Providers (ISPs) as players. The key
buyers are taken as end-users, and network owners and manufacturers of the hardware and software
involved as the key suppliers. Buyers in this market have fairly low switching costs, which strengthens
their power to an extent. However, buyer power is prevented from becoming more than moderate by the
vast amount of potential customers available to market players, and the importance of the service being
offered to consumers. This market is characterized by strong supplier power, with the cost of switching
for market players and the importance of quality contributing to this. Potential entrants to this market are
likely to be attracted by the dynamic market growth in recent years. However, they face a tough job
competing with established companies with a strong reputation and the likelihood of price competition
with incumbents seeking to see off new competitors. Substitutes to this market are, at present, virtually
non-existent. Where substitutes do exist they are often not a strong threat to the Internet as a whole.
Strong market growth in recent years prevents rivalry from being any more than moderate.

13

Buyer Power

Figure 2 : Drivers of Buyer Power in the Internet Access Market in India

ISPs offer their Internet access services to customers ranging from individual consumers to large
corporations. Offers vary according to factors such as speed and price. The large numbers of customers
available to market players weakens buyer power to an extent. Switching costs are moderate, and can
include the time required to leave one contract and move to a competing contract, or cancellation fees. In
practice, customers are prone to changing ISPs in order to gain better value for money. Brand reputation
can play an important role in this market. However, price is an important consideration for buyers, along
with factors such as speed of access and quality of connection. The market offers some differentiation for
example, one player may offer consumer Internet access as a standalone service, while another bundles it
with telecom or cable TV services. Internet penetration is currently low in India (less than 10% of the
population) with the divide between urban and rural areas very much apparent. However, as internet
penetration grows in India, all kinds of customers see Internet access as highly important and for many
businesses Internet access is seen as vital. Overall, buyer power is assessed as moderate in this market.

14

Supplier Power

Figure 3 : Drivers of Supplier Power in the Internet Access Market in India

ISPs act as intermediaries between their customers and the telecommunication infrastructure that
underpins the Internet (and telephony) technology: ADSL lines, servers, packet switching software just to
name a few. Some ISP, such as the dominant incumbents VSVL and BSNL own and operate an extensive
physical network themselves. For these companies, key suppliers are manufacturers of the hardware and
software involved, such as Cisco Systems. There are increasing numbers of ISPs that do not own a
network and purchase wholesale access to the necessary infrastructure from an owner-operator, and then
offer it at retail to end-users. While it is unlikely that ISPs of either type will integrate backwards, since
the upstream businesses are very different to their own, most network owner-operators have already
integrated forwards into the retail ISPs market, and are competing directly with ISPs that do not own
networks. Network manufacturers are not completely reliant on the ISP market for their revenues, as they
can also operate in markets such as corporate intranet; network owners usually generate revenue from
telephone services, directory publishing, advertising, and their own ISP retail business as well as
wholesale Internet access. Overall, supplier power is assessed as strong.

15

New Entrants

Figure 4 : Factors Influencing the Likelihood of New Entrants in the

New players are attracted to this market by the continuing health of growth rates in recent years. Players
without their own infrastructure are usually able to buy access to telephony networks. This reduces the
capital requirements for market entry, although customer demand for ever-increasing bandwidth may
mean that investment in infrastructure will be needed for future growth. Retaliation in terms of price
competition is likely in this market. The majority of the market is owned by a small number of large
incumbents - 10% of ISPs have around 90% of subscribers - which may be off-putting to potential new
entrants. In order to gain clients, new entrants need to differentiate themselves from incumbents, which is
not an easy task when selling a commoditized service that can be specified completely with a few
parameters such as bandwidth and down/up load time. Overall, there is a moderate likelihood of new
entrants to this market.

16

Substitutes

Figure 5 : Factors Influencing the Threat of Substitutes in the Internet

The internet is a versatile tool that can be used for a whole spectrum of everyday activities and, presently
at least, there are no real alternatives that can match this range. The Internet has developed so rapidly
because it is itself a substitute for many other services and products. These include traditional forms of
advertising, news providers, music (and increasingly video) physical media such as CDs and DVDs,
'bricks and mortar' outlets for supplying goods and services, and communication services such as mail and
telephony. The benefits of some older substitutes are assessed as small, as the Internet alternatives have
clearly demonstrated their popularity with consumer and corporate customers. Furthermore, the Internet
can exist relatively unthreatened alongside other ‘substitutes’ such as 'bricks and mortar' retail outlets.
However, to take two examples, for consumers with concerns over the security of online financial
transactions, or businesses who wish to advertise to segments of the population who are not online, the
older substitutes will retain advantages. Overall, the threat of substitutes is weak.

