DRIVERS OF THE BROADBAND INDUSTRY IN CHINA AND INDIA:

WHAT CAN WE LEARN?

Nir Kshetri
The University of North Carolina—Greensboro
USA

Nikhilesh Dholakia
University of Rhode Island
USA

ABSTRACT

Telecommunications networks of India and China are among the largest in the world. In
this paper, we offer a model of broadband diffusion in a developing economy. Then we
compare and contrast building blocks of the model in the context of China and India.

KEYWORDS

India, China, broadband, telecommunications, diffusion, outsourcing

1. INTRODUCTION

Telecommunications networks of India and China are among the largest in the world.
Broadband networks in some regions in these two economies such as Shanghai and
other coastal towns of China (Mallaby 2005) and Bangalore and Hyderabad in India are
more developed than in some parts of the industrialized world (COMMWEB, April 26).
Sperling (2004) notes that “there is better broadband in Bangalore than Buffalo”.
Likewise, citing an experience of a U.S. based firm, Wilson (2005) has observed that it
is easier to get a broadband connection in some cities in India and China “than to get
one to [a] factory 70 miles away in Batesville, [Mississippi (USA)]”. As of 2005, China
ranked the second in the world—only after the U.S.- in terms of the numbers of the
Internet users as well as broadband users. One study suggested that by the early 2006,
a Chinese Internet user was more likely to be on broadband connections than his/her
U.S. counterpart (Koprowski 2006). By the early 2006, over half of Chinese Internet-
users had broadband compared to only 6.6 percent at the end of 2002 (The Economist
April 29, 2006). Moreover, China’s broadband network growth rate is among the fastest
in the world (Oil and Gas Investor 2004). By the end of 2006, China is expected to have
more Internet users and broadband lines than any other country in the world (Business
Week, March 15, 2004). Currently, India is far behind China in terms of broadband and
other related indicators. A report released by Forrester Research in May 2006 indicated
that the top three socio-economic classes in urban India had only a 3 per cent
broadband adoption rate (zdnetindia.com 2006). Nonetheless, India is expected to
rapidly catch up in the broadband race. India's Ministry of Communications &
Information Technology hopes that broadband will reach 12 million homes in the country
by 2010 (Burrows et al. 2005). The two countries, however, differ drastically in terms of
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major drivers of broadband industry. China outperforms India on factors such as

consumer innovativeness, potential of possible broadband applications such as
multimedia and animation, business-to-business (B2B) and business-to-consumer
(B2C) e-commerce, and IT enabled services, level and composition of base
technologies and supporting infrastructures required for broadband development.
India’s position as a global capital of outsourcing industry, on the other hand, has been
a major trigger for spurring broadband demand in the country.

This paper compares and contrasts critical broadband drivers in China and India.
Following Beise (2001), and Lehrer, Dholakia and Kshetri (2002), we divide factors
driving the growth of broadband industry into three groups: nature of domestic demands
and inputs (Linder, 1961;Vernon 1966), industry structure (Porter 1980, 1990), and
export and transfer conditions (Beise 2001; Tilton 1971). Nature of domestic demand
and inputs include factors such as consumer preferences, income, availability and costs
of input, infrastructures and government regulations (the roles of technology parks will
be covered in detail) and technological economies of scope (a function of prior national
experience with previous generations of technology). The importance of industry
structure on the performance of broadband industry can be explained in terms of the
industrial organization theory. According to this theory, industry structure determines a
firm’s behavior, strategy and performance (Bain 1956, Porter 1980; Scherer and Ross
1990). Competition level, size and distribution of broadband suppliers as well as nature
and structure of related industries will be analyzed under this category. Factors such as
trade policy, export orientation of the firms in the country, strategic regulation, and
market size will be covered under transfer and export conditions.

2. BROADBAND DIFFUSION IN CHINA AND INDIA: A BRIEF SURVEY

As of 2005, in terms of Internet users as well as broadband users, China ranked the
second in the world—only after the U.S. Nonetheless, China’s broadband network is
growing faster than that of the U.S. In the first quarter of 2006, China added 3.7 million
broadband lines compared to 3.3 million lines in the U.S. (ZDNet Research 2006). By
2006-end, China is expected to have more broadband lines than that of the U.S.
(Business Week 2004a, Wagner 2005). The proportion of Chinese Internet-users with
broadband access increased from 6.6% at the end of 2002 to over 50% by the early
2006 (The Economist 2006b) and about 66% by July 2006 (msnbc.com 2006). One
study suggested that by the early 2006, a Chinese Internet user was more likely to be
on broadband connections than his/her U.S. counterpart (Koprowski 2006).

