The saga of broadband services, especially in bolstering India's Internet population, continued in FY 2005-06. Once the dust on the initial hype of FY 2005 settled down, the adoption curve sustained its upward movement. The government had set the tone in 2004-05 by putting the Broadband Policy in place.  From thereon, the broadband market witnessed a significant growth, despite falling short of the ambitious target of 30 lakh subscribers it had set itself.

The total number of Internet subscribers was approximately 71 lakh as on 31 March 2006. This includes 13.1 lakh broadband subscribers. The figure shows a growth of 28% over previous year's 55.5 lakh subscribers that included 1.8 lakh broadband subscribers. Incidentally, India now has the world's fourth largest base of Internet users. The country registered a whopping 54% growth with 40 mn users in 2005-06 from 2.5 crore in 2004-05.

Subscriber Growth Drivers
According to market researches, Indians go online for a number of activities including e-mail and IM (98%), job search (51%), banking (32%), bill payment (18%), stock trading (15%), and matrimonial search (15%). They also regularly reach out to research online content for work (62%) and personal (70%) use; the fast growing e-commerce scenario also contributed significantly.

There was a double-digit growth of online shopping customers for services such as airline ticketing, railway ticketing and product categories like electronic gadgets and home appliances amongst others. This general growth in e-commerce coupled with high demand for .in domain registrations and availability of low-cost computers also contributed to the increase in online users. The .in domain registrations itself surpassed 1,50,000 during the year.

Decreasing broadband prices also led to increasing number of subscribers. In comparison to some developed countries the minimum tariff for a broadband connection is now lowest in India falling by nearly 80% in FY 2005-06.

Broadband Misses Bull's Eye, Dial-up Still Reigns
This might sound strange, but despite the enthusiasm, the pace of broadband adoption could not match the high expectations. Out of the set target of 30 lakh subscribers, 9 lakh subscribers were to be added by the PSU incumbents (BSNL and MTNL). The numbers collated by TRAI show that the subscriber base for broadband usage was around 13 lakh at the end of March 2006; other than the BSNL/MTNL combine, private ISPs accounted for the remaining 4 lakh.

Broadband subscribers accounted for 18% of the total Internet subscriber base compared to just 3% in the previous fiscal. Another gain was related to subscribers on broadband technology platform (speed < 256 kbps and last mile on cable Ethernet, cable or DSL) that constituted another 18% of the total pie.  Leased line subscribers at 15,000 brought up the rear. Most of the broadband subscribers were those graduating from dialup and the metros accounted for the bulk of them, though the service was available in close to 200 districts.

One of the factors for the lower-than-expected adoption of broadband could be the additional start-up cost-installation charges including capex for the connectivity at the CPE level and some minimum monthly payment. Another factor was that bandwidth prices, both domestic leased lines and international, continued to be high and that kept broadband prices still higher than affordable for most subscribers.

Even though dial-up subscribers have reduced by little over 20% since last fiscal, in the overall scenario it was still in demand. Total dial-up subscribers are estimated to be around 45 lakh of the total 71 lakh Internet subscriber base. The market was growing more in tier II and III cities, especially on account of first-time users. The market for cable-through Internet however did not pick up as expected. Investment required at the cable operator end to upgrade infrastructure was very high. Also, the experience of cable-broadband users has been poor till date as they are discouraged by frequent problems with bandwidth and slow connections.

Being in the Business
The number of ISPs, currently operational came down from 172 in March 2005 to around 155 in March 2006. Out of 750 license holders, more than 300 surrendered their licenses. As a result, 10% of the ISPs accounted for 90% of the subscribers, with BSNL and MTNL dominating the show. High cost of bandwidth and vertical price squeeze by the incumbent are pinning down the growth prospects of the ISPs. Taking out VPN service from the ISP license and imposition of 6% revenue share on Internet telephony offered by the ISPs with effect from January 1, 2006 has put onerous burden on the ISPs.

However, the broadband bandwagon still helped add new emerging players like Net4India, HCL Infinet and Hughes Communications. Most ISPs are targeting the SOHO and SMB segments that are increasingly using broadband services for business-supporting applications such as messaging, remote access services (SSL VPN) for enterprise mission-critical applications, and e-ticketing.

ISPAI estimates that there are more than one lakh cyber cafés across the country and an estimated 60% of Internet users regularly access the Internet via cyber cafés across the country. Number of cyber cafés has also been on the rise especially in the tier II and III cities.

Wireless Internet Makes an Impact
There are around 8-9 crore cell users in India, and only a fraction of them are PC users. Internet access was just at the fingertips of the subscribers of CDMA phones, GPRS phones and Bluetooth enabled phones. As a result, the demand of wireless Internet cards have significantly gone up in FY 2006. 

The cost of wireless cards for accessing Internet on PCs or laptops have also nose-dived in last couple of months. Airtel offers wireless data cards for accessing Internet for as low as Rs 399 with free bundled usage of 100 MB and its highest tariff plan is of Rs 799 with a free bundled usage of 1.5 GB. Reliance's R-Connect cards are priced at a minimum tariff of Rs 650 with bundled data exchange of 1GB while a premium deal is priced at Rs 1500 for unlimited data download. Hutch's Edge cards cost Rs 8000 and the monthly tariff is lowest at Rs 499 with free bundled usage of 100MB and maximum at Rs 699 with free bundled usage of 1GB.

The tariffs for downloading on GPRS and MMS facility have also been reduced. From Rs 5 for MMS download for pre-paid subscribers, BSNL cut the cost to Rs 3 per MMS. Similarly it has slashed its tariff for unlimited download for post-paid customers to Rs 199 per month from Rs 349 per month. This is likely to trigger a price war as this is among the lowest tariff rate for mobile Internet service.

The VPN Bone of Contention
There was some relief for the private ISPs on the Virtual Private Network (VPN) issue when TRAI recommended that ISPs should be asked to pay an entry fee of Rs 30 lakh and zero licence fees for offering VPN services. This came as a breather to the ISPs, as they were earlier asked by DoT to cough up between Rs 1 crore and Rs 10 crore as entry fee and 8% of the revenues as licence fee for offering VPN services.

DoT's proposal was a crucial bone of contention as it led most of the operators, barring a few ISPs, to exit the VPN business. Most of the 700 ISP license holders were loss-making entities and did not have the resources to pay the Rs 10 crore entry fee. Though TRAI's recommendations could bring the ISPs back into business, the service providers are being cautious as the final decision on the matter is yet to be taken by DoT.

Internet Telephony Grows
Another significant decision was the opening up of Internet telephony when the government allowed service providers to offer Internet telephony, Internet services and broadband services. The usage of Internet telephony grew from a level of 14.3 crore (143 mn) minutes during 2004-05 to more than 20 crore (200 mn) minutes during 2005-06.

However the ISPs were hit by the government's decision to impose 12.2% service tax and 6% revenue share in the form of licence fees for the Internet telephony service. Having accepted this, the ISPs at least wanted the government to restrict access to the Internet telephony services provided by foreign service providers (eg Skype, Net2Phone, etc) to the subscribers of Indian ISPs. This is in line with the stipulations included but is not limited to the ones defined under Section 21 of the Indian Telegraph Act, 1885.

Team DQ
maildqindia@cybermedia.co.in

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