17

INDIA CHINA - COMPARISION

India and China account for 40 percent of the world population (primarily in rural areas), have rich
histories and aspire to superpower status, share
a border with contended territory, have growing
middle classes that are an important global
market, and are major producers. China and
India have very different political and
economic systems, but both have assigned high
priority to information technology and the
Internet, and the Internet may play a pivotal
role in the development of the relationship
between the two nations. Their differences act
as an experiment, shedding light on Internet
diffusion and development in general. India and
China are home to a large percentage of the
world's impoverished people. If the Internet is
to improve the state of human development, it Figure 6 : Trends in growth of Internet Users

must succeed in India and China.

Internet is diffusing rapidly in India and China. It is estimated that by 2010, each of them will have more
Internet users than in US. India
was connected to Internet earlier
than China when Department of
Electronics (DOE) established
ERNET (Educational and
Research Network) in 1986 with
the help of United Nations
Development Program (UNDP).
ERNET was connected to UUNet
(UNIX to UNIX Network)
technologies in the US through IP
Figure 7 : Number of Internet Users in India and China
(Internet Protocol) connection in
1989. It was further connected to the US National Science Foundation (NSFNET) in 1990. In contrast,

18

Internet connectivity in China started in 1993, and by 1994, China had twice the number of Internet hosts
and 3.5 times Internet users as compared to India11.

The following table and graphs reflects the growth in the number of computers connected to Internet in
both India and China. Here as well, it can be observed that China though started late and was in the back
foot originally, it gathered momentum and superseded India over the years.

Figure 8 : Comparison of Internet Hosts

Figure 9 : Trends in growth of computers connected to Internet

11
Yogesh Sumana and V P Kharbanda - Internet diffusion in India and China ¾ Who holds the edge - March 2005

19

Having ascertained that China is placed better with respect to India in terms of number and consistent
growth, let us now try to analyze the reasons behind China’s success in increasing Internet usage. For the
study and comparison I have used a comprehensive, six-dimension framework for characterizing the state
of the Internet in a nation. Following is the list and details of the 6 parameters used in the study: -

PARAMETER DETAILS
Pervasiveness The primary indicator of pervasiveness is the number of Internet users per capita. This
is the best indicator of the diffusion of Internet across masses.
Geographic Nearly all nations have some Internet connectivity today, but access may only be
Dispersion available in large cities. As such, I have selected geographic dispersion as my second
dimension. This variable measures the concentration of the Internet within a nation,
from none or a single city to nationwide availability with points-of-presence (POPs) or
toll free access in all first-tier political subdivisions and common rural access.
Organizationa Organizational infrastructure is a measure based on the state of the ISP industry and
l market conditions. A highly rated nation would have many ISPs and a high degree of
Infrastructure openness and competition in both the ISP and telecommunication industries. It would
also have collaborative organizations and arrangements like public exchanges, ISP
industry associations, and emergency response teams.
Connectivity Connectivity infrastructure is the fourth dimension. It is based on domestic and
Infrastructure international backbone bandwidth, exchange points, and last-mile access methods. A
highly rated nation will have high-speed domestic and international backbone
connectivity, public and bilateral exchange points, and a high proportion of homes with
broadband connections.
Sectoral While widespread access is desirable, the payoff is in use of the Internet. This is
Absorption accounted for in the sectoral absorption dimension, a measure of the degree of Internet
utilization in the education, business, health care and public sectors. These sectors are
seen as key to development, and were suggested by the measures used in the United
Nations Development Programme (UNDP) Human Development Index.
Sophistication Sophistication of use is a measure ranking usage from conventional to highly
of Use sophisticated and driving innovation. A relatively conventional nation would be using
the Internet as a straightforward substitute for other communication media like
telephone and FAX, whereas in a more advanced nation, applications may result in
significant changes in existing processes and practices and may even drive the
invention of new technology.
PERVASIVENESS

20

Having determined the various parameters on which we will be comparing China and India, let us look at
each of these parameters in detail.

