The Hindu Business Line : Battleground broadband

The high-speed Internet business is gathering pace — and with that the competitive forces have been unleashed. This can only lead to a robust expansion in broadband subscriber base, akin to mobile.

WHO Says Elephants Can't Dance, Lou Gerstner's book on the historic turnaround at IBM, may be an apt title for the drama set to unfold in the broadband scene in India.

Learning from competitive pressures and experience in the long-distance and mobile market, public sector behemoths Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) unveiled their broadband services on January 14 using a two-pronged strategy.

First, BSNL/MTNL will offer broadband services with minimum access speeds of 256 kbps (kilobits per second), going up to 1Mbps for homes and 2 Mbps for business. Besides this, BSNL/MTNL have also been fairly liberal in data download/upload limit, which has been fixed at 1 GB at the lower end by BSNL and about 400 MB by MTNL. At present, most of their private sector peers, such as Airtel, Sify or Iqara, offer broadband services ranging between 64 kbps and 512 Mbps.

Given the existing pricing structure, practically all of them have largely focused on garnering customer base at the lower end of the broadband value chain.

From the broadband subscriber base of 0.3 million (of a total Internet subscriber base of 5.4 million as of September 2004), it is obvious that stiff broadband pricing and diffidence in migrating from dial-up, given the poor quality of service, are factors that have inhibited the growth of the market.

Aggressive pricing

Second, strategically, BSNL/MTNL have positioned themselves as aggressive price setters in the broadband game. BSNL has set its DataOne broadband tariffs starting at a monthly charge of Rs 500 (for 256 kbps), to be offered at Chennai, Kolkata, Bangalore and Hyderabad. It is to be extended soon to 198 cities. MTNL, operating in the two key metros of New Delhi and Mumbai, has priced its Tri Band service even more attractively, starting at Rs 399 (for 256 kbps). Even the installation charges and modem sale price/rentals have been set at competitive rates.

Economies of scale

Since BSNL/MTNL control over 90 per cent of the fixed line market of 45 million, it straightaway offered them the economies of scale to price aggressively. Even if only 7-10 million lines are technically fit to offer Digital Subscriber Line technology, using the existing copper cables, it leaves BSNL/MTNL considerable leeway to achieve their target of one million subscribers in 2005 and six million over the next three years.

Moreover, the experience gleaned from mobile telephony clearly shows that a drop in the average revenue per user below Rs 500 provided the right trigger for an explosion in the mobile subscriber base. Although BSNL claims it as introductory promotional tariffs, applicable for six months from commercial launch, these price points will effectively become a benchmark for the future.

Wake-up call

Such aggressive pricing by BSNL/MTNL is bound to serve as a wake-up call for their private sector peers. At present, practically none of them matches their rates.

On an average, most private players offer plans with monthly rates of Rs 500 or less, but that is only for 64 kbps connectivity. For 256 kbps, as offered by BSNL/MTNL, the private sector tariffs double to well beyond Rs 1,000.

Sensing that they are hopelessly out-priced, most of these players will scramble to rework their pricing structures to match BSNL/MTNL. For instance, Airtel Broadband has already announced that it is working on rate revision. These competitive forces unleashed, especially in the form of a big splash by the likes of Reliance Infocomm or Airtel, can lead to a robust expansion in broadband subscriber base, akin to mobile.

Going forward, two factors will be keenly watched in this contest for broadband growth:

Quality of service/content: If we assume that competitive forces are going to drive prices down to at least Rs 500 to start with, quality of service is going to be the key differentiator. Since pricing is bound to give BSNL/MTNL a huge headstart, the first six months will be crucial for them in terms of customer additions. Since broadband customers are savvy Internet users, quality of service and customer care are quite high on their list of priorities in selecting a service provider.

The second imponderable is personal computer (PC) penetration and access to content. Unless greater fiscal incentives are provided for hardware manufacturers to reduce PC prices, PC penetration and Internet access will not take off in a big way. Similarly, the utility of broadband will be enhanced only when India-centric or local language content becomes meaningfully available.

Policy initiatives in public interest: If the broadband subscriber base has to take off in a big way in the short run, the Department of Telecommunications will have to give broadband a fillip by allowing shared unbundling of the local loop (or the last mile) for data services or bitstream unbundling for the private sector. In shared unbundling, the private operators will be able to offer data services using BSNL's infrastructure while it will offer voice services. Whereas in bitstream unbundling, BSNL will invest in the broadband network and allow access to private operators for a fee. This has already been recommended by the telecom regulator and ways and means have to be found to put this in motion. This alone will broadbase the market for broadband in the short run.

maverick@thehindu.co.in

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