"By 2005, sixty percent of our revenue will come from value added services"

Andres

Bande, the chairman and CEO of FLAG Telecom, is more than a CEO. Having spent a

good amount of time in consulting, Bande is not just an implementor, or even

just a strategist. He thinks about the future of the telecom business. His

education in politics and law makes him take a broader view of everything—rather

than the nuts and bolts.

Voice&Data chose to speak with him on the future of the bandwidth

business. Here are the excerpts from an exclusive interview…

Bandwidth is going to be too cheap to meter, feel some experts, including

the Bell Labs chief. We are also seeing a sharp drop in bandwidth prices. How

will that affect your business?

There is a lot of talk on commoditization of bandwidth. It is true that a lot

of bandwidth is being made available. But it is also true that there is a lot of

aggressive content that service providers are creating. A lot of interactive

applications are being created. A lot of broadband entertainment software is

being created. These will all be delivered over the networks. These applications

will require a lot of bandwidth. Today, that market is just taking off. It is

still nascent.

People always talk of a glut in telecom. We have heard that in mobile

telephony as well. But the markets there are still growing impressively. My

personal opinion is that there are not enough networks around the globe. And

even all the existing ones like us are just six to eight fibers. That is it.

That is not enough.

The new bandwidth exchanges that have come up now have given the users

more choice, thereby bringing down the prices. Though there may be a lot of

bandwidth demand, don’t you think that actually making money out of these

investments will be increasingly difficult?

Most of these exchanges sell point-to-point bandwidth. The interconnection

and ensuring reliability is left to the buyers. We provide one network.

Are you a member of any such exchange?

No. We are not. There are about seven to eight of them.

And are most of them doing some business?

It is primarily the international carriers who buy bandwidth in bulk and sell

the unutilized capacity. At the moment, that is the main market.

But if I am not mistaken, isn’t Global Crossing a member of Band-X?

They may be a member. But what is sold on the exchanges is not the primary

bandwidth. It is always the secondary market. Primary bandwidth is always sold

on a one-to-one basis. If FLAG has to sell to AT&T, that will not be through

a bandwidth exchange. These are more for selling spare capacity, buying for

short-term utilization.

But the reality still remains that the price of bandwidth is dropping

faster than the cost of laying the cables. How will your business economics

change?

We are going to provide managed bandwidth. We will provide IP transit

backbones. We are going to provide more services like Global Crossing is doing.

You mean to say that money will actually come from those services?

A. No. It will still come from selling bandwidth. But we will clearly

move in that direction. By 2005, about sixty percent of our revenue will come

from value added services. We already do IP transit in certain locations within

Europe and the US. But let me clarify– we do not want to get into retailing

bandwidth. We do not plan for that.

If I can ask you a straight question– what will your customer pay you

for–will it still be for the bits of data?

It will be a mix. Let me say the value that he gets for each

of those bits.

And will the quality of that bit be a differentiator or

will that be taken for granted?

Quality in telecom is always taken for granted. You cannot

survive in telecom without quality.

Then what will be the differentiator?

Competition itself will be the differentiator. Why will all

the Indian ISPs, say, buy from Global Crossing?

If quality is standardized, won’t bandwidth become a

commodity? What will stop the bandwidth exchanges from selling it just on price

as a differentiator?

Loyalty. In telecom, customer loyalties are long-term.

Exchanges, by their very nature, are focused on short term. While I do not deny

that they will not do business at all, they can never replace long-term customer

relationships and loyalties.

What, with all this M&A that is happening, stops a big

international carrier from buying out a company like FLAG?

A. Nothing. There is a lot of possibility of our getting

bought out by a carrier. They are high on market cap. And we are rich in cash.

We are a good target. They can surely do so.

That reminds me of another trend. The scrip prices of

FLAG, Global Crossing, Qwest have fallen a lot. Why?

A. This is a general market trend. After the dotcom

crash, everything related to the Internet had a fall. There is also a feeling

that demand in telecom is linked to the Internet. That was a major blow. But

what actually impacted the carriers and us more, are the mind-boggling 3G

license fees. That has made the telecom finances dry up. There is no money in

the market.

Some Indian ISPs are trying to build point to point

submarine links to India from places like Singapore. How do you see this?

A. I don’t think they will survive in the global game.

They may be regional players. Global connectivity is not about point-to-point

links. We own and manage the whole network and are responsible for it. We have

to migrate from traditional arrangements with carriers to value added services

for ISPs and multinational corporations. That is what will make or break us.

That is when we need more sophisticated layers of connectivity. Management will

be an issue, if there is no common management of the whole network.

You talked of the possibility of carriers buying out

bandwidth providing companies like yours. When do you think these two businesses

will merge–when will there be no separate bandwidth provision?

A. It is a good question. It is not only a question of

acquisition of bandwidth suppliers. Now, there are too many carriers. Look at

Europe. There are about twenty big players. The scene is so complicated. I don’t

think it can remain like that for long. There will be consolidation.

What do you think will be understood by the word

"bandwidth", say five years from now?

I think people will think–how do I get from this part of

Delhi to that part of New York? And who can provide that connectivity? It will

not be from station to station. It will be location to location. And of course,

there will be newer applications always driving the usage of bandwidth.

Shyamanuja Das