Acquisitions have become commonplace in Indian industry, IT and non-IT. Another deal in the offing, if one were to go by unconfirmed reports, could be VSNL's plan to buy out Chennai-based Dishnet DSL’s Internet and its broadband business for an estimated Rs 309 crore.

However, the deal, which is at an advanced stage, is shrouded in speculation, with neither company disclosing anything.

Looking at the way C Sivasankaran (the promoter of Sterling Group, which owns Dishnet) has been handling his assets in the last few months, it’s clear that he wants to become more focused with one core business that will generate good profits. The obvious business is his cellular service Aircel that provides mobile services in Tamil Nadu.

Research firm Gartner Group predicts that by 2007 India will have close to 200,000 broadband consumers

It may be recalled that Sivasankaran bought RPG Cellular, including Vodafone’s stake holding in it. If the VSNL deal comes through, cellular services will be one major entity for the Sterling Group in the technology space. One also wonders about the fate of the Dishnet’s enterprise solutions services (ESS) division and its future. The company’s ESS division provides VPN, Web-hosting, server co-location, and video-conferencing services. However, the company is tight lipped about the amount of business generated by the ESS division.

Assuming that the deal comes through, it will transform VSNL into a major broadband player. With Tata Group owning close to 45% stake in VSNL, this is clearly the deal that the Tata’s would like to seal. VSNL’s major handicap now is that it does not have a broadband service, an inorganic growth in this space makes it ideal, and Dishnet’s broadband assets are quite impressive. For instance, Dishnet is India’s largest broadband provider with a customer base of 36,000, of which 4,500 are corporate users. It also has 150,000 dial-up Internet subscribers. While the company does not officially disclose its broadband/Internet revenues, it is estimated at Rs 180 crore.

With a huge customer base, the acquisition will propel the Tata Group’s telecom business into a different sphere. For instance, all fixed telephone line providers are offering DSL as part of their telephone package. Bharti Teleservices has been aggressive in this space and clearly has the lead. Meanwhile, Reliance Infocomm is also looking at garnering major slice of the broadband pie, so are players like MTNL and BSNL. So with all these developments, the Dishnet deal is likely to transform VSNL into the leader in broadband connectivity.

Let's face some quick industry statistics now. Broadband Internet—once considered a chimera in India—is looking increasingly real by the day. With a massive potential still waiting to be tapped, the Indian broadband market is set for exponential growth. Research firm Gartner predicts that by 2007 India will have close to 200,000 broadband consumers.

Back to the deal now. On the integration front, it looks even easier. Tata Tele already has an agreement with Dishnet for network sharing. As per the agreement, Tata Tele offers fixed-line services and provides co-location for Dishnet to provide DSL services.

Globally DSL works on the co-location model, where the ISP or the DSL provider will deploy a DSLAM (digital subscriber line access multiplexer) boxes. And, one DSLAM box can provide DSL connectivity to a radius of 2.5 kilometers. The advantage in the co-location method is that it frees the telephone line and splits data and voice- this is the core USP of a DSL connection.

But in India, when Dishnet started out, telecom was still a government monopoly and co-location was an unheard term. But Dishnet tried forging a deal, though unsuccessfully, with BSNL. With these realities, Dishnet started offering DSL services based on the Multi Dwelling Unit (MDU) model. Here, the DSLAM is based in a building and from there close to 50 subscribers are serviced. When Tata Teleservices inked the co-location pact with Dishnet, many thought about it as the company whose time had come.

It has been a tough broadband career for Dishnet so far. But at a time when the whole communication industry is opening up, why is it selling off its plum assets? The one probable answer could be plummeting bandwidth prices and the excess availability together with the company’s intention to focus primarily on mobile telephony might have led to the decision to sell.

Shrikanth G in Chennai

Page(s)   1