Minges and Gray cite seven determinants of Internet pervasiveness: affordability, complementary
infrastructure (PCs, telephone lines and electricity), literacy, education, awareness, computer literacy, and
language12. Let us look at each of these : -

Affordability is a function of income and the cost of Internet access. While both nations are largely
impoverished, Chinese income is higher. In the late 1980s, China exchanged Karl Marx's slogan "from
each according to his ability, to each according to his needs" for Deng Xiaoping's "getting rich is
glorious." by 2005 the per capita GDP of China was higher than that of India. This is illustrated in the
below figure 13.

Figure 10 : GDP per Capita comparison

12
Michael Minges and Vanessa Gray, "The Impact of Socio-Economic Factors on Intenet Use in South East Asia," Proceedings
of the 2002 International Networking Conference, Washington D.C., July 2002.
13
Maps of.net - http://mapsof.net/The_World/static-maps/png/gdp-per-capita-ppp-world-map-2005-copy-one-colour

21

The following figure also reflects that current and estimated gap in the per capita GDP between the two
nation as compared to that of US14 : -

China's greater income
combines with lower
access costs and lower
costs of computers, to
make the Internet more
affordable. Part of
China's relative
advantage in access cost
reflects dramatic
improvement in
telecommunication since
they decided to invest in
this area post 1990. This
decision predates
Figure 11 : Comparison of per capita GDP
Chinese awareness of
the Internet, but it has
certainly facilitated its
growth.

Chinese
telecommunication
progress is illustrated by
the rapid growth in the
number of landline
telephones. This can be
observed in the
Figure 12 : Comparing Teledensity
figure 1215.

14
Global Security - http://www.globalsecurity.org/intell/library/reports/2005/nic_globaltrends2020_china_india_risin_gdp.gif
15
Resilience Science - http://rs.resalliance.org/tag/development/

22

Furthermore, China has also surpassed the United States as the world's largest mobile market. This
growth parallels growth in the general economy - the Chinese made the decision to invest in
telecommunication, and they were able to afford it. China also has a commanding lead in PCs. The ITU
estimates approximately 25 million PCs in China versus six million in India, and the Computer Industry
Almanac estimates 34 million versus 5.2 million16.

Electricity to power PCs and network equipment is also more abundant in China. (This can be a limiting
factor in a rural area). China also leads in education and literacy indicators. Figure 13 17 illustrates that
adult literacy rate in China is much higher than that in India.

Figure 11 : Comparison of Adult Literacy Rate

Awareness of the Internet is difficult to compare. One would expect it to correlate with usage, but Indian
city dwellers see constant ads and information about the Internet. We assume that computer literacy
would correlate with installed PCs, since Internet access in public schools is not widespread.

Language is multifaceted determinant. India has an advantage in that the educated people who are most
likely to use the Internet speak at least some English, the dominant language on the Internet at this time.
This advantage is offset by greater language diversity in India. India has 387 living languages and China
201. Their respective language diversity indices are .48 and .93 respectively. (The higher the value, the
16
International Telecommunication Union (ITU), World Telecommunication Development Report 2002, at
http://www.itu.int/ITU-D/ict/publications/wtdr_02/index.html; Computer Industry Almanac, at http://www.c-i-a.com/.
17
http://lh4.ggpht.com/fhuebler/SFXEY9hTRkI/AAAAAAAAAWY/XkPzDaN0-bg/20080615-adult-lit.png

23

less likely it is that two people will speak the same language). This is due in part to 70 percent of the
Chinese population speaking Mandarin while only 50 percent speak Hindi in India 18. China is well aware
of the importance of English, and has embarked on a program of English-language training.

China's advantage over India in the indicators I have presented leads us to expect that the Chinese will
continue to lead in pervasiveness for some time. Factors like economic productivity, telecommunication
infrastructure, PC production, and literacy cannot be changed rapidly.

18
Larry Press, William Foster, Peter Wolcott & William McHenry - Internet in India and China -
http://outreach.lib.uic.edu/www/issues/issue7_10/press/index.html

24

GEOGRAPHIC DISPERSION

Large rural populations are the major block to geographic dispersion in both nations. Both have made
commitments to provide telephone connectivity to all villages, but widespread rural Internet connectivity
will be difficult for either to achieve. Every factor we discussed under pervasiveness presents a larger
problem in rural areas than cities. Both in India and China the gap between Urban and Rural penetration
of Telecom is extremely high, as reflected in figures 1419 and 1520.

