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India's Broadband Marketplace
A country rapidly changing from bandwidth deprived to bandwidth surplus.
By: Gordon Feller & Mary McNamara
Created:
April 21, 2003
Readers who use this information for investment purposes do so at their own risk!
Opinions expressed are just that and not based on insider information or information
otherwise obtained illegally.
Report:
India is rapidly transforming itself from a bandwidth deficient
country to a bandwidth surplus country. Per capita bandwidth availability in India is as
low as 11.83 Kbps or even lesser. Today, India receives 3 Gbps of international bandwidth
but demand in the short term is in the range of 100 Gbps. Increased availability of
international bandwidth through various sources, especially submarine cable, will be the
key to solving the bandwidth deficiency being faced by the country. Optimum utilization of
this bandwidth and creation of domestic bandwidth is being addressed through major
investment, by both private and government players, in wiring up the country. Availability
of a bouquet of last mile and access solutions will make bandwidth increasingly attractive
to end-users.
Increasing penetration of the Internet and Application Service
Providers (ASPs), industry friendly government policy, bandwidth hungry applications, will
be key growth generators for the bandwidth market. Foreign service and equipment companies
do not face any discrimination vis-à-vis local companies, and, in fact, have
technological and geographical competitive advantages.
Summary:
India is transforming rapidly from a bandwidth deficient country to a
bandwidth surplus country. Per capita bandwidth availability in India is as low as 11.83
Kbps or even lesser. Today, India receives 3 Gbps of international bandwidth but demand in
the short term is in the range of 100 Gbps. Increased availability of international
bandwidth through various sources, especially submarine cable, will be the key to solving
the bandwidth deficiency being faced by the country. Optimum utilization of this bandwidth
and creation of domestic bandwidth is being addressed through major investment, by both
private and government players, in wiring up the country. Availability of a bouquet of
last mile and access solutions will make bandwidth increasingly attractive to end-users.
Increasing penetration of the Internet and Application Service
Providers (ASPs), industry friendly government policy, bandwidth hungry applications, will
be key growth generators for the bandwidth market. Foreign service and equipment companies
do not face any discrimination vis-à-vis local companies, and, in fact, have
technological and geographical competitive advantages.
Overview:
Until a few years ago India was a bandwidth deficient country.
Bandwidth availability was less than one percent of the requirement. To maintain even the
current level of growth in software and other sectors, capacity would have to be improved
at least a 100 fold in the next five years. Bandwidth deficiency was considered, by local
industry and government, as one of the biggest stumbling blocks on the road towards India
becoming a Information Technology (IT) superpower. The IT Industry in India is one of the
largest export earners, which has put the country on the global industry map, and has
created a large job pool for the countries large unemployed population.
Till recently, the India bandwidth market was a monopoly market with
the Indian Government-run Videsh Sanchar Nigam Limited (VSNL) being the only service
provider, which was not able to fulfil the bandwidth requirement. The Government was
forced to set up institutions such as the Bandwidth Advisory Committee consisting of
leading individuals within the IT and telecommunications industries to advise the
Department of Telecommunication (DoT) on addressing the bandwidth issue. These bodies that
had representation from both government and industry formulated plans to develop the
bandwidth infrastructure in the country. Many of the recommendations proposed in these
plans were subsequently converted into law.
In 1997, in response to frequent complaints about lack of access and
low performance of the existing backbone, the DoT decided to deploy a large-scale,
nationwide Internet backbone (NIB) at a projected cost of approximately US$ 100 million.
The NIB would not only address the immediate access and performance concerns, but could
also be scaled to accommodate future needs with respect to capacity, coverage, and
management. The project was divided into two Phases. Phase I was finally completed in July
2001.
While the DoT, Bharat Sanchar Nigam Limited (BSNL), and VSNL, which
was recently privatized, continue to lay additional fiber-optic cable for their backbones,
a considerable number of other private and state owned organizations are trying to
capitalize on the growing demand for bandwidth by laying their own fiber-optic networks.
The big players among these are the Reliance Infocom and Bharti Telesonic. These bandwidth
enhancement efforts are being encouraged by the national and state governments through
direct investment, and the passage of measures to resolve critical right-of-way issues.