China has planned to launch third generation (3G) cellular network in the late 2006 (The
Mainichi Newspapers 2006). The research firm, Analysys, has estimated the first round
of 3G investment in 2006 at $1.25 - 2.5 billion and the first phase demand of 10-20
million linesi. Given that even in the countryside, it is already possible to access the
Internet at fixed line speeds using a mobile handset (The Economist 2006b), China’s
cellular broadband potential seems considerable.

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In India, dial-up customers account for a substantial proportion of Internet users (Bruce
and Macmillan 2003) and the broadband network is far behind China’s (Figure 1 and
Table 1).. Indian broadband subscribers increased from 50,000 in 2001 to 140,000 in
2003 compared to 304,000 to 10.5 million in China during the same period (ITU 2005a).
A Forrester Research report in May 2006 indicated that the top three socio-economic
classes in urban India had only a 3% broadband adoption rate (zdnetindia.com 2006).
Nonetheless, India's Ministry of Communications & Information Technology expects
broadband in 12 million homes (Burrows et al. 2005) and 40 million Internet subscribers
by 2010 (Fixed Line Telecoms 2005).

While several OECD countries have cable TV connections to provide Internet access
(ITU 2005b), digital subscriber line (DSL) is the dominant form of broadband in China
and India. Indeed, in 2004, China had 11 million DSL users, the world’s highestii.
Likewise, in India, DSL lines provided mainly by Bharti and BSNL have contributed to
the rapid broadband growth (ZDNet Research 2006).

2.1 REGIONAL DISTRIBUTION OF BROADBAND USERS

Rapid broadband growths in both countries are, however, characterized by a high

degree of geographical disparity and regional imbalances (Martinsons 2005, Narayanan
et al. 2005). Broadband networks in some regions such as Shanghai and other coastal
towns of China (Mallaby 2005) and Bangalore and Hyderabad in India are considered to
be more developed than in some parts of the industrialized world (COMMWEB 2006).
Sperling (2004) notes: “..[T]here is better broadband in Bangalore than Buffalo”.
Likewise, Wilson (2005) observed that it is easier to get broadband connections in some
Indian and Chinese cities than “to [a] factory .. in Batesville [Mississippi]”.

Like the rest of the Chinese economy, the Internet and broadband population reflects a
geographical bias towards the east. China’s interior provinces lag behind
technologically. About 40% of Internet users are in Beijing, Guangzhou and Shanghai
whereas only 1% live in western China (Country Commerce 2006). According to the
China Internet Network Information Center (CNNIC), as of December 2005, only 2.6% of
the rural population had Internet access compared to 16.9% of the urban populationiii.
Nevertheless, almost every county has broadband and Internet cafes and high-speed
connections are ubiquitous and cheap even in remote towns (The Economist 2006b).

India has a higher geographic disparity. As of July 2006, broadband covered about 300
Indian cities (Basu 2006b). Broadband connectivity is, however, planned for all villages
and there are already some uses, albeit limited, of wireless broadband in rural areas.

3. FACTORS DRIVING BROADBAND DIFFUSION IN THE DEVELOPING WORLD:

THE CASE OF CHINA AND INDIA

Numerous factors influence the development of the broadband industry in a developing

economy. Figure 2, present a preliminary model relating factors driving broadband and
associated mechanisms.

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3.1 GOVERNMENT’S ROLE

Let us begin with the government’s role. Different theoretical contributions and various
empirical studies have led to the accepted view that the government can attack barriers
to technology adoption by legal and non-legal influences such as new laws, investment
incentives, foreign technology transfer, and other supply-push and demand-pull forces
(King et al 1994, Montealegre 1999). Successful developing countries are those that
can attack barriers related to skills, information, market and infrastructures by such
means.

Governments’ subsidy to technology-intensive industries (Newman et al. 2006) and

market innovation have played key roles in both countries. However, the state’s deep
entrenchment in the economy means that the government can play a more critical role
in China than in India (Pei 2006). For instance, whereas state-owned firms generate
less than 7% of GDP in India, according to UBS, the state accounts for at least 70% of
the Chinese economy (Pei 2006).

