Serve more, spend more!

Vipin Kumar

PARADOX. That is the best word to describe the story of Internet Service Providers (ISPs) in our country. If you look at the number of subscribers, it is growing by leaps and bounds and will soon touch four million. But this ever-expanding user-base has not brought any cheer to the ISPs. On the contrary, this nascent sector has been anticipating a shake-out.

Since the Government had not stipulated any licence fee nor revenue sharing for ISPs when the sector was opened up in November 1998, there was a deluge of applications for licences. As of now, 470 licences have been issued, out which around 130 ISPs are operating in various parts of the country, under the A, B, and C categories. ''We knew that the shake-out was bound to happen. The only question was when,'' says Amitabh Singhal, Secretary of the Internet Service Providers Association of India (ISPAI). But given the happenings in the ISP sector in the last few weeks, the shake-out seems to have already begun.

For instance, bplnet.com, the Internet arm of the BPL Group, recently announced that it had transferred its 12,000-odd dial-up subscribers and 95 corporate clients to Data Access, which provides services under the ''NOW'' brand name.

It was a no-cash deal, which suggests that BPL just wanted to get out of the business. Satyam Computers has also stated it is considering selling a part of its stake in Satyam Infoway, one of the largest ISPs in the country.

''I expect only 3-4 national ISPs and some 8-10 small ones existing,'' says Sidhartha Ray, Managing Director of Data Access.

A study by market research firm IMRB also predicts that the ISP market place would evolve into two types of players - the regional ISPs and the national ones. While the regional ISPs cater to smaller corporates, SMEs and homes within their service area, the national players would be operating as Network Service Providers.

They would be providing connectivity solutions such as VPN, hosting of corporate data, communication services such as unified messaging and voice over IP, the study, titled ''eBizScope,'' says.

Why ISPs are bleeding

What could be the reasons for this mess? The industry blames various regulations put in place by the Government. ''They don't make the environment conducive to ISPs as they go along,'' says Deepak Varma, CEO of bplnet.com. The main grudge is the absence of a revenue-sharing regime between the State-owned telecom companies such as BSNL and MTNL and the ISPs. ''Because of ISPs, BSNL is getting additional revenues, but there is no revenue sharing,'' Varma says.

Another major reason is the heated competition amongst ISPs that has forced them to bring the rates down to rockbottom levels, much to their own detriment. Now the more a user surfs, the more the ISP bleeds. Today, the tariff is only around Rs 5-7 per hour for dial-up customers and this is no way near the cost the ISP incurs for acquiring as well as servicing his clients.

''Soon ISPs will have to raise the tariffs because it costs them anywhere between Rs 15 and Rs 20 per hour or even more,'' says ISPAI's Singhal. According to Varma, the bandwidth costs are still prohibitively expensive for the ISPs and this adds to the worry.

(Nevertheless, Internet users in India do not spend much time surfing. On an average, 40 per cent of netizens spend less than five hours a week on the Net, a report by Indian Infrastructure Research says. Only 32 per cent of Internet users surf for 5-10 hours a week, while just three per cent spend more than 30 hours).

With their services not fetching enough revenue, many ISPs are hard up for cash and are forced to delay their expansion plans. ''This business requires funds but the financial institutions are not forthcoming to invest in ISPs,'' says Varma.

Meanwhile, the Government too is giving the stick to erring licence holders.

Though around 470 licences have been issued so far, only 130 are functional. As per the licence agreement, the licence-holder needs to start operations in 18 months (this period was later extended to 24 months), failing which the bank guarantee of the ISP would be encashed. It is learnt that the Government has issued showcause notices to many ISPs in this regard. As per the agreement, the bank guarantee of ISPs are Rs 2 crore, Rs 20 lakh and Rs 3 lakh for the Category A, B and C ISPs, respectively.

Also, when Internet telephony is allowed from April next, ISPs may not be allowed to provide such services. ''This, in a way, defeats the whole purpose of opening up Internet telephony,'' says Singhal, urging the Government to allow ISPs to provide Net telephony.

ILD - the silver lining

But one silver lining for the ISPs in an otherwise cloudy marketplace could be the recent announcement on international long distance (ILD) telephony. The entry fee and bank guarantee for operating ILD services have been pegged at Rs 25 crore each.

As per the recommendations, the service providers need to put up four gateway switches. Many large ISPs have already established international gateways and by paying up just Rs 25 crore, they can start offering the ILD services.

''This could help the cash-strapped ISPs to earn additional revenue,'' says Singhal. ''Around 28 ISPs have applied for licence for establishing international gateways and 10-12 have already got it. With incremental expenses, they can upgrade their gateways to carry voice.''

Also, the domestic bandwidth costs should soon drop with the entry of a number of private-sector companies such as Bharti, Tatas and Reliance into the services. But till then, ISPs would rather you surfed less.

vipin@thehindu.co.in

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