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Internet Services: Free Lunches Dime-a dozen

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VoicenData Bureau
New Update

Internet services is well into its sixth year. In reality, however, the

actual spread of Internet services started in late 1998, with the entry of

private ISPs. Prior to this, only VSNL was mandated to provide Internet services

in the country. In the last two years or so, there has been a dramatic growth in

Internet usage. And the availability of Internet access has expanded to almost

all major cities and towns.

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According to DoT figures, about 437 ISP licenses were given out by the end of

the 2000. And there has been a major ramp-up in terms of Internet usage.

According to Voice&Data’s estimate there were approximately 2.05 million

Internet subscribers in the country by the end of the fiscal 2000-01. About 150

operational ISPs have more than 2.8 million Internet subscribers, today.

* Sigma Online’s operation was up in fiscal

2000-01, though now its operations may be under suspension due to a court case.

Last year, though the growth rate was slack, the industry grew by 113 percent

in terms of subscriber base–adding more than a million subscribers. However,

this spurt in the base was largely contributed by free ISPs. Free ISPs made

major gains in terms of volumes, with an estimated free subscriber base of

little more than 6.6 lakh. Another trend seen was that of the mushrooming of

cyber cafes in all major cities and towns of India. The average PC still costing

above Rs 20,000, price was the major bottleneck for the penetration of Internet

into homes. Cyber cafes solved this problem to an extent.

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Free Lunches and Seasons sales

The entry of free ISPs changed the scenario of the market last year. Though

it did not cut down subscriptions of the paid ISPs, it put a lot of pressure on

the incumbents to price their products at levels where margins were very less.

In fact, the paid ISPs had to come out with equally attractive propositions in

different forms. Some like MTNL cut down heavily on tariffs. And others like

VSNL attempted to offer many discounts–coming up with features like the

monsoon package, free night surfing, festival package, etc.

As a result of this, two trends were noticeable. One, the market in terms of

value had really shrunk last year. Two, companies faced problems sustaining

their dial-up business. At least a few well-known ISPs even contemplated selling

them off. With investments drying up among VC-funded companies, balancing

operational costs with the current revenue streams, was a major challenge. For

many smaller companies, 2000-01 was a game of keeping the operations going on

till the present climate changed for the better.

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Consolidation and Integration

When the going got tougher, the staking up of ISPs in the market was not

sustainable. And without fail, there was consolidation. There was a clear trend

of going slow by erstwhile active ISPs which were very aggressively going after

eyeballs, in terms of spreading the presence to get the subscriptions and

building up feature-rich portals to entice the web visitors.

A financial situation and a shrinking dial-up market in terms of value meant

that ISPs had to look for newer avenues to sustain their growth, if not escalate

it. One way was to go after the corporates, which many ISPs did. There was

sudden interest in the setting up of data centers, VPNs, and providing access

other than dial-ups. Also, both incumbents and new entrants explored newer ways

to provide dedicated and better Internet access to the corporates–DSL, fiber,

cable, wireless radios were all tried. Besides this, older and new companies

re-engineered themselves to provide access solutions to the corporates. Here,

size was a leverage as corporates preferred a single ISP for all locations.

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The corporate market for Internet access was not a choice by accident. It

contributed more than half of total turnovers of at least a few major ISPs. VSNL

earned most of its ISP revenues from the provisioning of Internet leased lines.

Also, Satyam Infoway’s dial-up revenue was a pale shadow of the huge returns

from corporate services.

A Slice of Broadband

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Broadband ISPs finally made their presence felt. On the cable side, Mumbai,

Delhi, and Chennai saw most of the action. The major MSOs were able to

consolidate their hold during the year. Together, there were close to 11000

cable modem subscribers in the country though there were more than fifty

thousand computers accessing Internet through a cable Internet connection. The

major players in this market were Hathway, in2cable, and Zee. The DSL access

market was a monopoly of Chennai-based Dishnet DSL. This pioneering company had

more than 90 percent market share of a total DSL subscriber base of close to

11,000. Availability was mainly in Chennai, Mumbai, and Delhi. The cable and DSL

broadband segments still had to contend with the hard task of expanding

cost-consciously and keeping the entry level cost to an affordable level. These

services were available only in posh localities and commercial hubs. And the

broadband modem still stood at price levels of Rs 15,000–which is four to five

time costlier than an ordinary dial-up modem.

Gateways Populate the Skyline

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An important milestone during the last fiscal was the establishment of a huge

number of private and shared international Internet gateways by the ISPs. The

government had given the go-ahead during the previous year. By the end of the

fiscal, there were more than 25 ISPs who had set up their own international

gateways, in addition to the bandwith from VSNL.

Many like Satyam Infoway,

Bharti BT Internet, Data Access, and Wipronet, had set up gateways in more than

one city.

Yet another welcome step came in the form of permission to private ISPs to

set up their own submarine cable landing station and bring in under-sea

cable-based bandwidth into the country. And towards the course of the fiscal,

two serious aqua-bandwidth players emerged in the form of the Bharti-Singtel

combine and the Dishnet-Tyco combine. At the end of the year the total Internet

bandwidth subscribed in the country stood at a little more than 1 Gbps.

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