BROADBAND: The Brakes Are On

History is a great teacher. But bad disciples we are, indeed. Despite getting
the same lessons (read case studies) time and again, it’s amazing that we
continue to make the same mistakes that our predecessors did. Human nature? When
the country saw the first wave of liberalization, a host of MNCs were keen to
tap the great Indian middle-class market. Banking on the much-hyped potential of
this ‘strong’ market, roughly the size of the entire Australian market, MNCs
entered the market with high expectations. However, even two years down the
line, not much had flowed into their coffers. Scores of MNCs were seen busy
making revised sales forecasts, burdened by piled-up inventories and bleeding
bottom lines.

Last year, history repeated the lesson. The victims this time were several of
the broadband players who ‘saw’ an opportunity in setting up fat pipes in an
infrastructure-starved India. The same ingredients–huge untapped market
opportunity, mammoth investment plans (usually in the range of hundreds of
crores), a large number of players, and a dream to revolutionize the way India
lives and works. Practically all telecom players announced ambitious plans to
crisscross the country with optical fiber. To top it, even non-telecom players
like Enron and Zee started talking about huge investments in the broadband
sector.

Little wonder, all that sounded good music to the country’s
bandwidth-starved populace. But a year-and-a-half down the line, fast Internet
access remains a distant dream.

Before we talk about what went wrong with the great dream, let’s take a
recap of the broadband players in the industry.

Who’s who?

The first lap in the broadband race was won by Delhi-based Spectranet, or
that’s what people thought. It was the first to roll out its ‘broad’ pipes
in Delhi. The company used its Rs 20-crore ad budget to bombard Delhites with
its ‘Think Broad’ campaign. A year later, it is on the block trying to sell
off its optical fiber cable (OFC) network. Also there is no more mention of the
estimated Rs 1,200-crore investment across various cities. Power major Enron
fared no differently.

The much-hyped JV with partners Maharashtra State Electricity Board (MSEB)
and Global TeleSystems to build a 5,000-km OFC network is being junked. Enron
has shifted focus to data centers and has washed its hands off the fiber optics
business. Even the grand plans of Zee TV and its cable distribution arm,
Siticable, are in shambles. Once valued at around $900 million-$1.4 billion,
Siticable was hoping to ride on its five-million strong customer base across 43
cities. But the much touted bang ended with a whimper. With a current subscriber
base of only 3,000 for its Internet-over-cable initiative in Bangalore, the
company has scaled down its ambitious broadband plans for which it had envisaged
investments of about $200 million after identifying cables as the primary
carrier for its next-generation broadband content.

A similar enthusiasm was shown by BPL. The company had planned a 3,000-km
southwest broadband network connecting Pune, Bangalore and Chennai. Initially,
the company had decided to loan its additional capacity to Internet databank
service providers after servicing its own telecom needs. Only a year ago, this
seemed a very good business model as the company was confident of creating
back-end capacity and using it for captive purpose for its telecom service
companies and as a further base for national long distance plans. Today, the
plans and the optimism remain but the backbone is missing. Rather than building
its own backbone, the company now intends to hire or lease fiber capacity from
other backbone providers wherever possible. The company will use Konkan Railways
Corporation’s (KRCL) existing set-up. According to BK Syngal, chairman,
Internet, broadband technology solutions business, BPL, the company will build
the backbone only in regions wherever necessary and acquire or lease out
elsewhere.

Of course, the erstwhile big daddy of all, Sam Pitroda’s World Tel–which
in association with Reliance and the state government had intentions of wiring
up seven states–has seen a similar fate. World Tel made its exit even before
it could start laying the pipelines.

Fiber to the small town

Have we painted a very gloomy picture? Well, the scenario is not so dismal.
There are players still interested in setting up a broadband network across the
country. While a few like Tata, HFCL and Hughes have done it regionally, others
like Reliance and Bharti are planning nationwide networks. Reliance is the new
big brother. Its chairman, Dhirubhai Ambani, at the company’s AGM, announced
plans to "attain market leadership in integrated broadband services,"
by completing an investment of Rs 14,000 crore in 24 months in Reliance’s
"infocom" initiative. The game plan includes connecting the top 115
cities in the country with a 60,000-km broadband network. Bharti is another
player nursing similar plans for national long distance connectivity. Another
contender, Tata Group, intends to leverage the presence of its group companies
like Tata Power and Tata Teleservices to roll out its services. Vinod Giri,
chief marketing officer, Tata Internet Services, says, "We will synergize
with other group companies like Tata Power and Tata Teleservices who will be
operating in the infrastructure arena to use their nationwide fiber and other
infrastructure."

Then, of course, there are the public sector giants with one of the greatest
advantages–right of way. The Railways, GAIL and Powergrid Corp have also
declared their intentions to have a slice of the cake. Indian Railways has
already announced its broadband project under Railtel Corp. While Railtel
remained on paper ever since its announcement in the 2000-01 Rail Budget, the
railway ministry, realizing the broadband potential woke up to the reality and
designated top officials to lead the charge. For the Railways, it’s a double
whammy as the project will not only bring in additional revenues but also give a
chance to modernize the signaling infrastructure, which can ride on the
broadband network. The targe–60,000 km of OFC.

