Global Economics

India's Coming Bandwidth Boom


Government measures are expected to bring open competition and price cuts that will give a boost to outsourcing businesses

India's bandwidth market is expected to undergo a radical change because of government moves that have set the stage for open competition and expected price cuts. Some officials believe the country now is positioned to become the most bandwidth-competitive country in the world.

Since early 2006, the Telecom Regulatory Authority of India (TRAI) has been pushing for amendments to the international long distance licenses so that more operators could enter the market. In mid-December the Indian government accepted the recommendations for the re-sale of bandwidth, allowing other players to access the cable landing stations owned largely by VSNL/Tata as well as Bharti and Reliance, which have smaller operations.

"There will be a price reduction in the cost of bandwidth, which will not only help bandwidth-dependent companies like call centers, business process outsourcing [BPO] firms, telecom and media companies compete with the global majors, but also make India one of the most bandwidth-competitive countries in the world," says Amitabh Singhal, CEO of Telxess Consulting Services, a telecom analyst firm based in New Delhi.

Current bandwidth prices are as much as five times higher than on some international routes, according to industry sources, who add that once the directive comes into force, bandwidth prices could drop by 20%-25%.

"This will enhance competition in international private leased circuits through the entry of resellers, who will be non-facility based operators," TRAI chairman Nripendra Misra, said while lobbying the government for a more liberalized approach.

Bandwidth growth has been phenomenal in India, with the total installed bandwidth capacity in the range of 19-20 Tb and lit-up capacity in the range of 500-700 Gb.

Currently, three submarine cable companies - Tata group-owned VSNL, Reliance-owned Flag telecom and Bharti Tele-ventures - sell bandwidth in the country to Internet ISPs such as Sify, YouTelecom and Hathway.

However, with the opening of the sector and long-distance licenses granted, new operators will be able to act not just as ISPs but as telecom operators that independently utilize bandwidth. Players include US telecom giant AT&T, as well as government-owned Indian operators like MTNL, Power Grid Corp, RailTel Corp, and other firms such as HCL Infinet i2i Enterprises, Tulip IT Services and Sify.

INTERNATIONAL COMPETITION

Late last year AT&T became the first foreign telecom operator to secure a new telecom license under the Indian government's revised policy on foreign direct investment (FDI) allowing up to 74% foreign ownership. It now competes with Indian telcos in both domestic and international long distance, but it does not operate in the retail space, initially limiting itself to providing bandwidth to Indian subsidiaries of American multinational companies.

According to some industry sources, international players such as BT and Cable & Wireless are interested in entering the telecom market, potentially triggering new competition for Indian telcos. The companies are looking at providing MPLS, ATM, network integration and security services for enterprises.

Sanjiv Bhagat, CEO of AT&T Global Networks India, believes the ability to act independently will allow international service providers to improve customer service.

"While AT&T has already been operating a successful India business for over six years in alliance with VSNL, the move will enable us to further strengthen our commitment to customers in India," he explained. "Moreover, with the sharing of cable landing infrastructure, we can ensure a higher quality of service that MNCs are used to."

Virgil Palmer, chairman of the AT&T Asia-Pacific advisory council and an executive with industrial gas giant Air Products and Chemicals, believes the telecom changes will significantly improve quality and reliability, as well as simplify tasks such as negotiating, contracting and billing.

"India is a high-priority market for just about every global MNC," Palmer noted. "And I believe that this will be a major factor in helping to attract further foreign investment and expansion into India."

The telecom rule change is also prodding players like Sify (part of the Satyam Group), HCL and Tulip IT Services to act more like traditional telecom operators, not just IT companies. That, in turn, could to lead to more sharing of telecom resources among different players competing in the expanding market.

H.S. Bedi, managing director of Tulip IT Services, said: "Going forward, telcos have to share the telecom infrastructure. There is a tremendous amount of bandwidth available in the country, and a single player does not have the ability to have the required amount of customers, nor can it provide the entire infrastructure for the backhaul."