The cooling of the Internet market in 2001 has, however, lead to the scaling back, or
canceling of a number of ambitious plans for laying new fiber.
Possible alternatives to the domestic backbone mentioned above are
the fiber networks that have been laid by the Indian Railways, the National Power Grid
Corporation, and State Electricity Boards. Each of these organizations has existing fiber
optic networks with excess capacity and ambitious plans to install fiber optic backbones
for commercial purposes.
Estimates indicate that by the end of 2002, India would have a supply
of around 100 Gbps of International bandwidth on the submarine cable front, which is 30
times the bandwidth currently available. Industry sources estimate that currently India’s
total international bandwidth is approximately 3 Gbps. With bandwidth networks such
as SAFE, Network i2I, and FLAG becoming operational, along with the existing cable such as
SEA-ME-WE-2 and SEA-ME-WE-3, bandwidth will be easier to procure. On the satellite front,
all major International players, such as Intelsat, Eutelsat, Panamasat, New Skies, Europe
Star, CyberStar, AsiaStar, Thaicom, and Measat are present in India.
The dominant form of access for end users will continue to be dial-up
for several years. Dial-up is followed by Integrated Services Digital Network (ISDN)
and Digital Subscriber Line (DSL) as the most popular access options. DSL currently
enjoys limited availability compared to ISDN, although it is emerging as a popular access
method for Internet Service Providers (ISPs). One of the more attractive access options,
unrealized at present, is the provision of Internet service via the cable television
infrastructure. More homes in India enjoy cable service than telephone service. Second,
the quality of the cables is better than the quality of the existing telephone
connections. Third, there is a severe lack of leased line and high-speed dial-up access to
the Internet in the country.
ISPs are offering Internet-over-cable service in select cities, or
are planning to do so over the next few months. Frost & Sullivan predict that cable
connections will carry 24 percent of Internet traffic by the year 2005. There are,
however, major barriers to the broad penetration of Internet access via cable modems,
including the high cost of cable modems and service. Nevertheless, for high usage
customers such as small businesses and cyber cafes, cable-based Internet access is an
attractive option. Dial-up access will continue to dominate in India in the near future;
however, major increases may be seen in access through cable modems and DSL, particularly
for organizational users, who will use these methods in place of leased lines.
The market for broadband access in India is one of the most dynamic
markets in the telecommunication market space. Due to the economic slowdown and lack of
awareness of the benefits of this technology, broadband has not picked up as expected.
International Data Corporation (IDC) in its report titled, " Broadband Equipment
Market Forecast and Analysis 2001 – 2005 " predicts a healthy growth rate for
different broadband access technologies. IDC expects Fixed Wireless access (FWA) and
satellite broadband access to be the front runner in the broadband access market ahead of
alternative technologies such as cable and DSL.
Real competition has just begun in the broadband marketplace with FWA
as a late-market entrant. FWA is an increasingly attractive alternative since it allows
competitive providers to bypass the local loop generally controlled by incumbent carriers.
Moreover, FWA is well suited to installations in rural and remote locations because of its
wireless infrastructure and ability to reach customers not served by DSL or cable modem
services. The FWA will have a major chunk of the Indian broadband pie. There will be lot
of investments for increasing the infrastructure next year and on an overall level a
healthy growth rate is expected in the total equipment market.
Satellite is one of the unexplored broadband access technologies that
has immense potential not only in terms of direct to Personal Computer (PC) connectivity
but also multicasting and ISP links. The satellite direct access market is expected to
acquire a sizeable chunk of the broadband access market India due to the fact that is
ubiquitous in nature and enterprise demand for high speed fat data pipe. A lot of issues,
which are a hindrance for other broadband access technology, can be bypassed by using
satellite as a broadband technology.
In FY 2001-02, the infrastructure sector is expected to grow
strongly. Reliance Infocom is planning to invest in infrastructure for National Long
Distance (NLD) and Code Division Multiple Access (CDMA)-based Wireless Local Loop
(WLL) services in the country to the tune of US$ 1 billion. Tata Teleservices, the
second largest basic service provider in the country is planning to invest US$ 1.7 billion
for basic services and US$ 400 million for long distance. Bharti is expected to lay 14,000
km of Optical Fiber Cable (OFC) to take long distance to all major cities.
