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ISPs: Changing Track Mid-way

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DQI Bureau
New Update

The saga of the ISPs started in November 1999, when over 400 of them were

granted licenses for starting operations. At that time, the business model

hinged on deriving revenues primarily from dial-up connections. Nearly two years

after that, the business model of most ISPs has undergone a drastic shift. The

focus is now on corporates and on offering them a diverse mix of value-added

services.

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The profitability factor

A few months ago, it was quite common to find ISPs slashing

their access rates in order to increase their client base. Recently, this

tradition was broken by the announcements of hikes in the access rates by some

ISPs. Reasons for this? After the initial mad scramble for starting operations,

ISPs battled to garner as many users as possible, and played on the price

factor. The price war lead to access rates falling well below the Rs 10-per-hour

figure. But given the high customer acquisition costs, the revenues from that

segment proved to be insufficient to cover costs. This necessitated a hike in

access rates.

Says Jasjit Sawhney, CEO, Net4India, "Internet companies

in the rush to get customer mind-share under-priced their access packages

without making much room for alternate revenues. They are now considering

alternate revenue streams." He adds that the recent move by the government

to impose a 5% service tax on ISPs will further worsen their prospects.

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Madappa PB, V-P, marketing, NetKracker, is of the opinion

that the price hikes are an indication of the market maturing. He elaborates,

"Till a year ago, with more than 150 operators, supply exceeded demand. The

price war that ensued made consumers appreciate the value of brands that offer

genuine value."

While internationally ISPs have 3 streams of revenue–access

fees, revenue sharing with telecom companies and revenues from e-commerce, most

Indian ISPs just had access fees as their primary revenue stream. Except for

large ISPs like VSNL, which already have a critical mass, others with higher

overheads will have to rethink their strategies.

Agrees Shirish Kanetkar, country manager, Unisphere Networks

India, "The ball game has changed to that of profitability". Ashok

Juneja, CEO, Bharti Broadband Networks, concurs, "As revenues from the

consumer segment were insufficient, most ISPs have now joined the bandwagon to

woo corporates. The corporate segment has a potential of providing higher

revenue streams owing to their large bandwidth requirements and their propensity

to purchase value added services that could be."

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The value-add drivers

IDC India estimates the value-added Internet services market

to jump to $634 million by 2004 from a mere $14 million in 2000. The real push

towards value-added services will occur after 2002 with BSNL’s monopoly coming

to an end. The setting up of gateways–both satellite and submarine besides the

building of the national backbones should help in sufficient availability of

bandwidth by early 2003. It will be around this period that the hosting services

and application services market will begin to look up with the improvement of

bandwidth availability.

The

Value- add Bundle
  • Virtual private networks: With corporates striving to reduce

    office communication costs, newer flexible connectivity media like

    VPNs will gain acceptance in this segment. Virtual private network

    utility is expected to get a boost once voice over public network is

    made legal.

  • Unified messaging and communication: With more and more

    organizations becoming virtual, the number of telecommuting employees

    will increase. In such a scenario, value-added services like unified

    messaging will gain a foothold in this era. Recently, DoT specified

    terms for unified messaging in India. As per the terms, a UMS provider

    will get a license from TRAI (Telecom Regulator Authority of India).

    Further, the UMS provider must have an ISP license with him for

    providing these services.

  • IP telephony: The IP telephony market is expected to boom as

    voice calls made over an IP network will be cheaper as compared to

    those made on a circuit-switched PSTN network. Further, value-added IP

    telephony services like voice-enabled Website features such as click

    to chat and click to conference.

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According to IDC India, the key value-added services that

will drive the growth will be virtual private networks, unified messaging

services and Internet telephony. Maddappa of NetKracker says, "In order to

survive, ISPs will have to consider key factors such as size of operations,

pricing, cost control, availability and brand image".

Rahul Sawroop, president, enterprise solutions, Satyam

Infoway, adds, "The shift towards value-addes services has already started.

Bandwidth availability will no doubt improve and will be of higher quality

besides having SLAs to a large extent. ISPs focussing on corporates will build

revenue streams based on value-added services rather than just selling

bandwidth."

Juneja of Bharti Broadband talks about his firm’s focus on

two key segments–the SMBs and the high end users. He adds, "Bharti

Broadband has drawn a blueprint for a three-tier architecture called Network

three (including Internet, voice telephony and VSAT services) to provide

broadband services".

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Revenue sharing: Major concern

While most ISPs do seem to be enhancing their focus towards

corporates, certain factors will differentiate the winners from the also-rans.

Revenue sharing with the telecom provider is one such critical issue. Only when

this issue gets sorted out, will the value-added service market take off.

According to Vibhas Amawate, assistant manager, IDC India, the differentiator

between the winners and the losers will ultimately be the ability to straddle

all levels of the value chain. "Basic telecom providers who enter the

Internet service provider market will thus have an inherent advantage,"

says Amawate.

The shift to value-added services is thus clearly on. But as

in the case of most ambitious business ventures, what one looks forward to is

the successful implementation of a profitable business model. Any takers?

Amit Sarkar in New

Delhi

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