Chinese government designed a series of programs to accelerate telecom development

in the 1990s which included extensive re-engineering of and intense competition in this
sector. Telecom companies were required to adapt to the rigorous disclosure
requirements of the NYSE, NASDAQ, and Hong Kong's Growth Enterprise Market
(McDaniels and Waterman 2000). The Chinese initiative to launch its version of national
information infrastructure (NII), known as the “Golden Projects” (Tan et al. 1997), put in
place developed backbone infrastructure (Pyramid Research 2001). The State
Development and Planning Commission (SDPC) also ratified a high-speed Internet
project. The initial plan was to build a backbone network linking 15 major cities on the
eastern seaboard including Beijing, Shanghai and Guangzhou (Lovelock 2001).

In China, government has also played a key role in promoting geographical equity. The
government set a goal of installing fiber optic telecom lines to large villages by the end
of 2000 (Lovelock 2001). During the tenth five-year plan (2001-05), it targeted
technological development as priority tasks. Consequently, even Western China is
transformed these days (Martinsons 2005). The Sichuan province in western China
provides a case in point, where the number of broadband Internet users increased from
447 in 2000 to 780,000 in September 2005 (Country Commerce 2006).
China’s state-owned companies invested heavily in telecom (The Economist 2006b)
which amounted $2.5 billion in broadband in 2000, with an estimated broadband related
investment of $24 billion by 2005 (Lovelock 2001). India’s investments in broadband
(and telecom in general) have been much lower (Figure 1). During the mid-2000-mid-
2002, about $5 billion was estimated to be invested in new fiber-optic systems (Erickson
2000). Frost & Sullivan estimated that India’s broadband investments were around $390
million in 2004 (Goyal 2005).

In India, the government’s key contribution has been to create competitions for
broadband and traditional telecom services, which are arguably ‘healthier’ than China’s

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(Pyramid Research 2001). Among other measures, India privatized the national long-
distance market, permitted ISPs to set up their own submarine cable landing stations
and share bandwidth with other ISPs, and allowed the use of Ku-band in both Indian
and foreign satellites. Multinationals such as Lucent Technologies and Airtel have laid
fiber-optic lines. As early as in 2000, Singapore Telecom announced an eight-terabit
cable connection between Singapore and India (Lynch 2001). Likewise, VSNL, the
State owned Telephone Company, which listed on the New York Stock exchange in the
mid-2000, proposed to increase its capacity to 13 gigabits by 2004 (Erickson 2000).

In 2004, the government issued a report stressing the need for facilitating the expansion
of broadband, which placed special emphasis on wireless broadbandiv. Reduction in
entry barriers led to intense competition and low prices. The incumbent operators were
allowed to establish commercial franchisee agreements with competitorsv. Operators
were allowed to provide both fixed and mobile services under a single license (Lee et al.
2005). Delicensing of spectrum usage also encouraged the use of wireless broadband
(Goyal 2005).

More recently, the government initiated “Indian PC Program” aims to improve PC

penetration to 65 per 1,000 by 2008. Major components of the program include: a)
launching Rs 9,999 ($230) PCs subsidized by software vendors and chipmakers; b)
encouraging all operators provide a subscription model bundling broadband and PC; c)
setting up loans, employee provident funds and other funds to encourage PC adoption
among government employees; and d) amending the Income Tax Act to deduct home
PC purchase (Lee et al. 2005).

In both countries, limited authorized content on the Internet, to some extent, may act as
a roadblock to a faster broadband diffusion (Clendenin 2005). Both countries’ laws ban
politically and/or culturally objectionable contents. This is more so for China. Chinese
Ministry of Information Industry (MII) and the State Press and Publication Administration
have issued series of regulations threatening to fine or close down Internet publishers
and portals disobeying content guidelines. Portals and search engines not following the
guidelines such as Google and Altavista were banned in China in 2002.
The Indian federal government in July 2003 specified a number of conditions in which it
can ban websites. In 2003, ISPs were asked to block a Yahoo group related to Naga
militants, which led to a ban on the entire Yahoo e-groups (Singh 2006). In the similar
vein, in July 2006, after Mumbai blasts, India’s 153 ISPs were asked to block 17
websites (Biswas 2006).

3.2 INDUSTRY STRUCTURE

Telecom deregulation was among many preparatory reforms introduced by China for its
WTO entry. By 2001, there were half a dozen carriers, dozens of foreign and domestic
hardware providers and many companies offering Internet services and related products
(Iritani 2001). More recently, Asymmetric DSL (ADSL) rollout from China Telecom and
China Netcom triggered broadband growth (BBC Monitoring International Reports
2006).