One of the major developments in the Indian Telecom market was the
privatization of VSNL in February 2002. Today the Tata Group owns 45 percent of VSNL
equity while the Government owns 26 percent.
Market Trends:
Since last few years, the country witnessed a large-scale deployment
of optical fiber cable (OFC). Bharti Telesonic and Reliance, the domestic long distance
players in the country, have been deploying OFC in large quantities, together totaling
investment of US$ 140 million. Bharti deployed around 12,000 km of OFC and Reliance around
15,000 km. Last year Bharti finalized Nortel as the and Synchronous Digital Hierarchy
(SDH) vendor and Alcatel for Asynchronous Transfer Mode (ATM) switches. BSNL
planned to deploy 126,000 km of OFC but finally deployed only 99,620 rkm. The total cable
deployed in India is worth approximately US$ 1 billion. Service providers and utility
companies together deployed 50 million-km.
In the optical transmission segment, BSNL awarded contracts valued at
US$ 36 million, BSNL awarded a Dense Wavelength Division Multiplexing (DWDM) contract
worth US$ 50 million. Among the utilities, Power Grid Corporation awarded a transmission
contract to Tellabs, worth US$ 8 million. Gas Authority of Indian Limited (GAIL) has
completed the first phase of its infrastructure project deploying a nationwide backbone,
using DWDM and SDH, spanning 2000 km and carries voice and data across seven states. GAIL
awarded the first phase contract of US$ 6 million to Nortel, while the second phase is
valued at another US$ 6 million. Nortel has also bagged most of the Reliance projects.
Hughes Tele.com gave a contract worth US$ 21 million to Lucent for broadband
infrastructure deployment to be used for services such as Asymmetric Digital Subscriber
Line (ADSL) and ISP. Lucent also bagged another US$ 21 million broadband contract from
Tata Teleservices.
Per capita bandwidth availability in India is as low as 11.83 Kb or
even lesser, which is seen as a great opportunity that will lead to increased investment
in infrastructure enhancement. Bandwidth pricing is decreasing rapidly and
availability is easier and increasing, which is spearheading demand and growth, due to
perceived increase in efficiency and cost savings for business enterprises.
Currently there are over 160 ISPs focussed mainly on dial up services
that account for 95 percent of the market. Movement of most service providers is towards
corporate services with healthier revenue flows. Key bandwidth demand is expected to
result from an emerging boom in application service providers (ASPs) that manage and rent
software over networks.
Bandwidth prices are expected to fall and demand will increase as a
result. In line with this trend earlier this year, VSNL cuts international bandwidth rates
by 7-60 percent. Most of the benefit is for lower speed lines. A 128 Kbps line will cost
35 percent less at US$ 8,700 in Mumbai and Cochin (where there are fiber landfalls), and
40 percent less at US$ 15, 400 in other areas. In the case of Internet leased lines,
an ordinary 64 Kbps line now costs US$ 2,000 in Mumbai and Cochin against US$ 4,100
earlier. A premium 64 Kbps line costs US$ 9400 against US$ 23,000 earlier. In other places
a 64 Kbps line now costs US$ 3,300 and a premium line US$ 14, 167. However, the price of
leased lines between 2-34 Mbps has been cut by only 7 percent in Mumbai and Cochin, and 17
percent elsewhere. Most ISPs use lines of 2-34Mbps.
Players such as Punjab Gas Corporation India Limited (PGCIL) are
expected to lease, rent out, or sell end-to-end bandwidth to various service providers
such as access providers, NLD service providers, and ISPs. Players such as
BSNL are targeting every segment of the market – right from individuals to corporate
clients. It has set its eye upon a range of offerings – from supplying bandwidth to
ISPs and telcom companies, to NLD and cellular services. Reliance Infocom will initially
target business customers by providing last mile connectivity to 160,000 buildings in the
major cities on a priority basis. The strategy for providing last mile access for
the household segment will be driven by the market's revenue potential. Railtel, Indian
Railways' broadband subsidiary, is expected to set up Internet kiosks on platforms where
passengers can access the Internet using smart cards.
