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Internet and Broadband: Broadband Flexes Muscles

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VoicenData Bureau
New Update

The saga of broadband services climbed up the adoption curve after the dust on

the initial hype settled down. The Ministry of Communications and IT set the

tone in 2004 with the Broadband Policy in place. From thereon, the broadband

market witnessed a significant growth despite falling short of the target. The

total number of Internet subscribers is approximately 71 lakh as on 31 March

2006, including 13.1 lakh broadband subscribers, which is almost 29% growth over

last year's 55.5 lakh subscribers that included 1.8 lakh broadband

subscribers. The figure of broadband connections crossed 10 lakh in January

2006, which is significantly below the “Broadband Policy 2004” target of 30

lakh set for 2005 end.

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For India it's a leapfrog considering the fact that during the year, the

percentage of broadband subscribers in the overall number of Internet

subscribers grew from a mere 3.35% to 18.63%. India has the world's fourthÂ

largest base of Internet subscribers, which is estimated to have

registered a whopping growth of 54% growth with 4 crore users as of 2005-06 from

just 2.5 crore in 2004-05.

According to estimates, Indians go online for a number of activities

including e-mail and IM (98%); job search (51%); banking (32%); bill payment

(18%); stock trading (15%); and matrimonial search (15%). Online Indians are

regularly reaching out to online research content that includes workÂ

(62%) and personal (70%) and a sizeable contribution is due to the fast

growing e-commerce in India.

As per V&D estimates the total revenue from Internet services during the

FY 2004-05 was Rs 1,592 crore and the revenue for FY 2005-06 is estimated to be

Rs 1,619 crore. This is only a marginal increase of 1.7% mostly on account of

falling ARPU even as the subscriber base grew.

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Encouraging Factors



Broadband connections have started to grow steadily since the beginning of

2006. According to TRAI, during the month of April 2006, approximately one lakh

additional broadband connections were provided taking the total broadband

connections in the country beyond 14 lakh.

Broadband prices have been moving southward, thereby increasing the number of

subscribers. Minimum monthly tariff for broadband connection has come down to Rs

199 with 400 MB free download. The charge per MB of download has come down to Rs

1/MB as compared to Rs 4/MB a year ago. In comparison to some developed

countries the minimum tariff for a broadband connection has become lowest in

India. The tariff has dived down by almost 80% over last one year.

E-commerce and high demand for .in domain registrations are also factors for

the increase in online users. The '.in' domain registrations surpassed

150,000. Another key factor is the availability of low-cost computers.

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Missing the Bull's Eye



Despite the enthusiasm, the pace of broadband adoption hasn't yet matched

the expectations. Out of the set target of 30 lakh subscribers, 15 lakh

subscribers were to be added by the PSU operators (BSNL and MTNL). The numbers

revealed by TRAI show that the subscriber base for broadband users was around 14

lakh at the end of April 2006, out of which 9 lakh connections belongs to PSU

operators and remaining 5 lakh is attributed to the private service providers.

By early 2006, there were close to 10 lakh broadband subscribers-a penetration

of less 0.1%.

The

Top Players (Based on revenue)



Rank



Operator



Revenue (in Rs Crore)



Growth (in %age)



Market Share (in

%age)



FY 04-05



FY 05-06



1



BSNL



423



439



3.8



27.1



2



MTNL



209



235



12.4



14.5



3



Sify



216



161



-25.4



10.0



4



VSNL



481



313



-34.9



19.3



5



Others



263



471



79.1



29.1



 



Total



1,592



1,619



1.7



100.0



V&D Estimates                                                         Â

CyberMedia Research



One of the factors for the slow adoption of broadband is attributed to

additional start-up cost—installation charges including capex for the

connectivity at the CPE level and some minimum monthly payment. Another main

reason for slow conversion is that the bandwidth, both domestic leased lines and

the international, continues to be high and that keeps the broadband prices

still higher than the affordable level for most subscribers.

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Dial-up Still Way Ahead



Even though dial-up subscribers have reduced by little over 20% since last

fiscal, over all dial-up is still in demand. Total dial-up subscribers are

estimated to be around 45 lakh of the total 71-lakh Internet subscriber base.

Broadband (> 256 kbps) as on 31st March 2006, added up to 13.1 lakh

subscribers, gaining significantly over last fiscal. Broadband subscriber

constitutes 18.4% of the total subscriber base compared to just 3.3% in last

fiscal. Another gain is related to subscribers on broadband technology platform

(speed < 256 kbps and last mile is on cable Ethernet, cable or DSL) that is

around 18% of the total subscriber base.  Leased line subscribers are the least at 15,000.