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Until some years ago, Indian broadband market was dominated by Dishnet, a DSL ISP
(Telecoms & Technology Forecast Asia & Australasia 2005). In recent years, ISPs like
Sify are expanding services (Goyal 2005). Telecom companies such as BSNL, MTNL
and Bharti are aggressively attracting broadband customers. Almost all fixed line
operators are testing broadband DSL for advanced applications such as video delivery
(Saran 2006).

Horizontal collaboration, which entails combining selected elements from each

business's supply chain, is facilitating broadband growth. An alliance formed by
Microsoft, HCL (a manufacturer of computers and office equipment) and BSNL makes a
PC loaded with Microsoft software ready for BSNL's broadband service for a monthly
payment of less than $11 (Goyal 2005). Thanks to such initiative, new PC sales are also
growing at 25% annually (Goyal 2005).

The structure of the Indian cable TV industry, however, lacks upgradeability to

broadband access. Small entrepreneurs providing services at low costs account for a
significant share of the cable industry. Internet access via cables requires a substantial
investment, which may be beyond the reach of small players. Moreover, if cable
broadband is provided, monthly charge is estimated to be about $20, which
unaffordable to poor households (ITU 2005b). Thus, whereas low cable subscription
fees (in the range of $1.28-3.20/month) and an active second-hand market for low-cost
televisions (ITU 2005b) have accelerated cable TV diffusion, this industry is not easily
upgradeable to broadband.

3.3 INPUT CHARACTERISTICS

An educated and skilled technology workforce is critical for the development of national
technological capability. It is important to note that both countries have a huge pull of
high quality-low cost engineers. China and India graduated over 600,000 and 350,000
engineers in 2004 compared to 70,000 in the U.S. (Broad 2005). Likewise, the annual
cost to employ a chip design engineer in 2002 was $28,000 in Shanghai, $24,000 in
Suzhou (China) and $30,000 in India compared to $300,000 in the U.S. (Ernst 2005).

Regarding quality of the technology workforce, Intel CEO Craig Barrett argues that the
Chinese are "capable of doing any engineering, any software job, any managerial job
that people in the United States are capable of" (Segal 2004). In the same vein, an
increasing inflow of more cutting edge business processes to India reflects the quality of
India’s high tech work force.

3.4 CONSUMER DEMAND

Broadband subscription is beyond the reach of the majority of Chinese and Indians
(Chotrani 2002). Technological innovativeness or the propensity to adopt modern
technologies such as broadband is, however, higher in China than in India. For
instance, in the mid-1980s, the penetration rates of consumer durables in China were
about the same as South Korea, Japan and then USSR (Sklair 1994, See Table 1 for

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related indicators). Thanks mainly to such innovativeness of Chinese consumers, in

terms of the technology achievement index constructed by the UNDP (2001), China's
rank 45 (out of 72 economies considered) put it in the group of "dynamic adopters". The
same study ranked India 63rd.

In broadband applications, Indian market is several years behind China’s. For the online
games market, for instance, India in 2006 Is arguably comparable to China in 2001
(Business Wire 2006). Other indicators related to broadband demand such as e-
commerce and Internet advertising reveal similar patterns (Figure 2 and Table 1). Not
surprisingly, width and depth of Internet and broadband adoptions are higher in China
than in India (Kshetri 2002). The growth of broadband application such as e-commerce,
blogging, instant messaging and Internet-based phone and video calls has triggered
broadband demand in China (The Economist 2006b). For instance, in the early 2006,
China was estimated have 30-38 million bloggers (Lim 2006) compared about 9 million
in Indiavi (Sengupta, 2006). Another estimate suggested that numbers of blogs in China
were in the range of 1-2 million in 2005 (French 2005). In India, Internet use is limited
to narrow range of applications such as email, chat and ticket bookings and very few
users employ it for more sophisticated applications such as entertainment and
information search (Sampath 2006). In the similar vein, for the depth of adoption, a
study of Ipsos Insight in November-December 2005 indicated that Chinese spent 17.9
hours online compared to 4.4 hours for Indians (Burns 2006).

Although broadband prices are falling rapidly, few peasants and poor households can
afford the services in China (The Economist 2006b) and India. Especially, given high
costs relative to income and the country’s low tele-density (Table 1), broadband market
is fragmented in India (Telecoms & Technology Forecast Asia & Australasia 2005). At
the same time, shared broadband access is more common in China (SinoCast 2006)
and India than in industrialized countries, which reduces the demand potential.