The bandwidth creation business will go through a phase of
consolidation over the next couple of years. The few remaining players will provide
backbone services to a number of players – both large and small – and will have
the capability to provide bandwidth for voice, data, video, and other emerging
applications. Already, the first signs are visible, with many medium-size players such as
BPL withdrawing from the race and smaller ones such as Spectranet put on the block. This
trend will continue and in the next few years 5-6 big players, comprising both telecom
companies and non-telecom companies, will dominate the bandwidth market.
With the emergence of bandwidth trading companies, as existing in the
U.S. and Western Europe, bandwidth will become a commodity in India. This will give
rise to middlemen or brokers who will engage in bandwidth trading without actually owning
any bandwidth of their own. An international bandwidth company, Band-X, has set up
operations in India with the aim of trading in bandwidth. This will ultimately lead to
prices being determined by market forces, contrary to the present scenario, where the
supplier sets the price. With increasing supply and the emergence of trading companies,
prices would go down to levels that would spur demand. This will be good news for
bandwidth users. However, bandwidth suppliers will have to live with decreasing prices.
But, what they will lose in terms of margins, they will make up in volumes, as in most
other commodity businesses.
Broadband services and applications are expected to become popular in
the next 12-18 months by when most of the country will be wired up and the broadband
service providers would have enough back-end bandwidth to source from, which they
currently don't have. By 2004, the ASP market is expected to take off, thus boosting the
need for broadband services. . Also, with the price falling to more realistic levels, the
per capita consumption of bandwidth would increase, prompting users to switch to broadband
from narrowband.
Market Conditions
Before bandwidth market statistics are analyzed it will be useful to
have a statistical overview of the communication sub-sectors related to the bandwidth
market. Hence, listed in Table 1, are revenue statistics of the communication sub-sectors
that have relevance to the bandwidth market.
Table 1. Revenue of bandwidth related communication sub-sectors.
Category
Sub-Category Remarks
2000-01 (Revenue in Million US$)
2001-02 Revenue in Million US$
Communication Services: Fixed
Local, STD,ISD all included
6,059
6,301
Communication Services:
Internet Services from access only
202
234
Communication Services:
VSAT Services only
33
43
Carrier Equipment: Infrastructure
All carrier equipment
1,572
2,088
Carrier Equipment: Cables
Both JFTC & OFC
861
996
(Source: Voice & Data, July 2002)
Indian bandwidth capacity can be divided into two parts based on the
origination of the bandwidth: international and domestic. The utilization of India’s
3 Gbps of International bandwidth is listed in Table 2.
Table 2. International Bandwidth Utilization in India
Players
Capacity (in Mbps)
Satellite /Submarine
VSNL
2100
Mix of satellite and submarine
STPI
150
Mainly satellite
Private ISPs
200
Mainly satellite
TV Broadcasters
-n/a
- n/a
(Source: Voice & Data, July 2002)
Bandwidth requirement for the major cities in India, as estimated by
Frost & Sullivan, is listed in Table 3. Mumbai is expected to remain the largest
demand center for bandwidth in the country at least till 2005.
Table 3. Bandwidth Requirement Estimate by City (in Gbps)
City
2000
2002
2005
Mumbai
4
5.7
18
Delhi
2.2
4
15
Kolkata
1
1.7
6.5
Chennai
1
2
8
Bangalore
1
1.4
5.1
Hyderabad
0.8
1.4
5
Pune
0.4
0.7
2.8
(Source: Frost & Sullivan)
Competition:
The Indian bandwidth service and equipment market is made up of
Indian and international players including U.S. majors such as Hughes. International
providers include international satellite operators such as PanAmSat, Thaicom, Europestar,
Intelsat, and Eutelsat. Given below is a short note on bandwidth activities of the major
players to give a better idea of the competitive situation prevalent in India.
VSNL- An ILD service provider and ISP, VSNL, is expected to invest
US$ 200 million during the current fiscal and more than US$ 1 billion in the next few
years in setting up and enhancing additional infrastructure in the country. The
decision to expand the infrastructure is part of the business restructuring of the company
undertaken by Tata Group, which holds 45 percent stake in the company. The Union
government holds approximately 26 percent stake.