Top

ISPs (Based on subscriber)



Rank



Operator



No of Internet

Subscribers



(in Lakhs)



Growth (in %age)



Market Share (in

%age)



FY 04-05



FY 05-06



1



BSNL



18.39



25.23



37.2



35.6



2



MTNL



10.12



14.00



38.3



19.7



3



Sify



8.12



8.93



10.0



12.6



4



VSNL



6.95



5.50



-20.9



7.8



5



Reliance



2.47



4.15



68.0



5.8



6



Bharti Airtel



1.20



3.15



162.5



4.4



7



Data Infosys



2.22



2.46



10.8



3.5



8



Iqara Telecom



0.85



1.00



17.6



1.4



9



Hathway



0.41



0.55



34.1



0.8



10



IceNet



0.28



0.45



60.7



0.6



 



Others



4.03



5.53



37.2



7.8



 



Total



55.04



70.95



28.9



100.0



V&D

Estimates                                           Â

CyberMedia Research

Most of the broadband subscribers are those graduating from a dial-up and the

metros account for the bulk of broadband subscribers, though the service is

available in close to 200 districts in the country. On the other hand, the

dial-up is growing more in tier 2 & 3 cities, especially on account of

first-time users. Market for cable-through Internet has not picked up as

expected. Investment required at the cable operator end to upgrade

infrastructure, is very high. Also, the experience of cable-broadband users has

been poor, as they are discouraged by frequent problems with bandwidth and slow

connections.

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Being in Business



While business opportunities are booming for the ISPs, the number of ISPs

currently operational has come down from 172 in March 2005 to around 155 in

March 2006. 750 licenses were granted, out of which more than 300 have been

surrendered. After a period of market rationalization, despite the large number

of providers, 10% of the ISPs have 90% of the subscribers as the state-owned

BSNL and MTNL continue to dominate.

The broadband bandwagon is continually adding new emerging players. Several

communication solutions organizations such as Net4India, HCL Infinet, and Hughes

Communications have joined the camp. Most ISPs are targeting the SOHO and SMB

segments that are increasingly using broadband services for business-supporting

applications such as messaging, remote access services (SSL VPN) for enterprise

mission-critical applications, and e-ticketing.

ISPAI estimates that there are more than one lakh cyber cafés across the

country, and an estimated 60% of Internet users regularly access the Internet

via cyber cafés across the country. Number of cyber cafés has also been on the

rise especially, in the tier 2 and 3 cities. When it comes to high-speed access,

the broadband scenario is limited to metropolitan areas. Regarding

Internet-content, the void still exists with a huge demand of localized content

not being met.

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The

Top Broadband Players (FY 05-06)



Rank



Operator



No of Subscribers



1



BSNL



586,000



2



MTNL



211,935



3



Bharti Airtel



*157,500



4



Iqara Telecom



100,000



5



VSNL



95,000



6



Reliance



*65,000



7



Sify



41,000



8



IceNet



10,200



9



Hathway



23,000



10



Data Infosys



*903



 



Others



19,562



 



Total Subscribers



1,310,000



However, high cost of bandwidth and vertical price squeeze by the incumbent

are pinning down the growth prospects of the ISPs. Taking out VPN service from

the ISP license and imposition of 6% revenue share on Internet telephony offered

by the ISPs w.e.f. January 1, 2006 has put immense burden on the ISPs. However,

the charges from Internet access, Internet content, and Internet access related

installation charges have been excluded from the gross revenue to arrive at the

AGR. The reduction in international private leased circuits (IPLC) and domestic

leased circuits (DLC) represents the upside, however, there is further scope for

downward reduction in the ceiling tariff for domestic and international leased

lines.

Wireless Internet



There are close to 9 crore cell users in India, and only a fraction of PC

users. India is the fastest growing market in the cell phone segment in the

world with about about 4.5 mn cell phone subscribers being added every month.

Undoubtedly, the next big thing round the corner is the multiplied growth of

Internet users on mobile handsets. The Internet service providers are

transforming into a new 'Avataar'—Wireless Internet service providers or

WISP. Industry analysts expect that there will be 12 crore mobile subscribers by

2008.

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The cost of wireless cards for accessing Internet on PCs or laptops have also

nose-dived in the last couple of months. Airtel offers wireless data cards for

accessing Internet for as low as Rs 399 with free bundled usage of 100 MB and

its highest tariff plan is of Rs 799 with a free bundled usage of 1.5 GB.

Reliance's R-Connect cards are priced at a minimum tariff of Rs 650 with

bundled data exchange of 1GB, while a premium deal is priced at Rs 1500 for

unlimited data download. Hutch's Edge cards cost Rs 8,000 and the monthly

tariff is lowest at Rs 499 with free bundled usage of 100MB and maximum at Rs

699 with free bundled usage of 1GB.

