INTERNET: Broadband, set to take the leap

Broadband was the buzzword in 2004-05, but gained ground only
during the last quarter of the fiscal. Though a fast mover, it was still far
from giving competition to the ubiquitous dial-up, which still drove the
Internet subscriber base. The telcos with their end-to-end offerings still had a
hay-day while standalone ISPs cried foul regarding the frosty attitude of the
regulator towards them. While BSNL retained the top slot, MTNL moved in second,
followed by a pure play Internet Service Provider (ISP)-Sify.

A promising launch of broadband services by the incumbents
was welcomed by the consumers. Competion between the telcos drove the market to
reasonable prices for high-speed Internet connections, which would translate to
further demand in FY 2005-06. Also, IP telephony came out as a real performer,
accounting for more revenues for ISP's across the country.

The Top Players

Of the 170 operational ISPs, the top 5 accounted for more than 80% of the
market share. BSNL, with its all India presence, retained the top slot with the
maximum number of subscribers. In January, MTNL and BSNL rolled out their
pocket-friendly broadband Internet access services-TriBand and DataOne-using
ADSL. Consumers welcomed the offer and BSNL added 68,000 subscribers after the
launch of its Broadband service.

Sify, which fought its way to the top slots, invested heavily
in its future growth. The company reported net losses of $7 mn for the year
ended March 31, 2005, after incurring a capital expenditure of Rs 49 crore, in
addition to the license entry fee of Rs 10 crore for IP-VPN. Sify's
collaboration with telecom service provider Global Crossing, in November, 2004
has started yielding results. Its corporate services accounted for 56% of its
revenues while other services accounted for the rest.

Reliance Infocomm's investment in the 80,000 km of terabit
optic fiber cable will be leveraged for the company's prospective Internet
growth. The company plans to reach 4 lakh villages by Dec 2005. With its
offering of basic Internet access, Reliance web world cafes, and the R-Connect
cards available for laptops, Reliance moved in among the Top 5.

The players provide a host of services, such as dial-up
connections, broadband services (cable and DSL), Internet Telephony, leased-line
circuits and Internet Private leased-line circuits (IPLC).

Stronger Backbone

The National Internet Backbone (NIB) project initiated by BSNL, which has a
physical fiber optic Point of Presence in 71 cities along with the National
Internet Exchange of India (NIXI) initiative, has aided the Indian Internet
infrastructure. While total Internet bandwidth requirement is bound to
accelerate, the demand for International Bandwidth will slowly decrease as the
domestic network matures. The .in domain name further fuelled revenues for ISPs.

Stretching its Arms

The Government of India announced its broadband policy in October 2004,
which defined broadband and gave its vision for a BB future. A broadband
connection was defined to have a minimum download speed of 256 Kbps. Later in
January, due to the launch of Triband and DataOne BB services of MTNL and BSNL,
accompanied by competitive price slashing by Airtel and Tata Indicom, the
industry saw a 291% increase in the Broadband subscriber base, from a mere
46,000 users in Dec 2004 to 183,000 in Mar 2005.

BSNL's subscriber base, which is increasing by the day, has
touched a peak of 68,000 subscribers all over India. Bharti offered Wi-Fi, VPN,
video on demand and video surveillance as the broadband war heated up. Operators
were aided in their efforts by falling equipment prices.

Though narrowband continues to exist, it has slowed down
considerably, with broadband gaining more momentum. In many instances, private
telcos were selling extended narrowband connections under the garb of broadband-marketing
even 64 Kbps and 128 Kbps speeds as broadband. Also broadband speeds, coupled
with download limits in various tariff plans, failed to justify a more global
broadband definition. The number of subscribers using 'always on'
connections, less than 256 Kbps, had reached approximately 7 lakh by April 2005.

Controversies and Debate

The VPN service debate which caught fire last fiscal, ended on a low key.
Except for big names like Hughes, Sify and HCL Infinet, for all other players
the entry and license fees was very de-motivating and unacceptable. A long-drawn
battle between integrated telecom players and pure play ISPs continued this
year. The ISPs, who felt the pressure of unfair competition, continued to air
resentment against the regulator demanding a Unified Licensing Regime and
un-restricted Internet telephony.

Spectrum issues too governed TRAI discussions throughout the
year. But there is an air of optimism with regard to the sorting out of this
issue considering well-placed confidence in Government quarters. Wireless based
broadband technologies also failed to meet success in the Indian market because
of regulatory hurdles primarily related to spectrum allocation and lack of
maturity of the wireless broadband technologies.

ISPs further moved towards additional services to survive in
the market which was suffering from a vertical price squeeze. Net4India
introduced its virtual email servers-Bizmail Plus, which fostered a 100%
increase in their email service revenues. The other services that ISP's
offered were voice mail, VPN and Internet Telephony.

IP Telephony Makes it Big

Internet Telephony, which was thrown open for ISPs in April 2002, has
established itself as a steady revenue generator for the ISP's in the past
year. According to TRAI figures, more than 50 ISPs are currently offering
Internet telephony services. BSNL, Bharti broadband, Data Infosys, GTL,
Hathaway, HCL Infinet, Icenet.net, MTNL, VSNL, Vebtel and Sify, among others,
were very strong on this front.

Sify had the maximum reach and visibility because of IWay.
Net4India's IP PCO customers increased by 40% last year and contributed to a
total of 20% of their revenues. Vebtel, which has 546 telecenters across the
country concentrated only on the Internet Telephony business and grew by 238%,
posting profits for the first time after incorporation.

Many companies, bullish on IP Telephony, are increasing their
IP PCOs based on geographically defined plans. Other than the retail market,
players are also tapping international markets profitably. Lucrative IP
telephony also had to deal with a sparsely controlled gray market.

Jasmine Kaur