VSNL has invested more than 5 percent and more than 2 percent stakes
in satellite communication providers Intelsat and Inmarsat respectively. VSNL is part of a
36-member consortium that built a submarine optic fiber cable system styled
SAT-3/WASC/SAFE cable system, inaugurated in May 2002. This cable system connects Europe
with Africa and Asia, spans across 15 countries, and was built at a total project cost of
about US$ 650 million. VSNL has plans to acquire part of the assets of bankrupt submarine
cable company FLAG Telecom Holdings. VSNL currently has an exclusive agreement with FLAG
for re-selling its bandwidth capacity in the country. The FLAG cable, which lands in
Mumbai, currently has 10 Gbps of international bandwidth coming into the country. The
cable extends from India to the Middle East and then to Europe. The rationale being given
for the acquisition is rock bottom prices and control over the calls landing into the
country from Europe and the US.
Power Grid Corporation (I) Ltd. (PGCIL) has outlined an investment of
about US$ 1.5 billion over the next five years. PGCIL has laid about 4,000 km of OFC in
the northern and southern regions of the country, using microwave transmission. It plans
to add another 10,000 km covering the West, East and Northeast in the next two years.
It has already received the Category II infrastructure service provider license
that allows it to rent and sell bandwidth. It has already commissioned an OFC link
between Delhi-Chandigarh and Delhi-Jaipur.
Bharti Telesonic plans to set up a 35,000-km OFC network in India
covering 200 cities by the end of March 2003 at a cost of around US$ 13 million. When
completed the network will offer 40 Gbps of bandwidth. Initially, the NLD services will be
extended to 120 cities. Top priority has been accorded to the link between the four metros
and connecting the network to its international gateway being set up in Chennai.
Bharat Sanchar Nigam Ltd (BSNL)- BSNL is implementing a US$ 850
billion project. The project will expand its existing OFC network from 180,000 km to about
235,000 km and upgrade the bandwidth capacity of 2.5 Gbps to 40 Gbps by mid-2002.
Reliance Infocom: Reliance Infocom's blueprint covers 132 cities
across 12 states and involves laying 48,000 route km of OFC. The project is currently
being implemented in Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra, Gujarat,
Rajasthan, Delhi, Uttar Pradesh, Madhya Pradesh, Orissa, and West Bengal. Other key cities
on the list include Baroda, Ahmedabad, Surat, Pune, Bangalore, and Hyderabad. Ducting is
complete in 6500 km of the 7000-km metro grid. The company is said to be laying the
conduits at a pace of 100 km a day. The network will be completed by December 2002.
Gas Authority of India Ltd. (GAIL): GAIL plans to invest US$ 600
million in communication projects that include; the setting up of a US$ 170 million OFC
network; setting up of data centers and bandwidth exchanges at a cost of US$ 140 million;
a wireless access network at a cost of US$ 130 million; and access networks at a cost of
US$ 200 million. The state-owned gas major will install OFCs along its pipeline network of
over 15,000 km spanning the country. It will connect most major cities as part of its
network. GAIL has already received a Category II infrastructure service provider license.
Railtel Corporation of India Ltd (Railtel): Railtel, is expanding its
5,000-km OFC backbone, along its railway lines, to 10,000 km by March 2002. The minimum
bandwidth on offer would be 2.5 Gbps. The company intends to be an NLD operator and
will apply for license once it has a sufficient capacity in place. Railtel's network
has enough spare capacity as Railways' requirements can be met by using barely 15 percent
of its capacity and the subsidiary is looking at leasing out the surplus bandwidth to
external customers. Railtel is expected to invest US$ 150 million on its bandwidth
plans.
Hughes Escorts Communications Limited (HECL) has invested US$ 13
million to set up its broadband services called DirectWay Enterprise Services.
DirectWay combines networking, hosting, and application services as a comprehensive
solution. The company will focus on enterprises, small and medium enterprises, small
offices, individuals, and institutions. HECL’s broadband is expected to be 40 percent
cheaper than the slow dial-up connections. HECL has procured an infrastructure provider
(IP) II license and already has an ISP license.