The cost for downloading on GPRS and MMS facility has also been drastically

reduced. From Rs 5 for MMS download for pre-paid subscribers, BSNL has slashed

the cost to mere Rs 3 per MMS. Similarly, it has slashed its tariff for

unlimited download for post-paid customers to Rs 199 per month from Rs 349 per

month. This is likely to trigger off a price war as this is among the lowest

tariff rate for mobile Internet service.

Proposals

on the Table



In order to boost the

growth of broadband, TRAI has made several key recommendations to the

Ministry of Communications. These include:



  • De-licensing

    the radio frequencies:
    De-licensing of 5.150-5.350 GHz and

    5.725-5.825 GHz bands for the outdoor usage

  • Tax

    incentives suggested:
    Exempt ISPs from paying service tax, waiving

    of entertainment tax levied on broadband subscriptions, and

    entertainment services and allowing corporations (public or private),

    to give Rs 6,000 per annum allowance to employees for broadband

    services access at home

  • Deployment

    of wireless technologies
    for the provision of broadband

  • National

    Internet Exchange of India (NIXI)
    - Interconnection of all the

    four nodes of NIXI with each other; establishing NIXI nodes in all

    state capitals; subsidizing the cost of leased lines for categories B

    and C ISP node to a NIXI node

  • Recommendations

    for VPN service:
    Layer-2 VPN to be treated similar to VSAT service

    and one time entry fee is Rs 30 lakh. Layer-3 VPN should be regulated

    in the same way as existing Internet access and no one-time entry-fee

Leaping Ahead with IPv6



In a significant move, TRAI has brought forth recommendations on the

transition from IPv4 to IPv6 this January. This is important if India has to

achieve the Broadband Policy target of broadband and Internet subscribers of 2

crore and 4 crore respectively by 2010. The present generation Internet (IPv4)

is clearly not enough to achieve these objectives.

According to a consultation paper prepared by TRAI, India has merely 28 lakh

(2.8 mn) IPv4 addresses compared to 4 crore in China. USA ISP Level-3 alone has

more IP addresses than China. India has 0.17 of an address block, while the US

has full 75 blocks. The paper recommends  India

to achieve 20% penetration of the Internet, and if three persons share each IP

address, it will need 101/8 blocks. This is more than the remaining global IP

address space of 82/8 blocks.

VPN Issue



There was some relief for the private ISPs on the Virtual Private Network (VPN)

issue. TRAI recommends that ISPs should be asked to pay an entry fee of Rs 30

lakh and zero licence fees for offering VPN services. This came as a breather to

the ISPs, as they were earlier asked by the Department of Telecom (DoT) to cough

up between Rs 1 crore and Rs 10 crore as entry fee and 8% of the revenues as

licence fee for offering VPN services.

DoT's proposal was a crucial bone of contention as it led most of the

operators, barring a few ISPs, to exit the VPN business. Most of the 700 ISP

licence holders are loss-making entities and do not have the resources to pay

the Rs 10 crore entry fee. Now TRAI's recommendations could bring the ISPs

back in business. However, the service providers are being cautious as the final

decision on the matter is yet to be taken by DoT.

Internet Telephony Grows



Another significant decision was opening up of Internet telephony. The

government allowed access service providers to provide Internet telephony,

Internet services, and broadband services.

Usage of Internet telephony grew from a level of 14.3 crore (143 mn) minutes

during 2004-05 to more than 20 crore (200 mn) minutes during 2005-06. However,

the ISPs are hit by the government's decision to impose 12.24% service tax and

6% revenue share in the form of license fees for the Internet telephony service

provided by the ISPs. Having accepted this the ISPs want the government to

restrict access to the Internet telephony service provided by Foreign Service

providers (e.g. Skype, Net2Phone, etc.) to the subscribers of Indian ISPs, in

line with the stipulations— but not limited to the ones defined under the

Section 21 of the Indian Telegraph Act, 1885.

Outlook



The broadband target before the ISPs is to have monthly additions of over 4

lakh subscribers so as to close in on the set target of 90 lakh by December

2007. Availability of last mile is what is going to finally decide the future of

the broadband market. Other issues such as affordability for end-users or

availability of killer applications will become important only after the

availability of the basic service is there. The key drivers of broadband will be

in the areas of telephony, education, entertainment, and healthcare. Widespread

'always-on' connectivity will surely drive the usage of VoIP and vice versa.

ISPs are bullish on tapping the rural market for telephony as well as other

value-added services including telemedicine and education. And not before long,

a new breed of Internet users will emerge surfing the net on their mobile

handsets or laptops.

By Our Reporter



vadmail@cybermedia.co.in

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