Enterprise Connectivity Services: Leased Lines Still Rule

Networks are the nerve center of any enterprise, and
connectivity services bring these networks to life. Thanks to the telecom
revolution that has ushered in a plethora of connectivity options to enterprisesright
from the mundane dial-up connections to advanced leased lines. Earlier, service
providers used to offer services as per the license agreements. Basic service
providers offered only basic telephony and ISDN services whereas NLD operators
offered leased line services. But, over the last two years, large operators have
started addressing a range of services like basic, cellular, ILD, NLD, ISP, VSAT,
and international connectivity services such as ATM, frame relay, IP-VPN, IPLC
and MPLS-based IP-VPN.

In line with the buoyant demand, the ILD market, a key component
of enterprise connectivity services, grew from previous fiscals Rs 7,251
crore to Rs 11,506 crore. In contrast, NLD registered a sharp decline of 20% and
garnered revenues of about Rs 7,186 crore as against Rs 9,015 the previous
fiscal. The decline of NLD is attributed to aggressive competition and STD
tariffs going down.

If we look at the Internet and the broadband arena, FY 07 was
the year of broadband. The total Internet subscriber base stood at 9 mn and
registered a 29% growth in subscriber terms. The overall Internet services
revenue during FY 07 is estimated at Rs 2,040 crore, a growth of 26%.
Broadband adoption was more on the business side of things with the home-user
base steadily increasing. On the business side, with players like BSNL and
Airtel offering business plans enabled enterprises to opt for broadband for
branch offices, which turned out to be affordable as traditional ISDN
connectivity.

A Good Year

The need for different types of connectivity services is increasing every
day, and unique about the Indian market is the co-existence of all technologies.
Take for example dial-up Internet services, which in advanced geographies have
been marginalized. But, in India, dial-up still has a market, and broadband is
growing impressively. Enterprises moved from point-to-point connectivity to
point-to-multipoint and connecting with multiple geographical locations. The
type of connectivity they adopted depended on core performance, and
organizational requirements like reliability, reach, security, capacity and
cost.

Over the year, services like IP-VPN found good adoption with
enterprises looking at reducing costs through virtual networks. With the shift
to IP, the requirement for a single network gained prominence. Connectivity
options also expanded making security a major issue as organizations struggled
to grapple with the ever-growing connected end-point devices.

Source: DQ estimates CyberMedia Research

ILD revenues jumped 59% despite declining tariffs, while NLD declined 20%. Just two ILD players add up to 85% of the market, and the top three account for 95%!

Major vendors saw good demand for their connectivity offerings
in FY 07. For Airtel, it was the first year when enterprise services operated
as a distinct business unit of the company. It focused mainly on offering a
higher standard of service to large corporate customers. Key developments for
Airtel include its partnership with the Delhi Traffic Police for setting up a
pilot Delhi Police city video surveillance system on metro etherneta first of
its kind project in the country; an MoU with the Adani Group on Mundra SEZ to
roll out end-to-end telecom solutions, and also become their exclusive telecom
partner for the next seven years; and, NNI (Network to Network interface)
agreements with leading international carriers.

BSNL, Reliance, Sify, VSNL and host of other MNC players like
AT&T, and Cable & Wireless also had a good year. Sify focused on
expanding its network connectivity to remote locations and also launched its
third data center keeping with the increasing need for enterprise storage, along
with network/connectivity requirements. Sifys integrated solutions on
business continuity/disaster recovery offerings for large and medium enterprises
saw good demand.

Major Trends

The different types of connectivity services are linked to the service
providers ability to offer bandwidth on various configurations as per the
demands of the enterprise. By using leased lines, enterprises accrued guaranteed
bandwidth needed for voice, data, and video. Enterprises favored leased lines
for real-time as they remained one of the best options for data transfer between
customer locations without any packet loss.

In sync with the market demand, many of the leased line
providers offered a range of bandwidth options. They also offered on-demand
bandwidth services to enable enterprises manage seasonal peak bandwidth demands.

A key trend in the connectivity space over the last year was the
escalation of Multi Protocol Label Switching (MPLS) based VPN. MPLS VPN became a
preferred choice over frame relay. Moreover, MPLS technology brought in the
sophistication of a connection-oriented protocol to the connectionless IP world,
enabling IP networks to support business grade applications. Another trend over
the last year was that most enterprises focused on creating highly agile and
redundant networks, given that MPLS emerged as a major connectivity option.

IPLC continued to remain popular as a good option for
bandwidth-intensive applications. IPLC also enables seamless convergence of
data, voice, and imaging services. Hence, enterprises looking at point-to-point
private line opted for IPLC, as it supported an array of services like Internet
access, and LAN-to-LAN connectivity.

At present, only International Long Distance Operators (ILDOs)
are able to sell IPLC services in the country. But more liberalization seems to
be on the anvil as the Government has accepted TRAIs recommendations of resale
in the IPLC segment of the ILD marketto be introduced after five years of
opening up of the ILD sector with effect from Feb 07. In another significant
move last year, VSNL slashed prices for its international bandwidth products
like IPLC and ILL. This move saw IPLC and ILL process going down in the country
by 25% and 40%, respectively.

If we look at other connectivity options like VSAT and ATM, the
market was driven by unique requirements. VSAT, for instance, is becoming very
niche and its adoption scenarios are becoming limited. Here, cheaper leased
lines are displacing VSATs.

VSATs were also used as back-ups to MPLS, ISDN or for that
matter any wireless technology. The leading player in the space, Hughes
Communications, has a market share of 22%, followed by vendors like HCL Comnet
(19%), Tata Indicom (14.8%) and Essel Shyam (13.5%).

Up Ahead

The market for a range of connectivity services in an Indian context is
expanding year on year. Even on the consumer side of things, services like NLD
will see huge growth. On the enterprise side, leased line and its various
flavors will continue to drive the ILD market. Also, the past year saw MNC
players like BT upping their presence. Verizon has also tied up with Videocon
for ILD. Sifycomm, a subsidiary of Sify, has also got ILD licenses. With
competition getting intense, the connectivity options before the enterprises are
clearly expanding. FY 08 will see many of the connectivity services becoming
affordable compared to previous years.

Shrikanth G

shrikanthg@cybermedia.co.in