Figure 12 : Urban Rural divide in China

Figure 13 : Widening Urban Rural divide in India

19
Gallup News Service - Tao Wu and Steve Crabtree - China's Consumer-Goods Gaps Represent Budding Market Opportunities
- March 30, 2007
20
Continuous Computing - Indranil Chakraborty - Ringing in rural India - http://www.ccpu.com/news/inthenews/20051003-
india.html

25

Note that even in villages with telephone connectivity, service may be minimal. There are multiple
households sharing a single telephone connection. These are large, geographically diverse nations, and as
in other developing nations, there is insufficient demand to justify investment in backbone connectivity to
rural areas, particularly where roads are bad. Government policy can help. As a licensing condition,
regulators can require operators to cover rural area or a universal service fee may be set aside. Both India
and China can learn from the Chilean experience. The Chilean government asked telephone providers to
bid for subsidies required to cover rural areas with success21.

Low-earth orbiting IP satellite technology may one day solve this problem, but rural connectivity is a
daunting challenge in both India and China. While the recent bankruptcy of few IP satellite companies
like, Teledesic, is discouraging, this technology will be more feasible in the future. The G8 industrial
nations pledged billions of dollars for IT for development. Could they or an organization like the United
Nations accept the challenge of rural village connectivity and provide capital for such a venture?

India appears to give higher priority to rural networking than China. The Ministry of Information
Technology has a Working Group on Information Technology for Masses that issued a report
recommending 56 actions in infrastructure and service, electronic governance, education and raising mass
IT awareness in October 2000. If they succeed, they may surpass China in rural networking and hence
geographic dispersion.

21
Björn Wellenius, "Extending Telecommunications Service to Rural Areas - the Chilean Experience," Public Policy for the
Private Sector, Note 105 (February 1997), World Bank, http://www1.worldbank.org/viewpoint/HTMLNotes/105/105welle.pdf.

26

ORGANIZATIONAL INFRASTRUCTURE

The transition from government-owned telecommunication monopoly to greater competition has been
driven by politics and government policy in both nations. India and China present a stark contrast in
governance. The UNDP surveys five measures of democracy in a nation, and India has a clear lead over
China on each of them22. Few would question that there is greater freedom of expression, the press, the
vote, and civil liberties in India. India's democracy has spawned many political parties, strong local
governments, a coalition national government, and lively public debate. The complex political landscape
of India has made it more difficult for them to formulate policy and execute plans than it is for China.
This has facilitated China's industrial policy to be focused on infrastructure and high technology. China
has been able to execute plans effectively by allocating resources to competing government-owned
enterprises. For example, in 1996, the Chinese State Council made the decision to allow the Internet and
to connect all provincial capitals. Within a year, there were competing ISPs in every capital, one using
fiber, the other VSAT. India set the same goal in 1998, but achieved it many years later.

The pattern of government planning combined with competition among partially or wholly government-
owned organizations has been observed in Singapore, Vietnam and Cuba as well as China, and the ITU
has also observed its efficacy in China:

"The main form of competition has been between ministries of the government ... although it is unlikely
that this form of competition between state-owned enterprises would feature in many economics
textbooks, it has proved remarkably effective. The key underlying factor is the will of the state to invest
in, and prioritize, telecommunication development"23

The UNDP also reports six indicators of the rule of law, governance effectiveness and corruption, and,
China outscores India on each. This also contributes to China's ability to execute and to the confidence of
investors. The Indian government is working to overcome inefficiency and corruption, as evidenced in
part by strong support for the IT Action Plan.

22
2002 United Nations Development Programme Human Development Report, http://www.undp.org/currentHDR_E/
23

27

CONNECTIVITY INFRASTRUCTURE

In addition to factors we have already discussed, a trade policy and other factors that encourage
investment and the availability of a skilled work force are also key determinants of connectivity
infrastructure. India has a history of ambivalence about openness and trade versus self-sufficiency dating
back to Gandhi, and before the 1990s, China was also insular and tied to the Communist block. Since the
1990s, Chinese trade policy has been more open and eclectic, resulting in significantly faster growth in
imports, exports and the ability to attract foreign investment than India. This parallels the growth in GDP
that we noted earlier. Figure 1624 depicts that FDI confidence index in China is higher that that in India.