British Gas and Oil Company (BG) launched its foray into broadband
through an Internet services project in Gujarat. BG will offer broadband Internet services
under its global brand Iqara in Surat. Delivery will be through a hybrid fiber coaxial
(HFC) network, set up at an investment of about $10 million. BG Broadband India Private
Ltd., set up in 2000, will invest a total of $21 million in India.
The major differentiation that bandwidth providers must focus upon is
global reach, type of solutions, quality, and most importantly, price. some foreign
companies have a distinct advantage of being able to provide connectivity to the home
country, where all ISP’s have to reach via the network access points.
While perceptions on quality, distribution (reach), and scope of
service offerings play a role, price has the biggest influence in purchase decisions, just
as in the commodity market. Financing terms go hand in hand with the pricing based
decisions.
Most bandwidth providers have targeted prospective ISPs with gateway
plans, through publicly available data. One to one presentations to the prospective
clients, addressing and offering custom made solutions have become the standard. Industry
platforms such as ISP associations are used to organize presentations to key members.
Exhibits at important industry exhibitions and regular workshops are common. Most foreign
companies have appointed local representatives, to establish initial linkages within the
industry. Some have appointed Telecom and IT companies as representatives, with a presence
in India through local establishments. New customer segments are being targeted such as
systems integrators and solutions providers, apart from the traditional market of
broadcasters and ISPs, in order to move and maintain market positions.
India now has a strict regulation on meeting Quality of Service
norms. Bandwidth provisioning by foreign companies needs to adapt and tailor their
offerings accordingly. Price competitiveness will definitely continue to play a critical
role in purchase decisions. The policy followed in India is of technology neutrality.
However in the IP/Internet space, the standards are universally followed and hence
specific adaptations may not be warranted. Convergence of carriage and content is well
recognized and therefore should be considered. Also, there are products such as servers
and routers, which are the visible requirements in the Internet/IP space. Cisco seems to
dominate the market, among other players such as Juniper, 3 COM, and Nortel.
Who are the End Users?:
ISPs in India are the major end user group, which comprise both
private and public sector players. Corporate business houses are an emerging customer
group, especially with the opening up of Voice over Internet Protocol (VoIP). Hence, apart
from service providers, solutions for managed IP networks and services will be a key end
user option.
The provision of Internet services in India grew dramatically through
early 2001. By mid 2001, however, intense competition and a tapering off of venture
capital resulted in lower growth and in some areas an ISP shakeout. When the New
Internet Policy went into effect in November 1998, companies rushed to acquire licenses to
provide Internet services. Growth in the number of licenses issued remained linear through
the end of 2000, when the total exceeded 400. Effects of the global bursting of the
dot-com bubble, and the incentives and support for new entrants into the Internet services
segment resulted in a considerable slowdown in new entrants. While the number of companies
with ISP licenses increased rapidly, the number of companies actually offering Internet
service grew slowly, reaching only 100-120 in early 2001, and holding steady later in the
year.
While many large organizations continue to use ISDN, DSL or sometimes
dial-up connections as backup, a majority (over 80 percent) have switched to leased lines
as their primary mode of Internet connectivity. For intra-enterprise point-to-point
connectivity most large organizations prefer to use VSATs. Most bandwidth users agree that
they have experienced a sudden splurge in bandwidth usage, especially over the last 12
months. The growth in usage has been as high as 70-100 percent in almost half of the
cases. Despite increasing requirements, the present bandwidth available in the existing
infrastructure in most of these organizations (over 60 percent) is still in the range of
only 64 Kbps to 256 Kbps.
Among the major issues that Chief Information Officers (CIO’s)
have to cope with is to minimize downtime. As businesses get more and more demanding, many
companies need to work on 24X7 schedules. Their companies cannot afford to compromise on
connectivity. Thus availability of bandwidth and quality of service play an important
role. Many major corporations source their bandwidth requirements from multiple providers
to rule out the possibility of downtime. In addition of technical and commercial
considerations, good visibility of offerings of products/services, followed by the market
reputation of the provider play an important decision in end user choice of bandwidth
provider.
Where are the Sales Prospects?:
Bandwidth requirement of ISPs will go up from the present 2.4 Gbps to
about 35.4 Gbps by 2004-05 – 15 times the current level. This doesn't include the
bandwidth requirements of software and services companies, and IT-enabled services.