What about Powergrid? Banking on its huge transmission network and the huge
potential of long distance, Powergrid is planning an investment of over Rs 1,000
crore to lay about 15,000 km of OFC linking the country’s 35 largest cities.

According to RP Singh, chairman and MD, Powergrid, the company was waiting
for the announcement of the long-distance policy. Also in the fray is GAIL with
its huge pipeline network. The company already has the distinction of becoming
the first company to receive the category-2 infrastructure provider license for
telecom in the country. With the license, GAIL becomes the first licensed
bandwidth provider in the country for both voice and data services. GAIL’s
strategy–a north-west-south broadband network of over 9,500 km in phases, with
an initial investment of over Rs 1,000 crore. The network will provide
high-bandwidth capacity across 11 states of the country connecting more than 90
cities including three metros and four mini metros. Then, of course, there is
Bharat Sanchar Nigam, the government monolith that can still upset the apple
cart of the private players. Much to BSNL’s joy can also be the fact that
state governments are extracting their pound of flesh from private players while
letting the state-owned giant go scot-free.

Paper projections

To begin with, the expectations were too high. Look at Zee’s Siticable.
With a reach of five million subscriber households nationally, Zee expected
about 20-30% of its subscribers to use the broadband facility. This meant a
million subscribers from whom the company could have netted Rs 1,800 crore
simply from subscriptions of about Rs 1,500 per month. Add e-commerce and other
activities, and stockholders would have had a multi-bagger in Zee. Or so it
seemed on paper. Today, the company has about 3,000 subscribers and all the
projects are on a slowdown. Comments Praveen Shrikhande, CTO, Hathway,
"Lots of these players planned their ventures based on demand forecasts
made by people during the general air of optimism prevalent a year ago the world
over."

What happened? Aren’t Indians fed up with dial-ups and waiting impatiently
to log on to broadband? The answer is yes and no. The country is waiting but the
companies are probably demanding too much. Considering the deterring price tag
of about Rs 1,500 per month plus cable modem charges, the required number of
people don't seem keen for the broadband?

Then there’s the valuation hype. Earlier, VCs and international players
were keen to support Indian players with money and technology if needed. A year
later, everything has gone topsy-turvy. With the slowdown, money is suddenly the
prima-facie reason forcing many players to slow down their once ambitious
projects.

Yet companies are still expecting huge investments–Reliance is expecting
about Rs 15,000 crore, Railways and Gail over Rs 1,000 crore. Can players get
that kind of funding and valuations any more? Highly unlikely!

The haunt of non-viability of business for so many players is also there.
Says Ashok Juneja, Bharti Broadband Networks, "At the national level I see
only three to four players in the long run."

Likely over-capacity

A lot has been written about the market potential of the broadband segment.
While the potential cannot be disputed, another issue being raised is the demand
for such broadband services. Is there bound to be over capacity? Part of the
good news is the backing out of many players. According to Amitabh Kumar,
director, operations, VSNL, "Nevertheless, as always happens in such cases,
there is bound to be an over capacity when a large number of players rush into
the market and build an identical capacity on the same routes. This has been the
case in the US where over half the fiber which has been laid, remains unused or
dark."

Irrespective of the over-capacity, players just can’t ignore the huge
potential. Today, all major players are after the basic and national
long-distance market. According to reports, the telecom market is valued at over
$9 billion and with deregulation this is expected to grow to about $15-20
billion. Today most of the players are targeting this voice market. Next is the
emerging data market. Though small compared to the voice market, rough estimates
place the growth at around 30-40% on an year-on-year basis to about Rs
25,000-30,000 crore in the coming few years. However, that still will not fill
the pipes that companies are laying. While none of the players have been talking
openly about carrying TV channels on the pipe, the fact is that players will
have to resort to images to fill in their pipes.

The force of numbers

Despite the ups and downs, the Indian broadband dream is still on. Whenever a
new opportunity sets in, new players join the bandwagon. As reality sets in,
some of them opt out while others hang on to be players in the long run.

Players are also busy devising sustainable revenue models to get the best out
of their networks. Reliance, for instance, also intends to be a infrastructure
provider, set up huge data centers and maybe later bring in the concept of pay
channels to the country. Same is the case with Bharti, the other bidder for the
long distance license. Players like Hughes are planning for other services like
multimedia, VoIP and real-time data communications. Says Juneja, "A pure
infrastructure-based model cannot work. It accounts for 5% (in terms of value)
of the global telecom pie." Companies are learning from others’ mistakes,
hoping they won’t also end up as as prime case studies of ‘what went wrong’.

• Players
  Still Going Strong
• On the
  Uncertain Lane

Yograj Varma in New Delhi