BANDWIDTH: Tariffs: Coastal Cuts

VSNL, India’s largest Internet service provider, had announced in November,

2000 that it would reduce its tariffs by 75% for Internet leased lines and

international private leased circuit (IPLC) on the Mumbai and Cochin circuit.

Effective from January 1, 2001, the new rates will effectively reduce the

bandwidth costs for Internet service providers, infotech companies and other

high-end users. However, the rider is that these price cuts are available only

for Mumbai and Cochin and not across the country.

VSNL had earlier announced a 50% countrywide price reduction in January 2000

whereby the prices of IPLCs were reduced by 50% for ISPs and 25% for general

category customers.

Globally, bandwidth prices have been falling sharply, and VSNL can afford to

pass the benefits to its customers. And that’s just what VSNL has done with

its latest price cuts. A 2 Mbps Internet leased line which used to cost Rs 41.8

lakh will now be available for Rs 12.5 lakh and a 2 Mbps IPLC link costing Rs

163.68 lakh on optical fiber cable to the US will now cost customers about Rs 40

lakh.

So, will this change the dynamics of the ISP business? Not really, as the cut

comes for only two cities–Mumbai and Cochin. So, while customers in these

cities will benefit, elsewhere things will remain unchanged.

Advantage Mumbai

Take the case of an organization that wants to have a leased line from

Bangalore to Mumbai. The benefits of the recent price slash are applicable only

to Mumbai. For an inter-city link like the one mentioned above, VSNL would be

adding the cost involved between the two cities. Approximately 30% of the

corporate users are operating from Mumbai. Says V Rajaraman, country manager,

PCS Industries, "Mumbai has the maximum number of corporate users. This

move by VSNL is aimed largely at corporates in Mumbai." However, while it

will be beneficial for the corporate and retail users, the slashing of rates

could see postponement of the gateway deployment in Mumbai by ISPs. Net4India

has already postponed its gateway plans for Mumbai but is going ahead with its

Delhi and Chennai plans. However, a few players, irrespective of the cost, may

still go ahead with their plans. Comments Rahul Swaroop, "The demand for

bandwidth is immense at this point of time and everything essential needs to be

done to provide for the same".

Maintaining monopoly?

The move may also be partly directed at maintaining the monopoly of VSNL,

with an anticipated fall in the bandwidth prices and with the private companies

setting up undersea fiber optic cables. With key landing stations for these

cables around Mumbai, Chennai and Cochin, it remains to be seen whether ISPs

like Bharti and Dishnet, who have announced plans to set up undersea cables

between India and Singapore, can compete with VSNL. It will be interesting to

see how the private ISPs with undersea cable plans and heavy investments can

match VSNL’s low pricing. With satellite bandwidth scarce and expensive, ISPs

tend to take advantage of the falling submarine cable prices and link to the

international bandwidth via fiber. Swaroop says, "It will be sensible to

have different bandwidth providers for ISPs rather than depending on a single

source."

VSNL has often been criticized for not moving with the market and losing

market share to private players. With procurement prices of Sea-Me-We3 optical

fiber cable falling significantly, slashing the rates in Mumbai and Cochin may

not be an adequate measure to hold the market share in the long run. So VSNL is

taking certain other measures to prevent its customers from moving to the new,

aggressive private players. One, it has been streamlining its tariff structure.

It has made it uniform for all customers unlike the earlier policy of having

different rates for the European and American sub-continents. Also, the new

tariff structure includes a commitment discount whereby customers get

progressive discounts based on commitment. The minimum period of commitment for

the leased lines is one year and customers will be required to make an advanced

payment for two quarters and a 20% rolling advance for leased line

commissioning. Other plans include all international and Internet leased lines

being provided within 60—90 days of the application, depending on the leased

line speed.

It remains to be seen how effectively will these steps contain the fall in

VSNL’s market share.

A DQ report with inputs

from Venkatesh Ganesh in Mumbai