With the teledensity of the country set to increase over the next few
years, voice communication needs are set to skyrocket. In addition the opening up national
long distance services will fuel the increasing of switching capacity and lower
prices.
While the initial consumption of bandwidth will be for voice
applications, bandwidth demand for data services will catch up from 2003. This will mirror
the global trends and will be triggered by factors such as increasing Internet penetration
and boom in software and IT-enabled services. Internet usage is currently low in India and
is expected to reach global standards in a few years directly increasing bandwidth usage.
Software services exports having been growing at rates between 30-50 percent creating
increased bandwidth needs. Also, with software solutions becoming more complex and
companies developing solutions on a real-time basis from multiple software development
facilities, the demand for bandwidth from these companies is set to increase.
The Application Service Provider (ASP) industry is at its lowest
level now and will start becoming profitable in the next 12-18 months. This will increase
demand for massive bandwidth, as bandwidth is a critical requirement for ASPs to succeed.
The per capita consumption of bandwidth is being increasingly used as
an indicator of advancement in the new economy. The per capita consumption of bandwidth in
the U.S. is doubling every year. With increased Internet usage, the demand for
bandwidth-intensive applications such as video-on-demand, video conferencing, and online
gaming will increase, thus pushing up demand for bandwidth. Hunger for bandwidth will also
increase with declining prices, which has been the trend world over. The per capita
bandwidth availability in India is as low as 11.83 Kbps or even lesser.
Problems with Market Access:
Government policies and regulations have been considerably liberal
compared to any other sector. Regulations would continue to play minor but significant
role in removing market related hurdles vis-a-vis fair competition, principle of equity
among various sizes of players, and procedural issue. The government however, has been
keen to identify and remove the barriers for growth of the Internet.
Perhaps the most encouraging sign of a changing government attitude
was the creation of the National Task Force on Information Technology and Software
Development in May 1998. The Action Plan featured 108 recommendations for removing
bottlenecks to IT development. The 18 infrastructure recommendations included calls for
open competition in backbone and access networks, local call rates for Internet users, and
the establishment of public access and information centers.
Subsequent recommendations designed to spur the development of a
robust Internet infrastructure and proliferation of services included a ten-year relief
from any significant licensing costs; the authorization of independent international
gateways to the Internet; the authorization of public sector companies and organizations
that have geographic rights of way to develop and operate networks for public use; the
authorization for network operators to interconnect directly, rather than via VSNL;
permission for cable television operators to offer Internet access without having to get
an additional license; the authorization of fiber optic and radio links for “last
mile” connections by ISPs: and the reservation of a radio frequency range for such
links .
With the Communication Convergence Bill 2000, the legal environment
surrounding communications technologies and services is expected to change dramatically.
The bill recognizes the developments in technology that are blurring the traditional
boundaries between telecommunications, computing, and media and that future development’s
are difficult to predict. The licensing structure would break the provision of services
into four different layers: Network infrastructure facility provider; Network service
provider;
Application service provider (ASP); and Content ASP. In this system
the providers of network infrastructure would fall under one licensing structure. This
would be true whether the networks were designed for broadcast, voice, data traffic, or
all three; or whether they were based on fixed line or wireless technologies. Such an
arrangement would dramatically decrease the regulatory hurdles involved in providing
services that cut across traditional communications boundaries.
There are no major market access related issues in India for foreign
companies. Requirements are mostly standardized and do not in any way act as bottlenecks
or in giving any artificial advantages to Indian companies.
To attract foreign direct investment (FDI), India made a number of
policy changes to create more favorable investment conditions. In July 2000, the
government decided to raise the FDI ceiling from 49 percent to 100 percent in E-commerce,
email and voice mail, and end-to-end bandwidth. To foster the growth of venture capital
funds, the government introduced a number of initiatives including the introduction of
sweat equity, government-facilitated venture capital funds, and liberalized treatment of
taxes on venture capital funds. The dramatic increase in investment in the
telecommunications sector in mid-2000 reflected a combination of favorable changes in the
investment climate.
Readers who use this information for investment purposes do so at their own risk!
Opinions expressed are just that and not based on insider information or information
otherwise obtained illegally.
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