Segment Analysis: Internet Services

Internet was the major driver of the communications and IT

industry in the country last year. It gave the initial momentum and things have

really started to move in the ICE (IT, Communications, and Entertainment)

industry. The numbers may not reflect the actual potential, but things moved

better than expectations of any industry insider.

Last year was one of setting up networks by most ISPs.

Approximately 62 new ISPs started their operations. A sizable number of that was

"A" category ISPs like BSES, Hathway, Siti Cable, Wipro, Caltiger,

Pacific Internet, and BPL Net. Even the earlier ISPs as well as the new ones

expanded their networks and moved to smaller cities and towns. It allowed Indian

subscribers to access Internet even from the remotest parts of the country. The

enthusiasm could be gauged from the fact that even cellular and VSAT companies

applied for and got the licence to operate ISP services in the country.

The DoT has issued 315 licences as on 20 May 2000. Out of

them, 54 are "A" category, 124 are "B" category, and 137 are

"C" category licences. Around 72 licencees have already started

offering services in different regions and different cities. Licences have been

taken by who’s who in the corporate world like Aptech, Lucent, HCL Group, S

Kumars, Bharti Group, Usha Group, Jain TV Group, Comsat Max, Larsen & Toubro,

HFCL Group, Hathway Group, Asianet Group, Punj Lloyd Group, Pacific Internet,

BPL Group, Arm Group, Punjab Wireless, Sprint RPG, BSES, Dishnet DSL, Crompton

Greaves, CMC, Indusind Cable, Wipro, Zee Telefilms, and Global Group.

Growth Catalysts

The subscribers benefited from the price war as this resulted

in the reduction of ISP access charges from Rs 20 per hour to Rs 5 per hour. In

some cases it was negligible as ISPs like Caltiger provided free Internet

access. This helped Caltiger to achieve a subscriber base of 2,00,000 by June

2000. The new ISPs are planning to move the Caltiger way for their business

model. The Caltiger model will be for providing plain vanilla service and

attracting the customer. Once the customer gets hooked onto the network, he will

be charged for the value-added services that he subscribes to.

The Internet subscriber base in the country has increased to

9,60,000 as on 31 March 2000, showing an impressive growth of 297 percent over

last fiscal. With PC shipments crossing the one-million mark in 1999-00 and with

Internet access becoming an important purchase decision for the home segment it

is forecasted that Internet will cross the 2 million-mark in 2000-01. The

factors that will drive the market will be free Internet connections provided by

the ISPs, decrease in the price of PC, modems, and decrease in the price of

telephone charges for accessing Internet. With lot of bundling happening,

Internet will look more like a necessity as the price of accessing Internet

becomes negligible.

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One can already see frequent advertisement campaigns for

"unlimited access", not only by MTNL and VSNL, but also by private

operators like Satyam Online. It does appear that the Caltiger model is already

spreading and access will shortly and certainly become free and

"hours" will no longer be a restricting consideration for the Internet

service users.

The country uses an international bandwidth of 325 Mbps. For

the ISPs and Internet to flourish in India, it has to increase the capacity by

leaps and bounds. To make that happen, the Government has taken the initiative

of allowing ISPs to connect to any satellite and opt for any band or go for the

optical fibre route. But the ISPs cannot take the optical fibre route as FLAG,

the only private undersea optical fibre link with landing point in India, is

bound by the earlier exclusive agreement with VSNL.

Another encouraging development has been the Government

giving clearance for 101 international gateways to be installed by 26 companies.

A majority of the gateways are Extended C-band but a small number will be

Ku-band in nature.

Although it has been five months since the permission was

granted, till date no ISP has been able to start the gateway operations as they

have to take "no objection" from 13 different agencies, making the

process more complicated. With the need of bandwidth becoming more acute, the

Government should try and make the process easier and faster.

The Budget 2000 was a welcome sign for the ISPs as

infrastructure products used by them were made free from import duty. This

helped in lowering the infrastructure cost for ISPs.

With companies focussing on improving the telecom backbone by

laying fibre optics in different parts of the country, the day is not far away

when speeds of Internet access would be enhanced multiple times and ISPs will

provide the best value-added services like Virtual Private Network (VPNs) and IP

telephony which is the need of the hour. With broadband network in place, the

ISPs will tie up with the broadband people and help people get access through

broadband medium with the use of cable modem for the PC mode and set-top boxes

for the TV mode. Presently, this mode is only a fraction compared to the access

through telephone mode.

The future trends in the Internet services will be of

partnerships, collaborations, and acquisitions. And the one who survives in the

long run will be the real winner.

Determinants of Tomorrow

Though Internet has driven the communications industry to a

great extent, it itself needs extra fuel. The lack of sufficient bandwidth is

the major bottleneck. It has often been said that a single company in Singapore

has access to more bandwidth than entire India. NASSCOM has already launched a

campaign to make the Government aware of this shortfall. The international

gateways will definitely be succour but they need to be set up fast.

The Government faltered on the Domestic Long Distance (DLD)

front last fiscal. Opening this sector to private operators will provide more

access nodes to Internet subscribers across the country. It is almost certain

that DLD will happen in the current fiscal and it will have a positive impact on

Internet services.

Utilities like the Railways, Power Grid, etc., who have a Right of Way (RoW)

and have an impressive infrastructure already in place are looking to have a

share of the Internet pie. Their entry into the arena will add a new dimension

to market dynamics.