Tulip, for example, recently reached an agreement with NTT Communication India, a subsidiary of NTT Communications, to provide connectivity services on Tulip's MPLS network to NTTCom's global customers based in India. Now, with more bandwidth being available, end-to-end control is now possible, added Bedi.

With a sustained quality of service that they can control, these telcos now plan to introduce broader advanced networking services and solutions.

HECTIC SCENE

According to the TRAI, bandwidth owned by gateway service providers increased to 12.7 Gb in March 2006 compared to 6.5 Gb a year earlier. The large gateway service providers include Reliance/FLAG, Tata/VSNL and Bharti. They are consolidating their gains and working on making bandwidth much cheaper to consumers, as well as tying up with international players.

Flag Telecom, for example, signed a contract with T-Com, Deutsche Telekom AG's broadband and fixed- line business, to provide additional broadband connectivity between Europe and the US.

Tata-managed VSNL and the East African Submarine Cable System (EASS) are in discussion to merge their respective undersea cables linking India and Africa to Europe. The move would make the proposed undersea cable the second largest joint undersea cable. Tata recently acquired Tyco Global Network.

VSNL is investing $600 million to build two new submarine-cable systems, one between India and Europe and the other intra-Asia, in partnership with carriers in those respective regions. The India-Europe cable would also provide connectivity to the Gulf region and the African continent, and supplement VSNL's existing bandwidth capacity in several consortium cables in the region.

The intra-Asia cable between Singapore, Hong Kong and Japan would enhance the link between VSNL's Tata Indicom Cable (Chennai-Singapore) and TGN Pacific (Japan-US).

These multi-terabit capacity systems would interconnect with VSNL's existing global network that has over 20 terabits of capacity. Company executives say such investments will lead to greater efficiency.

"We have invested over $550 million in expanding our global presence and connectivity in the last two years, and we are regularly passing on the benefits of improved cost-efficiencies and service quality to our customers," said N. Srinath, executive director of VSNL.

BSNL has entered into an agreement with state-owned Sri Lanka Telecom to lay an undersea cable, and Reliance Communications is in talks with Lanka Bell, one of Sri Lanka's privately held wireless operators, to lay an undersea cable linking India and Sri Lanka. The $25-million project will also have a cable extending from Sri Lanka to the Maldives.

BURGEONING DEMAND

Although dial-up Internet subs in India have grown 24% to 6.9 million, it is the growth in broadband services that is the real driver for the international bandwidth increase, according to the Internet Service Providers Association of India (ISPAI)

"Broadband services have grown by over 600%, with 1.5 million subscribers compared to a few thousand in 2005. Usage of Internet services such as leased lines and Net telephony has also increased considerably," the ISPAI said.

Internet telephony reached a billion minutes during in the first quarter of 20006, compared to 58 million minutes a year earlier. The vast majority of VoIP calls are international. Domestic laws prohibit the use of Internet telephony for local call, and domestic long distance rates have come down sharply and are just 2.2 cents (US) per minute. Adding to the bandwidth consumption is strong demand for leased-line Internet services such as VPN services.

"Bandwidth requirements are largely being driven by the IT industry, particularly the BPO sector," said Kiran Karnik, pesident of Nasscom. "We are also witnessing more Internet usage at homes. Everything is moving toward data, and non-IT organizations are also feverishly going the e-commerce way.

"They are relying on electronic invoices rather than physical invoices when trading with overseas firms and sending pictures and video clips of their products to their overseas clients. Today's bandwidth needs are definitely centered around international trade, giving rise to a strong demand story from India."

No doubt, competition is coming fast in an area where the incumbents dominate. However, some believe events aren't moving quickly enough.

"This is all very good, and we are moving in the right direction. But I believe there should be a sense of urgency and things should move at a faster pace than they are now," says Ankit Kedia, telecom & media research analyst at ICICIdirect.com, an online trading firm. "It has taken us one year to get the government to allow the cable-landing station infrastructure to be shared. All this could have been done faster."


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