Some of this increase in trade and
ability to attract investment capital
is due to pressure from the World
Trade Organization (WTO). China
has used the process of WTO
accession to stimulate and make
irreversible substantial trade
liberalization and more broadly
based reforms. At the same time,
India will see increased trade as they
continue implementation of their IT
Action Plans. In addition to the
volume of investment capital, we
must consider its allocation. In the
long run, India's greater diversity
and openness may pay off, and Figure 16 : FDI confidence Index India vs China
China may find they have allocated resources sub-optimally, but, as recent events have shown, market
economies can do the same.

Connectivity infrastructure also requires educated technicians and managers. China has a higher
percentage of tertiary school students in science and engineering (43 percent versus 25 percent in India),
but India has excellent technical universities and a vibrant trade-school industry. Chinese
telecommunication employees may also be more efficient - the number of mainlines per employee is 159

24
Vox - http://raj823.vox.com/library/posts/tags/news/

28

in China and only 77 in India25. Networking professionals (and sophisticated users) are also generated by
hardware and software industries.

India was an early mover in software export and IT-enabled services (which include low-skill work such
as data entry). China is however behind India in terms of software exports. China enjoys a clear lead in IT
hardware manufacturing. For eg:- Chinese companies produced $23.9 billion in computer products in
2001, an increase of 24 percent over 200026. Thirty-nine percent of Chinese exports are high- and
medium-tech products versus 16.6 percent in India, and, as we have seen, the absolute numbers are much
greater for China. It remains to be seen whether India's Action Plan for Hardware Development,
Manufacture and Export will enable them to close this gap. China's close commercial relationship with
Taiwan and the Hong Kong handover provide similar sources of capital and expertise. The Internet and
telecommunication in Hong Kong and Taiwan are far more advanced than in China. In spite of long
British rule and Taiwanese independence, there are strong cultural and business ties throughout the
Chinese world. (Even before the handover, 46.75 percent of China's switched, outbound telephone
minutes were to Hong Kong and another 8.02 percent to Taiwan, and Hong Kong ranks second to the
U.S. in Internet connectivity from China)27. There are also ties to the Chinese in Singapore.

25
26
"Mainland China," Global Sources (14 January 2002), at http://www.globalsources.com/MAGAZINE/CP/0201/OUTCH.HTM
27

29

SECTORAL ABSORPTION

University networks are growing in both nations, but the Chinese are more effective, and have gained a
significant and strategic lead in the university that will trickle down to lower levels of school. Both
nations have plans to wire schools, but that does not insure their execution, and very few lower schools
are connected in either nation. The greater number of PCs in schools (and concomitant awareness and
computer literacy) gives China an edge in this area, but both nations have a long way to go if they are to
achieve their plans. Political will is probably the deciding factor in achieving school connectivity. I expect
that increased trade will lead to increased use of the Internet to integrate business supply chains and
software project management. The expatriate communities mentioned above may play a key role here.
There is little evidence of use of the Internet in the health care sector in either India or China. This is
typical of developing nations.

Since 1995, more than 60 laws have been enacted governing Internet activities in China. More than
30,000 state security employees are currently conducting surveillance of Web sites, chat rooms and
private e-mail messages - including those sent from home computers. Thousands of Internet cafes have
been closed in recent months, and those remaining have been forced to install "Internet Police 110"
software, which filters out more than 500,000 banned sites with pornographic or so-called subversive
content. Dozens of people have been arrested for their online activities; in 2001, eight people were
arrested on subversion charges for publishing or distributing information online28.

While this sort of constraint may seem to promise attractive stability to some potential investors, it may
have unintended side effect of slowing applications in education, entertainment, commerce and other
areas.

28
Xiao Qiang and Sophie Beach, "The Great Firewall of China," Los Angeles Times (25 August 2002), and at
http://www.cpj.org/news/2002/China_Firewall25aug02.html.

30

SOPHISTICATION OF USE

Nearly forty percent of the world population lives in rural areas of nations with low-income economies. In
India the rural population is over 70 percent. China has 900 million rural residents, and has recently
liberalized restrictions on movement from rural to urban areas. If necessity is the mother of invention,
these nations are in a good position to innovate in discovering and deploying applications that are of value
to rural populations. If the Internet can improve rural education, health care, entertainment, news,
economy, etc., the flow of people to crowded cities, a major demographic trend of the last century, may
be diminished. We would welcome innovation in small PCs and Internet appliances, satellite and
terrestrial wireless systems, solar energy systems, understanding rural IT requirements, etc. India has
several projects pursuing village connectivity, but there has not been widespread deployment as of this
time. In anticipation of a proliferation of Internet devices and multimedia applications, China has been
developing equipment for and deploying IP v6. This experience and infrastructure may lead to innovative
applications, as may their experience with VOIP.