3.5 BUSINESS DEMAND

The two economies also differ widely in terms of the potential of possible broadband
applications such as multimedia and animation, Internet advertising, business-to-
business (B2B) and business-to-consumer (B2C) e-commerce, and IT enabled services
(Table 1). China's business users are rapidly deploying broadband applications. Much
of that activity is centered on carrier-delivered Ethernet servicesvii. Especially, demand
from firms with bandwidth-intensive businesses such as online gaming is growing
rapidlyviii.

Government agencies in China are also among early adopters of ICT applications
including broadband. Perhaps because of this, China outperforms industrialized
countries such as Switzerland, U.K., Singapore and Germany in e-governance (West
2002). In most developing countries, the government is the single biggest user of ICTs
(Nidumolu et al. 1996). Advanced e-government programs in China have led to rapid
growth of broadband demand from federal and local government agencies. To take one
example, Motorola is working with the Chinese Ministry of Public Security (MPS) in a

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project to deploy video surveillance systems connected via fiber in major cities
(Lindstrom 2006). Indeed, to support initiatives such as Golden Projects and e-
government, China rapidly expanded broadband communications network in the late
1990s (Lovelock 2001).

Cheap broadband and rapidly increasing business process outsourcing (BPO) are
reinforcing each other in India thus creating a virtuous circle of broadband growth
(Schuyler 2004). In 2004-05, the Indian offshore IT and BP outsourcing industry
generated an estimated $17.3 billion and employed 695,000 people (Farrell et al.
2005)ix. IT outsourcing brought India more than $7 billion in 2003, which is expected to
double by 2007 and quadruple by 2012 (Donlan 2005). According to a
NASSCOM/KPMG study, in 2004, the Indian BPO industry grew by 40% to reach $5.8
billion and is expected to reach $64 billion in 2012, employing 3 million people (Hamm
2005). What is more, industrialized countries are outsourcing more cutting edge works
to India such as medical outsourcing (e.g., CT scans and other images transmitted via
broadband) (Waldman 2004) and high quality R&D.

3.6 NATIONAL TECHNOLOGICAL CAPABILITIES

China has built national technological competence in a fairly short period of time.
Among many achievements indicating China’s status as a global technological
powerhouse, one is particularly telling: acceptance of China’s Time Division -
Synchronous Code Division Multiple Access (TD-SCDMA) as a global 3G cellular
standard by the International Telecommunications Union (ITU). Among 16 proposals
submitted for IMT-2000x standards, the ITU selected TD-SCDMA as one of the three
global 3G standards. Chinese government officially declared TD-SCDMA as its national
3G standard (Reynolds 2005). The existence of domestic technological standard will
facilitate the diffusion of mobile broadband. China is also partnering with Japan and
Korea to develop standards for the fourth generation (4G) cellular phones, which are
expected to become commercially available by 2010. They have agreed to jointly
develop protocols and standards. 4G phones would allow a bandwidth of 100 Mbit/sec,
about 25 times that of current 3G state-of-the-art phones.

Chinese technological firms also have a high degree of export orientation. More to the
point, since 2004, China has become the world’s biggest ICT exporter and its high tech
export as a proportion of manufacturing export is much higher than India’s (Table 1).
China and Chinese Taipei produce nearly half of the world's supply of broadband
products such as DSL and cable modemsxi. Chinese telecom equipment vendors
Huawei and ZTE have sold fixed and mobile broadband equipment in a number of
developing and developed countries across all five continents. In particular, Huawei is
ready to build networks based all three 3G cellular standards—CDMA 2000, W-CDMA
and TD-SCDMA.

India is also making some progress toward developing national capabilities in

broadband technology. For instance, the Indian Institution of Technology at Madras has
developed the broadband corDECT which is based on European DECT system. A

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major strength of this system is its relative low cost (Best and Pehrson 2005). Likewise,
the Bangalore unit of Intel team has planned to launch microprocessor chips for high-
speed broadband wireless technology in 2006 (Mehra and Padmanabhan 2006).

3.7 RELATED INFRASTRUCTURE

China received better marks than India for infrastructure related to broadband (Pyramid
Research 2001). Traditionally, a high proportion of the telecom investment in China
went to the “most modern” available infrastructure because the government aspired for
“nothing but the best”. For instance, in the late 1980s and early 1990s, Shanghai
Telecom undertook projects to lay under the city's streets one of the world's largest fiber
optic cable networks that contained much more bandwidth than needed for simple
telephone services (McGill 2001). The investment in the “most modern” infrastructure is
a part of Chinese national initiatives to develop telecom infrastructure and high-speed
data networks.

