India's ISP Market
Part 1: The Competitive Landscape

Will growing Internet use enable an infrastructure buildout, or will poor infrastructure prevent an ISP boom in India?

by Puneet Gupta
[November 16, 2000]

First, two key facts:

1. In the past year, the subscriber base for Internet services has risen from 250,000 to about 600,000, a growth rate of approximately 70 percent. These statistics cover about 50 ISPs
2. With e-commerce volume at Rs. 1.31 billion today (about US$ 28 million) and expected to reach Rs. 60 billion by 2004 (about US$ 1.2 billion), ISPs in India will have an important role to play.

All over the world, the Internet is not only affecting our everyday lives, but is fast becoming a very important variable in a country's economy. India is no exception. With more than 300 licenses issued and over 100 ISPs in operation, the ISP community in India is growing fast, with about one new company every week.

The competitive landscape
Regulations are changing. The deregulation of the Indian Internet market began in 1998 and other ISPs are now allowed to operate international gateways. Licenses have already been given to around 17 ISPs to set up their own international gateways. Until recently, VSNL had a state-granted monopoly on the international gateway.

As more bandwidth becomes available to these ISPs, they will be able to offer ever-more diverse services to India. This is also bound to have a big impact on the competition in the ISP market. According to IDC (see India ISP market and strategy Assesment, IDC Bulletin # AP25215G), by 2004, the market will be large enough to support a number of industry players. I repeat, there will not be a single dominant player in the year 2004.

Please understand that most of the ISPs today are simply striving to provide Internet connectivity to more and more people, to increase revenues by increasing the size of their customer base. Providing content or other premium services is not yet possible, so ISPs are not attempting to increase per-customer revenues. But this will surely change.

In future articles, I will talk about few of the important players in the Indian ISP market. Right now, a quick look at the key forces driving and holding back the Internet market will be useful.

Positive forces
As I have mentioned above, the opening of the international gateway market is a very positive influence on the ISP market. It should enable the provision of higher bandwidth at lower costs, therby enabling bandwidth-hungry applications, no interconnection costs for international connectivity, and opportunities for partnerships with international players.

Now private ISPs can have their own landing stations for submarine cables like FLAG and Oxygen or can lay their own cable links to other nations. Currently, the total international bandwidth available through cable is 10 GB from FLAG and 20 GB from SEA-ME-WE3 (according to India's Voice & Data). Other options are also available.

The increasing optimism of foreign investors is another positive sign.

Negative signals
The biggest issue is, without any doubt, the state of the infrastructure. The most used mode of accessing the internet today is telephone lines, and basic telephony service in India is still far from satisfactory.

Internet access via cable and using DSL is at the experimental stage, but the such services are limited to a few areas only. However, given the extent and reach of cable infrastructure in India, cable Internet access holds promise. The infrastructure must be upgraded if the Internet is to grow in India.

The fact that large scale Internet content provision is still not a high priority for ISPs is not a good sign. ISPs also need to be ICPs (Internet Content Providers) in order to be successful in the long run.

Future articles will cover the major players in the India ISP market today.

—End