31

RECOMMENDATIONS FOR INDIA

Having compared India and China’s Internet Access across various dimensions, in the previous sections
following table enlists the various parameters and which country is more stronger in the same : -

Dimension Advantage
Pervasiveness
Users C
Hosts C
Geographic dispersion
Top-tier political divisions with POPs C
Number of cities with POPs C
Sectoral absorption
Commercial E
Education C
Government I
Health E
Connectivity infrastructure
Domestic backbone E
Broadband access C
Exchanges C
International bandwidth C
Organizational infrastructure
Telecommunication competition I
International gateway competition I
Backbone competition E
Access provider competition C
Coordinating organizations E
Sophistication of use C

C = China, I = India, E = Even

The above table reflects that India has a lot of catching up to do with China. China has performed better
than India in various parameters like Pervasiveness, Geographic Dispersion, Infrastructure and greater
competition amongst internet access providers. This comparison has helped me identify the key areas
where India needs to progress inorder to catch up with China, if not supersede, in terms of Internet
Access. Based on my study I recommend adopting the following framework for ensuring further
enhancement and sustainable growth of the Internet infrastructure in India.

32

Figure 14 : Proposed Framework for India

Inorder to improve the Internet Access in India there is an important role that Government, Businesses
and Consumers need to play. Only if there is synergy between the three entities, can India witness growth
in its Internet segment. Following are my recommendations as to how the three entities can collaborate
and script a success story for India : -

33

GOVERNMENT

CORPORATES
CONSUME
R

Figure 15 : Proposed Synergy

Government

• The main goal of government should be to improve the infrastructure currently available in the
country. As observed, the infrastructure currently prevalent is not up to the required level, which is
the major impediment in increasing and fostering Internet Usage. The infrastructure should be
developed in rural areas as well, and they should be targeted as the next key avenue for growth.
Infrastructure development should encompass all entities that directly or indirectly impact Internet
Access, like Telephone connectivity, broadband access, availability of computers at cheap price,
availability of continuous electricity, etc.

• Government should take adequate steps to attract investment from the private sector as well, which
could assuage the government from the financial burden.

• Government should play key role in making the market more open and increasing competition
amongst internet service providers. This would be the most effective way of ensuring greater Internet
penetration.

• Government should provide tax benefits to corporates who extend internet penetration into rural
areas. Since there is dearth of suitable infrastructure and the initial setup costs are too high, currently
there is no motivation for corporates to venture into rural areas. In such a scenario government should
play a proactive and constructive role in providing the right set of incentives for the Internet Service
Providers to venture into rural India.

34

• Key steps should be taken to increase usage of computers in schools and universities and make IT
education as a mandatory subject, given that IT has huge potential for growth in India across various
spectrums.

Corporates

• Internet Service Providers should take adequate steps to improve their technological competitiveness.
Rather than having a complacent and reactive approach, firms should be proactive and quick at
introducing and adopting latest innovations in the Internet field. This is not only applicable to Internet
Service Providers but should also span to other industries that directly or indirectly impact the
industry.

• Firms should remodel their business models to make it more robust and adaptive to the changing
market dynamics. It is imperative to implement cost-effective processes and also ensure quality
training of the IT workforce. This will enable Indian Internet Service Providers to not only excel in
India but also project on the global canvass.

• The dependence on government initiatives and support should be reduced and the firms should strive
to become self sustaining and independent. As a result of this, an unstable or complacent government,
would have little impact on the growth of the organizations, hence would not be an impediment for
the corporate strategies of Internet Service Providers.

• Effective steps ought to be taken to educate people about the importance of Internet and the
advantages of using Internet. Public-Private Partnerships in this aspect as result in win-win situation
for all.

• Internet Content providers should cater to all segments on India and not just the urban segment. It is
important to develop websites in local languages inorder to increase penetration and acceptability
within the rural masses.

• IT firms should collaborate horizontally to increase the penetration of Internet and Computers within
India. This could be manifested by acollaboration between Internet Service Provider and a PC
manufacturing firm, both collectively marketing and providing low cost products and services for the
rural population.