Both countries’ well developed rail networks are driving broadband growth. In this
connection it is worth noting that India has one of the world’s most widespread and
dense rail networks with 8000 stations and an average distance of 8 KMsxii. India is
using rail network to bring affordable broadband access quickly to the rural population
(ITU 2004). Cybercafé kiosks have been set up along railway tracks to provide Internet
access (Lee et al. 2005). China has even better utilized network resources along its
railways. The Ministry of Railways (MoR) has over 35,000 kilometers of fiber (Lovelock,
2001). China Railcom, a division of the MOR, owns the network resources. As of 2003,
China Railcom provided services to more than 500 citiesxiii. As of February 2005, China
Railcom had over 1 million broadband subscribersxiv.

Likewise, Gailtel, the telecoms services arm of a gas transmission company in India,
had 8,000 KMs optic fiber co-axial network in 2005 and has plans to extend to 18,000
KMs. It started leasing bandwidth in mid-2001 and operates as an ISP. As of 2005, the
network served 73 cities in 8 states. The company overlays OFC network on existing
pipelines, which has resulted in substantial cost-savings and thus significantly lower
costs to end-users compared to competitors (Lee et al. 2005).

Compared to broadband, both countries have much higher cable TV penetration rates
(Table 1). The existing cable TV infrastructure thus can be upgraded to broadband
connectivity as already offered in several OECD countries (ITU 2005b). It should,
however, be noted that, in India, cable use is primarily to wealthier urban areas (Lee et
al. 2005).

3.8. SUPPLY CHARACTERISTICS OF BROADBAND

In both countries, economies of scale are driving down costs of broadband services and
related technologies to end-users. Both countries’ broadband prices are among the
lowest in the world. In India, broadband is being offered for $10 a month by some
providers (Business Wire 2006). The same is true of China. An hour on a broadband

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connection in an Internet cafe in a small Chinese town cost about 13 cents in the early-
2006 (The Economist 2006). Likewise, during 2003-2005, the price of the cheapest PC
in India decreased from $430 to $230 (Goyal 2005).

Innovative marketing and content availability are also driving broadband diffusion. In
India, telecoms and PC hardware manufacturers are marketing games to drive
broadband and PC penetrations (Business Wire 2006). In recent years, investment in
programming and digital distribution has increased (BBC Monitoring International
Reports 2006). Likewise, in China, emergence of non-telecom broadband local access
providers such as local municipal governments and real estate developers are driving
broadband growth (Pan 2006).

3.9. IMPACTS OF BROADBAND DIFFUSION

India and China are becoming increasingly integrated information societies. In both
countries, some rural communities already have access to e-government, tele-
education and telemedicine services (Lee et al. 2005). In Tamil Nadu state of India, for
instance, an eye hospital examines patients located in dozens of miles away utilizing
Wi-Fi to transmit images (Fleishman, 2006). Similarly, in China, students in some rural
villages are participating in distance-learning courses set up by universities in Beijing via
VSAT satellite broadband (Lee et al. 2005).

Thanks to broadband and other ICTs, low- as well as high-skilled manpower in the two
economies are actively participating in the design and development of innovative new
products thus breaking traditional geographical barriers (Plant Engineering 2006). When
Internet and broadband connectivity are available in rural areas, the costs will fall even
lower (Helm and Kripalani 2006) thus increasing outsourcing potential. Some analysts
argue that the theory of comparative advantage may need modification when China and
India with their high skilled workers with broadband and the Internet access compete
with those in industrialized countries (Business Week 2004b).

In particular, India has been able to exploit its comparative advantage associated with
its English-speaking workforce thanks to broadband and globalization (The Economist
2006a). India’s overall education level is below industrial countries’ and China’s.
Nonetheless there are a large number of well-educated Indians. Broadband makes it
possible to build an “enclave economy” which can effectively become a new low-wage
first world economy (Thurow 2004). For instance, General Electric has a 70:70:70 rule,
which means that it plans to outsource 70% of its processes, 70% of outsourced
processes will go offshore and 70% the offshore outsourcing will go to India (Price and
Turner 2005). This and similar cases suggest India’s high growth potential as an
offshore outsourcing destination, thanks to broadband. Some even argue that compared
to Chinese low cost factories, India’s “low-cost financiers” and its orientation towards
services will continue to trigger the growth of Indian economy over the next decade
while China’s manufacturing boom will soon wear out (Farrell 2006).

