Surfing the Web, communicating, playing games, watching videos and listening to music online have become an intrinsic part of most urban dwellers’ lives. According to Mary Meeker’s ‘2012 Internet Trends’ report, there are 137 million Internet users in India — growing at 26 per cent year-on-year. By all estimates, this number is expected to double by 2014 with the advent of fourth generation technologies.

At a time when the Internet is all set for an explosive growth in the country, standalone Internet Service Providers (ISPs) are exiting the business. The number of small entrepreneurs who have surrendered their ISP licences to the Government has crossed the 500-mark as they find the business tough. Only about 150 Internet companies remain operational even though 903 licences have been issued by the Department of Telecom till date.

Partial treatment

More than 95 per cent of the 137 million Internet users are owned by large telecom players like Bharat Sanchar Nigam Ltd, Bharti Airtel and Vodafone. Internet service providers say that they have been left in the lurch by the Government by making policies skewed towards the big telecom players.

“When the Government opened up the Internet space for private players, many entrepreneurs came forward thinking that they can leverage the demand. But over the last 10 years, standalone Internet companies have got a raw deal,” says Rajesh Chharia, President, Internet Service Providers Association of India.

Most of the small ISPs operate at a local levels making available Internet services where a large company may not be interested due to poor return on investments. However, the Government policies seem to have focussed only on large telecom companies while standalone ISPs were curtailed from offering full suit of services.

For example, in 2004, ISPs were stopped from offering Virtual Private Network services which were part of their initial licences. Virtual Private Network is used connect multi-location corporate through leased lines. But when Bharat Sanchar Nigam Ltd. started losing business contracts to small Internet players, the Government took a view that VPN services was not part of the Internet licence. This resulted in the ISPs losing nearly 60 per cent of their revenues.

Restrictions

The restriction on offering Internet telephony services was another major dampener. Internet telephony allows user to make voice calls using the Internet. While large telecom companies such as Airtel and BSNL were allowed to offer Internet telephony, ISPs such as Sify are still not allowed to do so. “The irony is that foreign players such as Skype continue to offer net telephony services without any restrictions while Indian ISPs are barred even now,” said Chharia.

The other major concern for the smaller players is the cost of infrastructure. The ISPs are mostly dependant on large telecom players for bandwidth but there has been no revision of domestic bandwidth rates for several years. While the telecom regulator recently lowered charges for international bandwidth at the behest of foreign international long distance players, the same has not been done for the domestic leg. A 2 MB line costs as much Rs 20 lakh a year which many ISPs cannot afford.

Even as potential revenue streams shrunk for the ISPs, the Government has taken a view to collect annual revenue share from the Internet firms. Initially, ISPs were given licences for just Re 1 but now, the Government wants to impose a licence fee on the Internet firms.

But not all is lost. The good thing for the Internet players is that the demand for broadband and data services is just beginning to grow. Also, it is now clear that the growth will happen more on the wireless platform.

As of October 2012, there were 78.7 million mobile users who had accessed Internet using their mobile devices in the last one month, which include laptop with dongles and tablets that connect to the Internet. Of this number, there are 61 million were Off Deck Users (accessing sites other than sites of the operator), 15 million are On Deck Users (accessing only sites specified by the operator) and the rest 2.7 million users accessing the Internet using dongles (i.e. connected to Internet using 2G, 3G or high-speed data cards), according to Internet and Mobile Association of India. It is expected that the number of users accessing Internet through mobile devices is going to cross 100 Million by March 2014.

While most of this will be cornered by the large telecom players, smaller Internet companies like Spectranet, Wi5 broadband and Tikona Digital are looking to latch on to this opportunity using a mix of wireless technologies. For instance, Zylog System-owned Wi5 is planning to Wi-Fi all the major hubs in major cities to enable mobile users to access Internet without having to rely on cellular technologies.

Tikona Digital Networks plans to launch Long Term Evolution (LTE)-based services in the second half of 2013. It is already offering high-speed broadband services across 25 cities by using unlicensed spectrum. Prakash Bajpai, CEO and Managing Director, Tikona said that the company will continue to invest in the unlicensed spectrum service to cater to the fixed broadband users. Tikona will also set up Wi-Fi hotspots in several cities.

“The LTE network will address the need for mobile users while wi-fi and the existing service will cater to the fixed users like homes and offices,” Bajpai said. Tikona has already set up 40,000 micro cells for its existing broadband service and plans to use the same micro cell architecture for 4G services. Micro cell allows operators to set up small base stations that cover a smaller area compared to traditional tower-based base stations which cover a larger area. Bajpai said Tikona will roll out a carpet network using the micro cell technology in cities where it plans to launch 4G services next year.

According to Chharia, the smaller Internet players could emerge once again if the Government gets the unified licensing policy right. The Telecom Regulatory Authority of India has proposed that ISPs will need a funding of Rs 15.7 crore and paid-up capital of Rs25 crore to qualify for a unified licence. Under existing rules, ISPs are required a total funding of only Rs 51.15 lakh for a pan-India permit. “We want government to give us migration path to UASL on very low cost entry fee," says Charia.

thomas.thomas@thehindu.co.in

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