INTERNET - Action time ahead

While 1998-99 was a landmark year for the internet segment,

the real action began only in 1999-2000. The fiscal saw radical government

measures that allowed an unlimited number of players to operate without paying

license fees for the first five years and paying only a token amount of Rs 1 per

year for the next 10 years. This set the stage for a completely deregulated

operating environment. And as expected, the segment saw a deluge of interests

from big and small players alike. By the end of the fiscal, about 90 players had

already commenced operations.

Numbers



The number of internet subscribers has zoomed by over 240%. However, the real
growth has been among private players, not VSNL. Private players like Satyam,

Bharti BT and Dishnet have effectively utilized their channels, making internet

access available off the shelf. VSNL, in contrast, still continues with its

age-old booking counters, and long queues and hassled customers. This, coupled

with the increasing number of home PCs, mostly available with internet

connections in arrangement with private players has increased the marketshare of

these players. Other reasons for the dramatic increase in internet connections

have been reduced access prices and the flexible options offered by ISPs. Satyam,

with a subscriber base of about 25,000 as on March 1999, has grown to become the

second largest player with a subscriber base of 151,000 by the end of the

1998-99 fiscal. VSNL, still the largest player in the country, had a subscriber

base moving north of 100,000 subscribers, but saw its marketshare fall

drastically to 36% from 84% in the previous fiscal.

Highlights



Among all the happenings in the internet space, two companies have been hogging
the limelight–Satyam Infoway and Caltiger. Satyam Infoway became the first

Indian ISP to list on the Nasdaq. Flush with cash from the Nasdaq listing, it

set the momentum for mergers and acquisitions. The first big bite it took was

the acquisition of India-centric portal, IndiaWorld.com, in an all-cash deal

worth Rs 499 crore. Following this were tie-ups and stakes picked up in various

dotcoms. Caltiger.com came up as a proponent of free ISP service in India.

Richer by Rs 120 crore after placing 20% of its equity with Spanish venture

fund, Transatlantic, the company is going the whole hog on delivering free ISP

service across the country. However, there was not much happening for the market

leader VSNL, even though it witnessed an onslaught on its leadership in the

market. Its marketshare too was constantly eroded by the private players.

Another interesting trend, in sync with the global one, was

the reduction in access rates across the board. Access, at least for the big

players, is losing its importance as a major revenue earner. And the year saw a

decline in access rates–from about Rs 5,500 for a 500-hour connection in March

1999 to about Rs 2,500 by March 2000. Another trend was the unlimited hours of

access introduced by Net4india. Big players soon followed suit with similar

packages. Till date not a single private company has been able to set up its

gateway, though the first licenses were given around January 2000. Also, the

policy to use undersea cables like FLAG–fiber optic link across the

globe–and sea-me-we–Southeast Asia, Middle-East, western Europe–was not

made clear. All the private ISPs are therefore still dependent on VSNL for their

bandwidth needs. The Department of Telecom (DoT), however, did implement the

much-touted national internet backbone by the fiscal end, the full impact of

which would be evident in the current year. It has floated the tender for the

second phase of the project, and the implementation is expected by the end of

the current fiscal.

Outlook



ISPs are expecting the final green signal for setting up their gateways, so as
to do away with the dependence on VSNL. Once the bandwidth issue is resolved,

companies will be able to implement more innovative access mechanisms like

digital subscriber link, that will enable internet over cable on a larger scale.

This will also help the government to take IT to the masses. As of now, the

biggest problem for the industry is the non-availability of bandwidth. Nasscom

President Dewang Mehta is aiming at 10GB bandwidth by the end of the current

fiscal and has even launched an initiative called Operation Bandwidth to realize

this aim. Also, recently a core group of ministers headed by the Finance

Minister, Yashwant Sinha, cleared the construction of landing stations by ISPs

and allowed sub-marine cable operators to negotiate directly with ISPs for the

sale of bandwidth. The first step has already been taken by the Chennai-based

Dishnet which is



planning to lay a high bandwidth sub-marine cable of 2.5 terrabits between
Chennai and Singapore at a cost of



Rs 900 crore.

However, issues like setting up local internet exchanges and

server farms will take some time to become a reality. As of date, barring a few

players like Intel and Global Electronic Commerce, there has not been much

enthusiasm about setting up server farms in the country. The same is the case

with internet exchanges. However, these will become necessary, with more and

more players setting up fiber optic cables across the country. Players like

Reliance, Punj Lloyd and Siticable are setting up their fiber networks in the

country. Once this process is complete, there will be adequate local bandwidth

for internet exchanges and server farms to become effectively functional. This

development will affect internet space dramatically, as local messages will no

longer need to be routed around servers in the US or other countries.

Finally, with about 300-odd licenses already issued by the

DoT, mergers and acquisitions are expected to be major events in the segment.

Caltiger has already made the first move, fully acquiring Rajkot-based ISP Sun

Infoway. Big players will make more consolidation moves in an effort to get more

numbers into their kitty. And with heavyweights like Tata, Reliance and Zee yet

to make their full-fledged entries, the market is bound to witness a lot of

action for a long time.