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Perhaps more intriguing than U.S. and European firms outsourcing to India is the fact
that Indian firms have started outsourcing some of their business processes to other
countries including industrialized ones. Consider the following example:

Narayana Hrudalaya, a Bangalore heart hospital, has links to affiliates throughout India, in Kuala
Lumpur and Mauritius, and a medical school in Hannover, Germany. The Indian doctors consult with
patients over broadband connections, on which they can see X-rays and angiogram results. Future
plans include robotic surgery by remote control, perhaps the ultimate in outsourcing (Singh 2004).

4.0 DISCUSSION AND CONCLUSION

The foregoing discussion provides a framework for understanding broadband diffusion

in the developing world. Based on the framework, we compared and contrasted factors
shaping broadband diffusion in China and India. Different sets of conditions have
influenced broadband diffusion in the two economies. China’s stronger economy and
better penetration of base and related technologies (Table 1 and Figure 1), government
intervention and consumer innovativeness are driving the broadband growth. In China,
the government has influenced demand and supply of the broadband through its deep
entrenchment in the economy. In India, on the other hand, healthy competition and the
country’s emergence as the global capital of offshore outsourcing have triggered the
broadband growth. Meaningful government interventions in China have produced better
results—in terms of penetration level as well as geographical equity- than India’s
‘healthier’ competition created by the government. The bottom-line message is that the
government can play a critical role in the diffusion of modern technologies such as
broadband although the appropriate role is a function of the nature of the economy.

Both countries have made extensive use of related networks owned by railway and gas
companies to provide broadband. Investment in cable broadband could contribute to the
fuller exploitation of underutilized potential.

In particular, broadband has played a key role in India’s emergence as a global capital
of offshore outsourcing. The most notable trend probably is Indian firms’ outsourcing
business processes to other countries. In conclusion, Broadband has helped both
economies in their advancement towards information society.

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FIGURE 1: A COMPARISON OF BROADBAND AND RELATED TECHNOLOGIES IN CHINA AND INDIA

A Comparison of Chinese and Indian PC A Comparison of Online Householed in China and

markets India

Online households (million)

30
100000
China China
PC in use ('000)

25
80000
20
60000
15
40000 India
India 10
20000
5
0
0
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
Year Year

A Comparison of Internet Users in China and A Comparison of Telecom Investment in China

India and India

250 35
Telecom Investment ($, billion)

China
Internet Users (Million)

30 China
200
25
150 20
India
100 15

10 India
50
5
0
0
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004
Year Year

A Com parison of Fixed and Cellular Phones in A Comparison of Broadband Penetration in

China and India
China and India

500
40000
Broadband penetration ('000)

450 China (Cell) China

35000
No. of users (million)

400
350 30000
300 25000
250 20000
China (Fixed)
200
15000
150
India (Cell) 10000
100
50 5000 India
India (Fixed)
0 0
2000 2001 2002 2003 2004 2005 2001 2003 2004 2005 (end) 2006(Q1)
Year Year

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FIGURE 2: A PROPOSED FRAMEWORK TO EXPLAIN BROADBAND DIFFUSION IN DEVELOPING COUNTRIES

Technological
Supply characteristics of competitiveness of firms
broadband o Production of
/ o Cost/affordability technologies and
o Quality technological standards
o Content availability
o Export orientation
o Marketing/innovativeness

Government policy
o Investment Related
infrastructure Input characteristics
o Market openness
• Usability and o Quality of IT
o Licensing and tax
upgradeability of workforce
existing o Cost of hiring
infrastructure
Industry structure
o Competitive
rivalry
o Horizontal
collaboration Impact on the economy
o Advancement towards
information economy
Broadband diffusion o International competitiveness
• Diffusion level
• Diffusion pattern
• Width of adoption
• Depth of adoption Business characteristics
impacting broadband
demand
o Development of
industries requiring
Consumer characteristics broadband
impacting broadband demand
o Income
o Innovativeness
o Adoption of related technologies

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TABLE 1: A COMPARISON OF INDICATORS RELATED TO BROADBAND IN CHINA AND INDIA

