In no other market segment among those we have analyzed, has there been the kind of dramatic reversal of trends in just one year, as in the enterprise connectivity market. International connectivity services, or International Long Distance (ILD), saw revenues flattening. This, thanks to a combination of factors: the dramatic rate slashes initiated by companies last year; the rupee becoming stronger; and somewhat cooling demand from the largest segments of usersthe IT and BPO industries.

Domestic connectivity or National Long Distance grew impressively driven by a buoyant demand, and the competing companies finally developing a stable equation among them and settling down.

The ILD Landscape
Tata Communications contributed with revenues of Rs 6,966 crore. Despite a decline in the revenue base, it was able to retain its stronghold in the segment with around 60% of the market-share, down from 66% last year. Bharti made it to the second place with revenue of Rs 1,897 crore, and a 53% growth. Reliance was in the third place with an estimated revenue of Rs 1,545 crore and a market share of 13%. These top three dominated the market with the combined market share of 90%. Other players in the fray include BSNL, BT and Vodafone, among others.

The Telecom Commissions agreement to allow resale of the international bandwidth was a highlight of the last year. Industry experts say that this move will lead to reduction in ILD rates. It will also intensify competition and bigger players will face the heat form emerging companies. Among new players, Cable & Wireless got an ILD license. Others being Spice Telecom, Tulip IT Services, and MTNL. In the pipeline are Idea, Pacnet, and Orange for both NLD and ILD licenses.

BT also made its presence felt with its ILD revenues growing by 33%. The company is aggressively targeting verticals like IT/ITeS and BFSI in an effort to transform itself form a pure-play service provider to an end-to-end solution provider. BT has invested a lot on its networks and that has enabled it to offer a slew of services matching the unique requirements of a lot of verticals. The ILD space will continue to remain a value segment and will see more growth as companies use more international services.

The NLD Landscape
The segment saw robust growth of 35% clocking revenue of Rs 9,732 crore. Part of the growth can be attributed to the NLD license fee coming down from Rs 100 crore to Rs 25 crore.

BSNL was the market leader with revenue of Rs 2,870 crore. From the enterprise connectivity perspective, STD still remained one of the preferred mode of voice communication between intra and extra office communications. Bharti Airtel took the second spot with revenue of Rs 2,410 crore. Reliance Communication followed with revenue of Rs 1,893 crore. Tata Communication took the fourth place with revenue of Rs 692 crore and a growth of 37%.

The trends that shaped last year were: decrease in tariffs (leading to more users) and the market getting diverse with many operators coming into the fray.

Key Trends
IP VPN emerged as the preferred mode of enterprise connectivity. Industry experts observe that initially enterprises built VPNs through TDM leased lines provided by basic service operators. The network equipment was procured by the enterprises, and the management of the network was solely the responsibility of the user organization. One of the main drawbacks of such a network was the dependency on a single service provider network, leaving no option for protection in case of failure of the leased line circuit. The rapid growth and ubiquitous nature of the Internet offered an alternate model to build enterprise networks over the net.

Such VPN was however found wanting in areas like security and scalability. Encryption of traffic by setting up IPSec tunnels offered the required security feature, though the cost of setting up such a complex network and managing it was an area of concern for enterprises. MPLS-based IP VPN uses latest technology in providing secure and scalable connectivity options. It saw good adoption because it offered low-cost, highly secure and highly reliable enterprise networking solution. The MPLS VPN network reduces network complexity and cost. Rather than setting up and managing individual points between each office, customers need to provide only one connection from their office router to the service provider edge router.

A key driver of VPN adoption is its inherent benefits. VPNs over the year came in different flavors, the most adopted being IP VPN. Experts say that cost, complexity, and the tedious nature of the legacy Wide Area Networking (WAN) technologies has restricted companies from broad-basing their network to include remote sites (for people on the go and to integrate suppliers, distributors and dealers). Legacy WAN prohibited pervasive communication access mainly because to extend its reach one needs to use costly technologies like asynchronous transfer mode (ATM), frame relay, and leased lines for private networks. Given this backdrop, a reliable, cost effective and secure communication medium was a dire need that led to IP VPN.

Players like Sify also had good traction in the MPLS space over the year. Sify deployed several MPLS-based IP VPN solutions to transport mission critical applications like ERP, core banking, Intranet, voice, video, supporting carrier, multicast and remote access for various enterprises. Competing with Indian players, companies like BT are also upping their ante in the enterprise connectivity space. The company has put in place 21CNits next generation networkan advanced communications network for the future. This creation of a global IP-based voice platform will see BTs current legacy TDM network replaced by an MPLS-based network across many countries worldwide. A significant portion of this is planned to be invested in India.

While other services like IPLC and ILL are also being used, the kind of utility of an IP-based backbone as provided by VPN, makes it one of the most sought after communications methods. Moreover, as per RBI guidelines, for online banking and e-commerce-based services, banks and financial institutions must avoid any direct connection between the Internet and their core system. The best option available with banks is to place core network on IP VPN for enhanced security features. The growth of IP/MPLS VPN is also expected to be driven by small and medium enterprises in the days ahead. Most service providers are focusing on SMEs as they are spending on IT in a major way, and looking for connectivity solutions.

In tune with market demands, vendors are also offering focused IP VPN-based services. Tulip IT Services offered IP-based infrastructural solutions to customers. The company has been the front-runner in provisioning and managing multi location wide area networks for various industry verticals. It has presence in more than 1,100 cities across the country.

Meanwhile players like HCL Infinet are deepening their presence. Over the year the company offered a wide array of connectivity services like VPN, Internet, network management services, data center and co-location services and VAS, like Internet telephony and enterprise mailing solutions. The company started its ISP/NLD operations in the year 2000 and today has more than 400 enterprise customers.

With huge potential in the connectivity space, HCL Infinet is currently on an expansion drive. The company is working on expanding its pan-India PoP infrastructure. After which it aims to have direct presence in over 860 locations in the network services market, across India. The first phase of expansion has started covering over 300 business potential towns of the country.

Outlook
Going by current trends, most operators are becoming end-to-end solution providers and offering a basket of solutions meeting the connectivity requirements. It is not just selling a type of connectivity services; its more of aspects like bandwidth provisioning, better QoS, remote service and a host of others. In line with the trend, most telecom service providers offered services bundled with network management, security, and infrastructure. With great interest in unified communications, the on going year will also see technologies like VoIP moving further up the value chain. The road ahead for enterprise connectivity service looks more promising than ever, the market is diverse with multiple vendors offering a plethora of services signifying a buoyant year ahead.

Shrikanth G
shrikanthg@cybermedia.co.in

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