The Hindu Business Line : Net effect: Few takers

It's cheaper surfing the Internet at a Net café than at home. Internet Service Providers are losing retail customers. But they still aren't slashing prices. So what's the scene?

LOSING customers is a cardinal sin in any business, but Jasjit Sawhney, CEO of Net4India, a Delhi-based Internet service provider (ISP), makes no bones about having lost a lakh customers over the past few years. Many like him in the ISP business will tell you that they would rather lose customers than lose money. The `Net' effect: more than 100 ISPs have shut shop or have simply given away their subscribers to rivals.

That is quite a turnaround from the heyday of the Internet in India, when the subscriber base was growing at break-neck pace. During 1999-2001, the number of Internet users in India soared to 30 lakh users from 2.8 lakh. But things have started slowing down since. "In early 2003, we even had a negative growth and now we are stagnating," says Amitabh Singhal, Secretary of the ISP Association of India (ISPAI). He says that there about about 40 lakh Net users in India at the end of 2003, which is almost the same as a year ago.

Cost is the main factor that discourages users as well as ISPs from logging on to their dial-up connections. In India, dial-up Internet access accounts for about 95 per cent of the total subscriber base. According to ISPAI, Internet access through other means such as DSL and cable is yet to take off in the country and they currently add up to only 1 lakh customers or so. The problem with dial-up for the service providers is that they lose money per hour per customer. "It will cost Rs 16-17 per hour for an ISP to provide the service to a customer, but they charge only about Rs 8-9 per hour," says an industry official.

ISPs are forced to adopt such a pricing because of the intense competition in the market. In 1998, the government had allowed unlimited entry into the ISP business at a token licence fee. And during the boom time of dotcoms, Internet prices kept falling as getting eyeballs was more important than anything. Then the great bust happened and the harsh realities of business sunk in.

As far as customers are concerned, dial-up Net access at home works out to be far more expensive than going to a neighbourhood cyber café. For surfing the Net for one hour during day time, a user will spend about Rs 24 on telephone bills, in addition to what the ISP charges. So this can work out to Rs 32-33 per hour, while one can surf at a cyber café for Rs 15-20 per hour.

The quality of dial-up services is also not up to scratch. ISPs are now demanding that telecom companies such as Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) part with a share of the revenues they generate from dial-up Internet access. "Across the world the telecos share revenues with ISPs," says Sawhney of Net4India.

Much to the consternation of private players such as Net4India, BSNL and MTNL are witnessing robust growth in their ISP business. ISPAI's Singhal admits that whatever growth happened in 2003 was in the customer base of these two public-sector companies. In fact, BSNL has emerged as the largest ISP in the country in quick time, overtaking the Tata-owned Videsh Sanchar Nigam Ltd (VSNL). Singhal admits that the only growth that happened in the sector was because of BSNL and MTNL. BSNL and MTNL are pushing their ISP business by tapping their huge base of telephone subscribers. However, ISPAI accuses these two players of bundling their Internet services along with telephone services and urges the Telecom Regulatory Authority of India to intervene.

So where is the Internet headed in India? International Data Corporation (IDC) expects that the number of Internet users will go up to 8.2 million by 2006. According to a report by ICRA, broadband will grow the fastest in India in the years to come. Increasing penetration of PCs, dropping bandwidth rates and access through cable TV will drive the growth, ICRA says. ISPs will also increasingly look at other `viable business models and value-added services' for revenue generation. But as for now, ISPs seem to be more concerned about their present than future.

Picture by K.K. Mustafah

vipin@thehindu.co.in

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