Why digital majors are only now flocking to India

As Amazon, Google and Facebook have underlined their growing interest in the Indian market, there is a general feeling the BRIC economy is finally beginning to offer expansive appeal for tech majors. With e-commerce platform Flipkart seeing a successful funding round earlier this year, the start-up and investment environment is also on the up. Sell businesses will certainly oversee the growing number of exits from the Indian market, as local consumers go digital. London corporate finance has been especially interested in the market, considering the historical and cultural links between the UK and India. However, why has interest in India only recently been ramped up?

Despite holding one of the largest telecom sectors in the world, largely due to its massive population, India has had troubled 2000s marked by corruption scandals, weak spectrum auctions and bad global publicity. Of all the BRIC nations, India remains one of the least developed and progressive in terms of its telecom sector development. Intense competition between a large number of small mobile and fixed operators, large regional coverage discrepancies, and widespread corruption in municipal administrations have short-changed the Indian consumer for telecom delivery and created a poor business environment.

In February 2012, the Indian government cancelled 122 2G licences following a corruption scandal over their under-priced auction in 2008. The ordeal underlined government inefficiencies and the disorganised state of the telecom industry, where a large number of smaller, regional mobile operators were not fulfilling their contractual duties. The following re-auction of licences in November 2012 was weak, raising only US$1.7 billion for the government. The bad publicity India has gathered as a result has provided a toxic environment for potential new digital entrants to the market, while state-enforced changes to spectrum bidding, moved to an auction-based system (meaning licence costs could be higher) as opposed to fixed bids, and lowered competition as a result of cancelled licences raised telecom prices for consumers.

Nonetheless, a corruption cleanse in the telecom market has now improved the tech landscape. India afterall remains a highly prospective market, despite it lagging in fibre-optic coverage, mobile broadband and Internet usage penetration. If the state can provide greater commercial incentives to fixed and mobile operators in rural areas, a large section of the population can be unlocked for the market.

Sector-wide consolidation has strengthened the position of the major wireless operators, including Bharti Airtel, IDEA Cellular, Tata Teleservices and Reliance Communications. Despite decreasing competition, market convergence has provided greater stability and strategy in the sector, offering better services to consumers.

The Indian government has also refocused its strategy on optimising telecom delivery, with its New Telecom Policy 2012 aiming to achieve 100% rural penetration of teledensity by 2020. A US$3.5 billion National Optical Fibre Network project, also approved in 2012, looks to establish information highways across the country, allowing greater digital participation among Indian homes.

Combined, these factors look to improve connectivity for local consumers, potentially unleashing a connected population of over a billion people. Lower corruption and more confidence in the future are thus encouraging global digital majors to finance local businesses and expand operations into the huge Asian economy.




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