With 2007 being called the year of broadband, it was more than business as usual for the Internet service providers. Having missed the previous target of registering 3 mn broadband subscribers by the end of 2005, ISPs faced the uphill task of achieving an 18 mn Internet subscriber base and 9 mn broadband base by March 2007.

The Internet subscriber base has reached only the half way mark, standing at 9 mn in FY 07- but it is an almost 29% growth over the 7.1 mn in FY 06. The broadband connections (>256 kbps download) too have fallen way behind the target touching about 2.6 mn at the end of March 2007. However, it has grown an overwhelming 70% since March 2006.

The overall Internet services revenue during FY 07 is estimated to be Rs 2,040 crore, having grown by 26% over the Rs 1,620 crore of FY 06. The above listed subscriber figures are the number of connections, and do not reflect the actual number of Internet users. Disparity between the number of connections and number of users is mainly because many use the Internet at cyber cafes.

Are we there Yet?
As per TRAI, the broadband penetration rate in India stands at a dismal 3.5%. The rural market is virtually untapped with broadband mainly reaching large and medium cities. As per VOICE&DATA estimates that in FY 07 the number of broadband subscribers was close to 2.6 mn. Out of this, 2.2 mn are DSL based; 142,000 cable modem; 76,000 Ethernet LAN; almost 21,000 fiber and 12,000 wireless customers. There were over 23 mn Internet users aged over 15 years at the end of March 2007 compared to less than 16 mn a year ago.

Even though bandwidth tariffs have come down significantly, due to a host of factors including high bandwidth prices, lack of adequate content, lack of competition among broadband service providers, and last-mile connectivity issues, broadband usage in India has not yet picked up.

In order to inject broadband services further in both urban and semi-urban areas, telcos are backing WiMax. Dial-up connections are still the most popular way to connect to the Internet, but broadband, is on the rise. The percentage of Internet subscribers using dial-up connection for Internet access decreased from 84% in FY 05 to 66% in FY 06, and it was less than 60% at the end of March 2007.

Industry Shrinking
A matter of concern for the industry is that out of the 700 licenses issued within three years of opening of the ISP sector to private service providers, only 377 licensees exist today. Of this, only 148 Internet service licensees are functional with 49 category A ISPs, 58 category B, and 41 category C. Other ISPs have moved to niche markets.

The policy guidelines laid down by TRAI and DoT with respect to defining the role of the ISPs is narrowing down the potential multiple roles of an ISP. Moves such as removing VPN services out of the ambit of ISP license; restricting Internet telephony services, in which PCs may not call landline or mobile phones; FDI be lowered to 74% from the current 100%; ISPs disallowed to provide IPTV services; and the latest recommendation of having 6% revenue share currently charged to Internet telephony operators be extended to all ISPsthese are being seen as detrimental to the growth of broadband service providers.

As a result, challenged by the presence of larger players, especially those that also function as telecom operators, regional ISPs are either folding up or looking for consolidation.

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