'We will continue to remain the dominant player in the corporate segment' - Amitabh Kumar, Acting CMD, VSNL

Amitabh Kumar, Acting CMD, VSNL.

Amitabh Kumar has been a communications man since his BITS Pilani days. After
completing his BE in electronics, Kumar began his career with Overseas Communication
Services. VSNL was the next job and Kumar has had a varied job profile with the telecom
monopoly. His former positions with the company include Director (Operations), Chief GM
(Planning), GM (R&D) and Director (Switching) before assuming the current
responsibility of Acting CMD in July 1998.

During his two-decade association with VSNL, Kumar has added many feathers to his cap.
These include the expansion of VSNL's network to 15,000 circuits, setting up of new
satellite earth stations, fiber optic systems and gateway digital switches. Other
achievements include the massive expansion plan worth about $1.3 billion during the Ninth
Five Year Plan period, planning and implementation of Electronics Mail and Gateway
Internet Access services and the successful execution of the $185 million GDR issue.

Kumar is also the VSNL representative on the Board of Governors of INTELSAT and a
Director on the Boards of ICO Global Communications (Holdings), ICO Global Communications
(Operations), Telstra V-Comm and Iridium India Telecom. Recently in Delhi, Kumar spoke to
DATAQUEST about VSNL, internet and more VSNL. Excerpts:

What were the main strategies for your ISP business during the last fiscal?

During the last fiscal, we started with a very high focus on the internet leased lines
to corporates. Earlier it was a done thing to have a private leased line and we have been
explaining the advantages of TCP/IP leased lines. A TCP/IP leased line has direct
application in intranets, extranets and other corporate networking. With an outlay of Rs5
lakh for the leased line, a corporate can access mail, internet and other applications. So
you can send unlimited fax and mails with the Rs5 lakh investment. We continued our retail
thrust and came out with innovative deals for customers.

What are the plans for the current year?

The ISP scenario has changed since the beginning of the current year with private ISPs
entering the market. There are more than 100 ISPs getting in the business. Of course many
of them are targeting niche areas. So the real ramifications will be evident in the
current fiscal and coming years. However, the bigger challenge will be from big city
players who are focusing on the same market, viz, corporates and key residential areas.

How do you plan to tackle competition?

Our experience has shown that big players tend to focus on big corporate customers.
The same cannot be said about their concern for smaller customers. This segment is very
important to us and we intend to give more thrust to it. Though our 25 hours account has
followed others, we believe that it will become a powerful tool in attracting customers to
test our services and stay on with us.

Another factor where we intend to retain the loyalty of our customers is by sprucing
our network infrastructure. Apart from these, DoT and MTNL, too have synchronized their
exchanges to some extent resulting in lesser call drop and much more stable connections.
We will never compromise on the quality to our subscribers. We feel these factors will
increase our retail subscriber strength despite competition.

What about the corporate segment?

We will continue to remain the dominant player in the corporate segment. The big
advantage for VSNL is that we are seen as a key provider of both leased lines and direct
connectivity. Hence they believe that we can provide much higher quality
leased lines compared to any other player. For example, Satyam Infoway has taken a 2Mbps
line from us. Apart from using it to service the retail segment they are also trying to
resell it to the corporates. So in reality, corporates are getting much lower bandwidth.
We will give what we promise. I think that there is an in-built quality factor about
VSNL's services, which we have been able to build over the years and will continue to
sustain. Moreover, the corporates trust us much more in terms of our technical manpower
competency. Most private players have about two or three key people and beyond that only
marketing people, whereas we have a core staff of about 200-300 people. I don't see much
difficulty in retaining the major player tag in this segment for some time to come.

What is your comment on the industry complaining of your dual role of infrastructure
provider and ISP player?

I don't see our dual role existing for long as we are going to convert our ISP
operation into a subsidiary very soon. The proposal is in an advanced stage and the final
decision will be taken by the board. With other agenda like ICO, the board has not been
able to give time to this issue. We are also thinking of de-merging of operations. The
idea is to make telephony and internet operations as two different business units. With
the high valuation of internet stocks, we think that we will enhance our shareholders'
wealth.

Yet there is scope for favoritism for the internet subsidiary?

Well, there is no question about that. The de-merged company will have to pay the same
rates to the bandwidth provider (VSNL) as the other players. Moreover, they will have to
pay for their own infrastructure like building, network and people. The idea is to give an
equal play to the existing and new players in the industry vis-a-vis VSNL's ISP
operations.

What is the bandwidth available to your business?

Currently we have about 116Mb and expect to have another 45Mb with the commissioning
of the FLAG fiber optic cable network. Once that comes through, the network dynamics will
change. Ultimately, I see most of the internet traffic flowing through this 45Mb pipe. We
think that this 45Mb will carry relatively more traffic because of less delay.

Besides the FLAG cable, we have signed up for more capacity. Recently, our board has
signed up a further capacity of about 155Mb on the Japan-USA cable. Similarly on the
Atlantic side, we are buying about 155Mb more. Using the FLAG or See-me-Wee3 cable, which
goes through Japan and the UK, we are extending our reach to the US. So by the year-end we
expect to cross the 400Mb mark. This means that we are talking of four-five times
expansion in one year.

