The Hindu Business Line : The world's within reach

Indian telecom operators, with ownership of six major under-sea cable systems, are poised to become the new barons of international bandwidth. What does their hold on the goldmine buried deep under the ocean floor mean to you and me? Read on...

THE owners of the British India Submarine Telegraph Company, which rolled out India's first submarine telegraph cable between Bombay and the UK in 1870, would have never imagined that Indians could ever control this huge goldmine buried deep under the dark ocean floor.

One hundred and thirty five years later, Indian telecom operators Videsh Sanchar Nigam Ltd, Reliance Infocomm, Bharti Televentures and Bharat Sanchar Nigam Ltd, with ownership of six major under-sea cable systems, are all set to become the new barons of international bandwidth, a status that was enjoyed by US operators such as Cable & Wireless, AT&T and MCI until a few months ago.The reason for this change in balance of power has been a spate of acquisitions by the Indian operators in recent months.

It all began with Reliance Infocomm acquiring 100 per cent equity in FLAG Telecom for $207 million (about Rs 1,000 crore) with a view to garnering market share in the global infrastructure segment.

FLAG had a market capital of $7 billion at its peak and has laid submarine cables of around 50,000 km across the globe and is a major provider of American connectivity into key regions such as West Asia and South Asia, with hubs in West Asia.

Reliance is also laying another cable system called the FALCON providing connectivity throughout the Gulf region, with submarine links stretching to Egypt in the west and to Hong Kong in the east. FALCON will be the only cable system to provide fully protected services within the Gulf and will allow direct international connectivity from the region to the main business centres around the world for the first time. The cable is expected to be operational by the end of this year.

Another multi-billion-dollar fibre network, Tyco Communications Network, was recently sold to Tata-managed VSNL. The Tyco trans-Pacific cable is currently built to 460 gbps, just over one-third of available capacity from the US to Asia and Australia.

At maximum capacity, Tyco can support 5.12 terabits, twice the combined maximum capacity of the six other major cables on that route.

VSNL also has Singapore's first fully Indian-owned, under-sea fibre-optic cable — Tata Indicom Cable. In India, the 3,175-km cable lands in Chennai and in Singapore, it lands in Changi. Construction of the 5.12 tbps cable began in November 2003; the cable went live on September 15, 2004, making it one of the fastest cable build-outs in history.

The recent acquisition of Teleglobe by VSNL for $239 million only adds to the story. Headquartered in Hamilton, Bermuda, with a large operating centre in Montreal, Teleglobe has more than 1,400 wholesale customers and carries over 13 billion minutes of voice traffic globally.

VSNL is also a partner in the Se-Me-We-3 and SAFE consortiums. While the former connects South-East Asia-Middle East-Western Europe through a 38,000 km-long fibre optic under-sea cable, SAFE is an 80-gigabit, 28,800-km under-sea cable with landing points at Cape Town in South Africa, Mauritius and Penang, Malaysia. "Our objective is to become a global player and the acquisitions and projects have helped us in achieving this objective. VSNL today is all set to provide connectivity to any part of the globe," says N. Srinath, Director, VSNL. The Tata-managed company is the third-largest under-sea cable operator in the world.

Then there is the 3200-km Network i2i cable between Chennai and Singapore, which is a joint venture between Bharti Group and Singapore Telecommunications. With a bandwidth capacity of 8.4 terabits, this cable has the highest capacity in the world.

Not to be left behind, the state-owned Bharat Sanchar Nigam Ltd is laying its own cable network starting with Sri-Lanka.

The Indian under-sea cable footprint gets complete with the Se-Me-We 4 cable system where VSNL and Bharti are part of a consortium. The $500-million project is set to be operational by year-end and will offer more connectivity options between Europe and Asia.

Analysts point out that the emergence of Indian operators in international bandwidth is part of an Asian resurgence. For instance, Global Crossing, the largest cable network in the US connecting it to Europe and Latin America, was sold to Singapore Technologies Telemedia for $250 million in 2003.

One doesn't have to go too far to know the reasons for the change in the power equation. "There has been a glut in the international bandwidth market, which has resulted in many American companies going bankrupt. In fact, studies show that only 14 per cent of the available bandwidth was being used, which forced many of these companies to sell out the infrastructure," says a VSNL official.

Bankruptcy has forced many carriers to sell out their infrastructure at a fraction of the cost incurred in setting it up, making it easy target for Indian sharks.

Cause for concern

However, the winds of change are becoming a cause for concern elsewhere.

In April this year, three US Republican Senators, Jon Kyl of Arizona, Ted Stevens of Alaska and Jeff Sessions of Alabama wrote to the US Energy Secretary, John Snow, seeking a full investigation by the Committee on Foreign Investment in the US on the deal involving Tyco Global Network and VSNL.

"TGN is a strategic asset of incalculable value to the US security and commercial interest. It is an immense, international network offering massive amounts of high-quality fibre-optic bandwidth. This transaction gives the Indian Government control over a significant portion of the world's submarine cable network (including more than 80 per cent of the total trans-Pacific under-sea capacity) and over key strategic submarine cable landing stations in the US," the senators wrote. The US Trade Representative recently wrote to the Telecom Regulatory Authority of India asking it to reign in VSNL for offering bandwidth at a high price.

Market watchers say that after raising a storm over outsourcing, India baiters in the US and Europe could be looking at the dominance of Indian operators over international bandwidth very keenly and may raise concerns about national security or potential misuse of commercial intelligence. "Control over international bandwidth may not be as politically-charged-up as is the issue of control of oil reserves, but it is definitely important from a strategic point of view. For example, a small snag in Se-Me-We3 had shut down Pakistan's Internet and international communication link for almost a week," says an industry watcher.

Indian operators say that such concerns are completely misplaced and they are following the most stringent security procedures than any US network provider.

What it means to the consumer

But what does all this mean to consumers? For starters, international bandwidth will come a lot cheaper. VSNL has already announced a 45 per cent decrease in international leased lines and more reductions are in the offing once the other cable projects become operational.

The TRAI is also working on a tariff order that would bring tariff down further. So making ISD calls and surfing the Internet would become cheaper. This would also mean higher savings for BPO (business process outsourcing) and ITES (IT-enabled services) companies. Second, the availability of quality international bandwidth will improve as more cable systems land into India.

However, analysts warn that too much undercutting could lead the new barons of bandwidth the way the US operators went. They point out that Indian players could use the cheap capacity to launch more bandwidth price wars and further undermine the economics.

"Former owners of firms such as Global Crossing, Tyco and MCI faltered because of their poor understanding of the economics of bandwidth. There's little evidence that the new owners of this infrastructure are inherently superior custodians," says a market analyst.

Indian bandwidth operators are, however, betting big on the exponential growth in telecom, especially in the cellular and BPO segment, to fuel their strategy. BPOs are one of the largest consumers of international bandwidth in the country and with units sprouting all across the country, the demand is only going upwards.

"The success of the outsourcing industry has ensured that there will always be a demand for international bandwidth. The rise of the BPO sector, proliferation of MNCs, and growth of the domestic economy spell promising times ahead for the international bandwidth market for India, set to grow at a very healthy CAGR (compounded annual growth rate) of 43 per cent over the next five years," says a Reliance executive.

Indian operators are surely moving in fast to take a large share of the goldmine under the sea bed, hoping to do better than their counterparts in the US and Europe.

The British India Submarine Telegraph Company went on to become part of Cable & Wireless, one of the biggest telecom operators in the world today. VSNL, Reliance, Bharti and BSNL could just be beginning to chart out new history.

Picture by K. Ananthan

tkt@thehindu.co.in

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