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.

1995Jan
2000
Nov
2000
128 kbps
leased line Rs 10-30 lakh
Prices cut by
up to 50%
VSNL cut rates
for leased line and IPLC for mumbai and Cochin by 75% effective Jan,
2001

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?

Selective Slash

  • VSNL drops rates at its fiber ‘heads’–Mumbai and Cochin
    n 2 Mbps line down from Rs 42 lakh to 12.5 lakh, 2 Mbps IPLC (US) from Rs 164 lakh to Rs 40 lakh

  • Zero or marginal change for other locations due to “high satellite costs”. These users can opt to buy capacity at Mumbai/Cochin and use DOT leased lines (e.g. to Delhi, Chennai, et al.) 

  • Capacity to be provided in 60—90 days.

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

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