In addition to the cable network, we are looking at satellite bandwidth. We are trying to
tie up for a full transponder of 36MHz that can handle about 70Mb.

Do you have any plans to tackle the growing number of VSNL-dependent ISPs?

One of the important initiatives to tackle this problem is to make the internet
exchange more viable. With over a hundred ISPs connecting, we automatically become an
exchange whether we like it or not. Our endeavor is to see that everybody has good
connectivity and plan to implement an all India ATM-based network. This has already been

tendered and is in an advanced stage of evaluation. Once this comes through, then these
different

elements will get tied over across the country.

Can you describe your ISP gateway infrastructure?

As such we don't have any special infrastructure for the ISP segment. We are using our
gateway infrastructure for both the businesses. All the 22 earth stations have multimedia
capabilities. The same earth station is used for broadcasting, internet and telephony.
This is why the overhead cost is very small. Thus our incremental cost to the ISP business
in terms of setting up gateways is nearly zero as we have not put up any earth station
solely for internet business. Many of these earth stations have been created particularly
to expand IT services in the country. So we have been looking at small places like Goa,
Indore, and Chandigarh apart from big cities like Mumbai and Bangalore to build strong
support infrastructure

for the internet. So the traffic does not have to flow on the national backbones. That
really helps us to provide better services to our customers.

What about the threat by private gateways?

Gateways are an important source of revenue and will continue to be so in the near
future. In terms of revenue, we have earned around Rs450-500 crore in the last fiscal and
we expect the revenue to touch about Rs1000 crore in the current fiscal. We welcome the
government's initiative to allow private players to set up their own gateways but are
not worried about the same. We see a few private gateways springing up in the country, but
I am not sure about the advantages. It would cost around Rs150-200 crore to set up a
really good national gateway operation. Such investment can jeopardize the viability of
the whole ISP project. However, companies are trying to leverage on the opening up of the
long distance telephony plans along with gateway investment. For a company only in the ISP
business, it does not make sense to make such huge investments in setting up gateways and
then buying capacities in various international cable companies. Moreover once you buy
capacity on some cables, you are stuck for 20-25 years. So it is unlikely that ISP
companies will set up their own gateways. But if they want to extend their role as telecom
provider, then it makes better sense. Else it is better to move via the VSNL network. The
rates are quite low for our network. It is Rs40 lakh for a 2Mbps and Rs5 lakh for a 64Kbps
link.

Do you see further reduction in these rates?

Not really! I think the rates are quite reasonable and any further reduction is only
possible if we have more cuts by the US carriers.

What are your views on the price warfare in the industry?

Competition, by and large, brings down prices in any industry and we are witnessing
the same in this business. However, the industry needs to look at any company taking a
hasty step to get a foothold in the industry. This can be detrimental to the growth of the
entire industry. Measures like ETH's Rs18/hour can become a mechanism to make the whole
industry sick. The rationale is not hard to understand. If they expand at such low prices,
chances are they will not be able to perform and could

go down taking the credibility of the industry

with them.


Do you think that MTNL has an advantage by virtue of being a telecom carrier?

I think that the recent announcement of MTNL providing a telephone connection in the metro
region along with an internet account is very anti-competitive. They are leveraging their
telephony monopoly to get a share in the internet slice.

VSNL, too, has been leveraging its telephony infrastructure for the ISP business.
Does this not amount to anti-competitive practices?

I don't think that this is anti-competitive as we are following TRAI's rates for our
ISP operations. On the other hand, the setting up of earth stations in various parts of
the country has brought down the cost of internet access in many parts of the country. For
example, if we had only one earth station in Delhi, a user in Goa would have to pay the
STD cost for internet access.

What will be the impact of lowering the cost of leased line?

Basically, we have been operating in a very high cost environment. So far the Indian
market has followed the dynamics of high cost and low volumes. Now hopefully we should see
a change to low cost and high volume. I think, like the worldwide experience, a drop in
cost would lead to increase in volumes which would make up for the price drop. For VSNL,
we see this as a profitable opportunity as international cable lines cost is also coming
down. Earlier, STM1 giving a capacity of 155Mb cost us between $9-$12 million per link.
Recently, on the Japan-US cable, we got the same capacity for about $2.8 million. So if
the cost of the basic infrastructure keeps moving downward, we will still be able to cover
our margins by the volume growth.

In your scheme of things, do you see the ISP business gaining more importance over
the traditional business?

Yes. It will be following a worldwide phenomenon of internet business becoming high
profile as applications like ecommerce, banking and personal applications move on to the
internet. Hence the very high valuations of internet companies like Amazon.com and Yahoo.

Of course telephony will still be a growing business for us. With penetration of just 2%,
the Indian market is still huge for this business. So our telephony business is not going
to level off but rise steeply and continue to rise till about 2010. So I don't see any
business segment suffering because of the other in the near future.