35

Consumers

• The consumers have to be more broad minded and open to accepting new technologies and
innovations. Being averse to changes would only prove to be detrimental for the masses. It is of
paramount importance that people across demographics comprehend the importance and potential of
Internet.

• Children should be encouraged at an early age to learn computing and understand the basic features
and functionality of computers. This will set stage for the future development of IT in India.

36

CONCLUSION

Indian universities joined the Internet in 1988, six years before Chinese universities. Knowing only that,
we might expect India to have a commanding lead in Internet diffusion today; however that is only a
small part of the story. The Internet was very different in 1988 than it is today. Few outside a small group
of researchers and technicians knew of the Internet, and they used it primarily for sharing technical
information and facilitating the development of standards and networking technology. In 1995, when
China seriously considered the Internet, the wider public, including policy makers and politicians, were
aware of its implications and the World Wide Web protocol was beginning its rapid proliferation. In some
sense, the race did not really begin until the mid 1990s.

After a delay to consider the economic opportunity afforded by the Internet and the cultural and political
risks of open access, the Chinese made the Internet a priority, and rapidly overtook India's early lead. This
success was due in large part to reform that began in the late 1980s, with no consideration of the Internet.
Under Deng Xiaoping, China instituted market reforms and liberalized trade policy. The success of these
reforms provided resources for and an openness to Internet diffusion. At the same time, China focused its
industrial policy on infrastructure and high technology. This led to dramatic expansion of
telecommunication infrastructure, personal computer manufacturing and adoption, awareness of the
Internet and information technology applications, and a pool of trained demanding users and the
managers and technicians to serve them. These resources were all available when the Chinese decided to
connect to the Internet and make it a priority.

India was not as well prepared or as quick to act when it became clear to politicians and policy makers
that the Internet could be important infrastructure. Their response was a series of publicly visible action
plans with high-level industrial and political support. In a sense, India joined the experimental Internet
before China, but did not assign high priority to the modern Internet until the first IT Action Plan in 1998.
The political systems of the two nations have also led them to different approaches to the Internet. China
is attempting to maintain control over access and content, while India's Internet is open. While the
incumbent telecommunication companies and their government supporters remain strong in both nations,
India has moved toward an open market with licensing of telecommunication and Internet service
providers. Privatization has gone more slowly in China, where a strategy of competition among
government owned enterprises has been pursued in the large ISP market. Pressure from the WTO and
market forces may dilute this policy, bringing the two closer together. For the time being, China has a
solid lead over India. However, China is no longer leading or equal on every dimension, as they were
earlier, and, when considered on a per-user basis, India is not as far behind as it first appears to be. If the
recommendations suggested are implemented India can take the lead and elevate to the pinnacle of

37

Internet Industry and emerge as leading global player in this segment. India has the potential to grow, all
it needs is an impetus and the right direction to move ahead.

38

APPENDIX A

Purpose : - Provides the current market value of Internet Access in India.
Source : - Datamonitor - Internet Access in India - June 2009 -
http://www.marketlineinfo.com/library/Download.aspx?R=94CB0657-D9B8-4C96-A51C-

APPENDIX B

Purpose : - Provides the current market volume of Internet Access in India.

39

APPENDIX C

Purpose : - Forecast of the Market Value of Internet Access by 2013 in India.

APPENDIX D

Purpose : - Forecast of the Market Volume of Internet Access by 2013 in India.

40

APPENDIX E

Purpose : - Provides the current market value of Internet Access in China.
Source : - Datamonitor - Internet Access in China - June 2009 - http://www.marketlineinfo.com/library/Download.aspx?
R=926A4ADC-4335-4419-A29C-

APPENDIX F

Purpose : - Provides the current market volume of Internet Access in China.
R=926A4ADC-4335-4419-A29C-

41

APPENDIX G

Purpose : - Forecast of the Market Value of Internet Access by 2013 in China.
R=926A4ADC-4335-4419-A29C-

APPENDIX H

Purpose : - Forecast of the Market Volume of Internet Access by 2013 in China.
R=926A4ADC-4335-4419-A29C-

42

APPENDIX I

Purpose : - Forecast of the Market Value of Internet Access by 2013 in World.
Source : - Datamonitor - Global Internet Access- June 2009 - http://www.marketlineinfo.com/library/Download.aspx?
R=F85BBC63-3025-4BED-9AA8-

43

Internet Usage - India vs China

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