The Internet subscriber base trudged from 3.6 mn in 2003 to 4.15 mn in 2004. The low subscriber rate this year could be attributed to the fact that the high cost of bandwidth was not justified by the quality of service. About 90% of access was still on dial-up, with a majority of this being cornered by incumbent operators MTNL and BSNL.

This was clearly a matter of concern, with the ISPs strongly voicing their resentment at what they see as the regulators'  unwillingness to control the incumbent's monopolistic tendencies.

Where Big Boys Play
The heat was also on the standalone ISPs last year as they had to compete against the integrated service providers. Private standalone ISPs continued to lose money on every dial-up customer they added. Where players like VSNL could provide Internet access at Rs 6/hr, ISPs like Data Access and Net4india could not match that, and had to gradually drop out of the dial-up race.

A paradigm shift took place with the incumbent telcos providing telephone services and net connectivity as a bundled package deal. Players like MTNL, BSNL and Touchtel started offering customers internet access as a free value-added service. Later, Reliance and TATA Indicom were reaching out to more and more subscribers with fixed fee internet connectivity, putting standalone pure-play ISPs at an even greater disadvantage. Other than the incumbent operators whose focus was dial-up, the private ISPs went after corporate customers.

Top Guns
Steadily, BSNL and MTNL moved to the top slots in 2003-04 leaving every other standalone ISP fending for itself. With the strategy of providing VPNs and intranets, besides internet connectivity, and at the same time getting their share of the revenue from the telephone bill, both the telcos kept marching ahead in the ISP space. Most of their subscribers are retail customers. BSNL also had the advantage of reaching out to remote destinations where private ISPs won't find it profitable to lay their connections.

With almost a miillion subscribers last year, BSNL is now on the warpath, aiming at 13.5 mn subscribers in 2004-05. As part of their broadband initiatives, BSNL and MTNL also plan to introduce broadband-based data and speech services in the first phase, and video on demand and gaming in the second phase.

New Kid on the ISP Block
All the ISPs have now trained their sights on Broadband. The data transmission rate of 256kbps has been acknowledged as the minimum. While a lot of companies are working on broadband initiatives, the cost of broadband will have to go down, before it becomes a more sought-after option compared to a dialup.

As on date, TRAI says that out of the 4.15 mn subscribers, 190,000 are broadband users, that primarily includes DSL and cable customers, with VSNL emerging as the key company for broadband (after taking over Dishnet DSL). Like the others, Bharti Broadband and Reliance too concentrated on broadband initiatives, with Bharti crossing a subscriber base of 50,000 DSL customers. For Bharti, a significant turnaround from the earlier years came when it launched its own submarine cable gateway at Chennai.

While most of the broadband has been happening on the home front, the focus is expected to broaden to institutions and SMEs, and retail.

Lessons Learnt
Value-added services like VoIP telephony turned out to be a damp squib, as it was restricted to the much smaller market of international calling. Morover, telcos also dropped international long distance calling rates. The problem, however, was that Internet penetration was not spreading beyond the A-class cities. Language was the biggest barrier, since cities in the B and C classes could not be reached due to the shortage of regional content in regional languages. This is in sharp contrast to countries like Korea, where most of the content is in the country's national language.

Companies also recognized the need for a robust communication infrastructure. In the last mile the already laid infrastructure of copper wire (voice), coaxial wire (television) and wireless were not harnessed to their full potential. Hence, going wireless was not an attractive proposition for standalone ISPs, further because they were limited by regulations and had to deal with concerns like royalty charges and waiting time. However, keeping in stride with the growth in the subscriber rate, Hathway Cable did manage to double its Internet cable subscribers in the previous year, and British Gas got a large number of ethernet cable broadband subscribers.

India's Internet Ecosystem Shapes Up
The buoyancy in the market was the result of various policy matters under consideration at different levels. CII's study- India's Broadband Economy Vision 2004-came out earlier this year. TRAI submitted a consultation paper on spectrum-related issues and international and domestic bandwidth. The prices for international and domestic bandwidth are expected to go down by 70% over the next three years.

An ISPAI (Internet Service Providers Association) initiative helped create four national Internet exchanges (NIXIs) in Delhi, Mumbai, Chennai and Kolkata set up by the Government. A NIXI allows exchange of domestic Internet traffic among peer ISPs, thus enabling more efficient use of international bandwidth, saving foreign exchange. QoS would be improved by being able to avoid multiple international hops, thus lowering delays. The traffic internal to India stays right here and is channelised through these exchanges. This results in major savings on international bandwidth costs, when one-third of the Internet traffic is meant for the country itself. This sent the industry into an upbeat mood. NIXI Nodes at Delhi (STPI, Noida) and Mumbai (STPI, Vashi) became operational and more ISPs slowly signed-in for the benefits that accrued. As per latest data, Sify, MTNL, Dishnet DSL, HCL-Infinet, Bharti are among the 15 ISPs which have been connected at NIXI, Noida.

2004-05: Looking Ahead
Other than the fact that the telcos are here to stay, what has happened at VSNL's end illustrates that there is a trend of consolidation in the Indian telecom market, with more integrated players in the market. The shift to more bandwidth-hungry applications like Internet telephony, voice chat and download-intensive applications would definitely lead to a gradual movement away from the dial-up business.

The year that went by saw the enabling of regulatory policies and the confidence of corporate investment decisions. The coming six months, which now hold the key to the future of the BB industry, hinge on harnessing the technology towards getting a return on the investment.

Team DQ