Will Facebook’s Wi-Fi Initiative Drive User Growth In India?

As it looks at emerging markets to capture its next billion users, Facebook‘s (NASDAQ:FB) is aggressively pursuing initiatives in India to bring a larger section of the country’s population online and consequently on its platform. Internet penetration in India is around 35%, with 462 million of its 1.3 billion strong population having internet access. While this number has grown rapidly from the 15% figure in 2013, Facebook is working on several initiatives to ensure a faster rate of growth. The company’s “Free Basics” programme, allowing users especially in rural access free access to certain websites including its own platform, ran into regulatory troubles and had to be abandoned in India. However, Facebook is not giving up. The company recently launched “Express Wifi”, where in collaboration with internet service providers it will set up wireless hot spots in rural areas where users can get cheap access to the internet. With its huge population and rapid pace of economic development, India is an important region for Facebook’s future user growth.  As it looks to grow beyond the 148 million monthly users in India, we believe, bringing more people online in India’s rural areas is the first critical step for Facebook to achieve this target.

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International Markets Critical For Advertising Revenue Growth

According to our estimates, Facebook’s international advertising revenue is more than its domestic revenues and will be nearly 1.5 times higher than domestic advertising revenues by the end of our forecast period.

As Facebook’s user growth saturates in its domestic market,  its international users will grow steadily and reach nearly 2 billion by the end of our forecast period, in our view.

India is a critical region supporting this growth.  Infrastructure issues, such as lack of internet connectivity, slower internet speed and patchy connections, are hampering growth for Facebook in the country. While the company tried to address some of these challenges through its “Free Basics” initiative, it failed due to regulatory issues since this offering was considered to be in violation of net neutrality. However, Express Wi-Fi is a paid solution and Facebook is looking to act as a facilitator to provide the necessary infrastructure in creating Wi-Fi hot spots in rural areas. This initiative should not require any regulatory clearance.  However, Facebook’s ability to attract India’s rural population to use these hot spots will be critical for its success. The country also faces other issues, inluding a lack of education and skills among its rural population.  So that they can access the internet, Facebook might have to invest in training and education, along with infrastructure, to make this initiative successful.

We believe India is a key market for Facebook, both for user growth and long term advertising revenues. Its efforts to bring internet access to a large section of Indian population are critical for this growth.  However, it might not be enough to grow its user base in the region.

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