A year of contrasts–that would be the best way to describe FY 2000. If the
beginning saw a continued surge of enthusiasm, then the year-end spelt gloom.
The initial few months of 2000-2001 witnessed a lot of continued activity and
setting up of networks by most ISPs–a result of the earlier government
initiatives for a deregulated operating environment. By December 2000, DoT had
issued more than 400 licenses.
In the beginning of the year, experts predicted that the bigger national
backbone providers and telcos would relegate mid-sized and smaller ISPs to
insignificance. By the end of the year, that is exactly what happened. Today,
what remains of 400 DoT-approved licensees are under 150 players, the others
having shut shop after fancy beginnings or not having begun at all. And the
marketshare of the ISPs is pyramidal, with the seven top players controlling 75%
of the market.
In early 2000, the government announced further deregulation to open up the
international gateway market–hitherto a monopoly of VSNL. In the past year, 30
private players entered the market to set up 63 private gateways.
Bandwidth-starved India is looking to this development as a possible saviour,
providing speedier and faster pipes at lower costs.
Cut-price competition
An IDC India report shows that Internet access rates came down by about 70%
in leased line and 60% in dial up connections–a spinoff of the 70% fall in
international bandwidth rates and heightening competition after the entry of
private ISPs. This meant access rates crashed to as low as Rs 5 per hour. This
sharp fall saw a huge increase in the number of Internet subscribers, up to 2.2
million, with private players witnessing growth rates of 300%-plus. In this
scenario was born the concept of free ISPs, with Caltiger emerging as the
largest in three of the four top markets–Kolkata, Bangalore and Mumbai–with
Jain Internet grabbing pride of place in Delhi. By the end of calendar 2001, it
is expected that there would be as many subscribers in the home segment as
commercial users.
Though Internet access contributes a major chunk of the ISP revenue, the
increased competition in the basic access market is driving the ISPs to look at
alternate revenue models–value-added services, content and e-commerce. Though
the market for value-adds services is still nascent, VPN and Web-hosting are
picking up. IDC India estimates the business market at $143 million in 2000, 10%
of which was for value-added services. A majority of the share is still
dominated by pure access (70%); the rest being distributed between leased lines,
cable modems and XDSL. IDC expects the total ISP business market to be $1.157
billion by 2004, of which the share of value-adds would be more than 50%,
growing at a CAGR of 159% over the next four years.
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Bandwidth woes continue
Despite all the enthusiasm, infrastructure remained the biggest and most
fundamental issue faced by the Internet industry. The current requirement is 2
GB of domestic bandwidth from ISPs and up to 3.5 GB from software developers and
IT-enabled service sectors. With the commissioning of 155-Mbps (STM-1) from VSNL’s
Mumbai Gigabit Internet Exchange to the US via the Sea-Me-We3 optical fiber
system, the total bandwidth in the country has gone up to about 1.2 GB. Private
operators hope to fill the gap by setting up gateways and networks.
Bharti BT Internet (pioneers in laying Ku-band gateways), Dishnet DSL and
Satyam Infoway are among the more aggressive ISPs who have already set up
private international gateways. Apart from these, giants like Reliance Infocom
started laying down optic fiber cable around the country for broadband services.
Spectranet in Delhi was among the first to roll out fiber optic cables and has
started providing Net access through cables, but the response has not been
strong. GAIL intends to create a 9,500-km broadband OFC network across the
country to provide high bandwidth capacity. These players are working on a
strong business model–Reliance and Bharti, for instance, intend to be
infrastructure providers and set up their own data centers. Others are targeting
services like real-time data communication, VoIP and multimedia.
New milch cow
So far, ISPs have concentrated on basic access, but with fatter pipes,
value-added services will emerge as the new milch cow. With lower operational
costs and upgrades, value-adds could see spiraling demand from corporates, who
demand reliability as much as fast connectivity.