Indicator China India

c
No. of Broadband users (millions, Q1, 2006) 33.7 1
Broadband users per 1000 people (Q1, 2006) 26 1
a
Personal computers (PCs) in use(millions, 2005) 80.6 16.3
PC users per 1000 people (2005) 62 15
a
No. of Internet users (million, 2005) 239.6 93
Internet users per 1000 people (2005) 182 87
Online households (million) (2005)
a 24.1 7.6
34.1 24.1
Annual growth rate of PC (1995-2003)h
89.9 53.8
Annual growth rate of Internet (1995-2003) h
d
Average monthly broadband charges ($, 2004) 16 20
Capital investment in telecommunications ($, 26 5
a
billion, 2004)
Fixed telephone lines in use (million, 2005)
a 316.5 50.0

Mobile telephone users (million, 2005)

a 429.4 65.9

National telephone calls (million minutes, 2004)

a 68015 35
International outgoing telephone calls (million 1260 696
a
minutes, 2005)
Adult literacy rate (% ages 15 and above) p 90.9 61

Researchers in R&D (per million People, 1990- 633 120

2003) p

1300 1070.8
Total population (2003, millions) p
1,100 564
GDP per capita (US$ 2003) p
GDP per capita (PPP 2003) p 5,003 2,892

High-tech exports (% of manufactured exports, 27 5

2003) p
150 million b 30 million q
No. of cable TV subscribers (2005)
$68.72 billion (2005) K $130 mil (2004-5) h
E-commerce revenue $900 mil (2006) e
$812 million (2006) $13.3 mil. (2004) I
Internet advertising revenue $1 billion+ (2007) f $18 mil.(2004-5 ) g

SOURCES:
A B C
EUROMONITOR INTERNATIONAL’S GLOBAL MARKET INFORMATION DATABASE, BASU (2006A),
D E
ZDNET RESEARCH (2006), MISHRA (2004), ESTATSINDIA.COM’S ESTIMATE (INDIAN E-COMMERCE
MARKET CLOSE TO $1 BILLION, HTTP://WWW.CONTENTSUTRA.COM/INDIAN-E-COMMERCE-MARKET-
F G
CLOSE-TO-1-BILLION), ADEX INDIA CITED IN ROBERTS (2006), INDIAN ONLINE ASSOCIATION’S (IOA)
H I
ESTIMATE CITED IN SEN (2005), REDIFF.COM (2005), ADEX INDIA CITED IN EUROPEAN ADVERTISING &
K
MEDIA FORECAST (2006), E-COMMERCE CHALKING UP STRONG GROWTH: SURVEY,
HTTP://ENGLISH.PEOPLE.COM.CN/200602/20/ENG20060220_244208.HTML;
P Q
UNDP (2005), ITU ( 2005B) .

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ENDNOTES

i
See http://www.moconews.net/chinese-3g-spending-could-reach-25-b-analysys.html
ii
See “China Becomes Top DSL Country,” SinoCast China Business Daily News, March
9, 2004, p. 1.
iii
See “Communications in the People's Republic of China,”
http://en.wikipedia.org/wiki/Communications_in_the_People's_Republic_of_China
iv
See “WebSky to set up JV for operation of wireless broadband internet system in
India,” World IT Report, June 24, 2004, p. 1.
v
See “India defines broadband policy and rejects local loop unbundling,”
http://www.itu.int/ITU-D/treg/Newsletters/Research%20Material/India-broadband-
Carlos_Oct2004.pdf
vi
See “India clamps down on bloggers, cell users,” July 18, 2006,
http://www.physorg.com/news72460837.html
vii
See “Ethernet Services in China,”
http://www.heavyreading.com/details.asp?sku_id=708&skuitem_itemid=710&promo_co
de=&aff_code=&next_url=%2Fdefault.asp%3F
viii
See “A China Telecom Play With A Quiet Ring,”
http://www.businessweek.com/magazine/content/06_25/b3989116.htm
ix
The same estimate suggests that by 2007-08, this industry will account for 7 percent
of India's GDP employing 1.4-1.5 million people.
x
International Mobile Telecommunications (IMT- 2000) is a general term for
technologies planned to be included in the ITU's world standards for 3G mobile
communication.
xi
See “China Sourcing Report Broadband Communication,”
http://www.bharatbook.com/detail.asp?id=9001.
xii
See “Fast track for Indian Internet” BBC, 31 May, 200).
xiii
See “China Railcom Delivers Advanced Network Services In Three Metro Areas
Using Riverstone Solutions,”
http://www.riverstonenet.com/news/pr_2003/2003_01_27.shtml
xiv
See “China Railcom Broadband Subscribers Exceed 1 Mln,” February 23, 2005
http://arabic.china.org.cn/english/scitech/120954.htm

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