India may be bandwidth-deficient today, but thanks to BSNL’s upgradation of networks and new private players, India will soon have enough bandwidth. In fact, we may just have way too much, says Shipra Arora, as she analyses future demand-supply and business scenarios in the bandwidth business

GoI’s Sinha says the glut will result in lower prices for bandwidth which will translate into benefits for the customer

Till a year ago the monopoly of government-owned utilities who dug up roads and left them crater-ridden till the next utility came along with similar intentions, Indian roads have another set of attackers today private telecom firms laying fibre across the length and breadth of the country. Admittedly, they leave roads and pavements in slightly better shape than government firms, but the simple end-result of all this digging and laying fibre is that bandwidth-starved India will soon have oodles of bandwidth. Fact is, as you study actual bandwidth requirements and the capacity being built up, the answer clearly points to an impending glut of domestic bandwidth in the country. If Dewang Mehta were around, he would have to remove bandwidth from his famous ‘Roti, kapda, makaan, bandwidth’ formula for India’s growth.

According to V P Sinha, senior deputy director general, LTP, Government of India, the current requirement of bandwidth between Delhi and Mumbai is around 3.5 to 4 Gbps. Between Mumbai and Chennai via Bangalore it is around 3.5 Gbps, and between Chennai and Hyderabad, or between Bangalore and Hyderabad it is around 2.5 Gbps. Between most cities, demand ranges between .5 to 1 Gbps. According to Siddhartha Ray, managing director, NOW India, domestic bandwidth of about 500 Mbps is quite enough for Internet access alone. And Sudhir Bapat, managing director, Gateway Systems (India), says while around 10 percent of corporate users today use high speed connectivity, i.e. 2 Mbps and above, over 85 percent use 64 or 128 Kbps access.

Now consider the corresponding supply of bandwidth available in the country today. State-owned Bharat Sanchar Nigam Limited (BSNL) already provides 2.5 Gbps of bandwidth across more than 50,000 kms and 150 cities. BSNL currently has an optic fibre network spanning 3,00,000 route kms. This, according to Sinha, means that as of today there is virtually no pending demand for bandwidth in the country and that most of the current inter-city demand has already been fulfilled by BSNL. Ray agrees. “There is adequate supply of bandwidth available to cater to requirements,” he says.

In the pipeline

But, as experts point out, the demand pattern for bandwidth will soar upwards in the near future, spurred by factors like increasing PC penetration, greater Internet usage, increasing tele density and emergence of sophisticated business applications. It is to tap this future demand that players like Bharti Broadband, Reliance, the Tata group, and PSUs like Powergrid Corporation, Gas Authority of India Limited (GAIL) and even Indian Railways have jumped on the bandwidth bandwagon.

Reliance Infocom, a subsidiary of Reliance Industries, is building an all-India optical fibre network connecting 115 cities with 60,000 route kilometres of fibre, spanning bandwidth capacity in terabits. The project will be completed by March 2003. Sinha points out that with the ‘655’ type of cable that Reliance is using, it will be able to deliver 10 Gbps of bandwidth once operations commence. Add to this Bharti Broadband which promises to cover 300 cities across India. Zee Telefilms Limited (ZTL), backed by media mogul Subhash Chandra, will be also building a hybrid fibre coaxial (HFC) cable network. The Tatas are also in the fibre race and so are some PSUs Powergrid Corp is scouting for a global partner to build a telecom backbone around its 13,800-km power supply network; Gas Authority of India is using its natural gas pipelines to build long-distance communication links, and Indian Railways plans a fibre-optic network around its sprawling 62,800-km route through a joint venture.

BSNL will still rule

As mentioned earlier, bandwidth and telecom giant BSNL is itself upgrading its OFC network under the Sanchar Sagar project. The first phase involves taking bandwidth capacity up from 565 Mbps to an initial 2.5 Gbps and later up to 40 Gbps. And the 40 Gbps capacity will be available in some cities by the end of 2002, with 20 Gbps available by March 2002. Sinha adds that with BSNL planning to go in for Dense Wavelength Division Multiplexing (DWDM) technology, theoretically it can even envisage a bandwidth supply of up to 80 Gbps. And the cost is hardly anything too just about Rs 250-300 crore for installing DWDM equipment across 35 cities.

Compare that with Reliance’s capital outlay for building its network, excluding license fees presently estimated at Rs 25,000 crore over the next three to five years. And the Tatas for instance, have announced plans to invest $830 million just to fund their fibre optic network in Mumbai.

Leave alone the cost comparisons, will demand really surge, as private players expect? Explains Ray, “One can safely project a 20 percent compounded annual growth rate (CAGR) for bandwidth demand in country over the next 2-3 years.” Sinha estimates that typical requirement between Delhi and Mumbai can go up to 40 Gbps, and between smaller cities just below the 10 Gbps range by 2005. Rustom Irani, CTO, Satyam, says that bandwidth demand will grow to over 100 Gbps, propelled by factors like broadband applications, communication needs and e-commerce. This, when compared with corresponding quantum leap in bandwidth supply, clearly reflects upon a situation of aplenty-in fact, a glut.

That’s the difficult question that looms large in faces of the new private and PSU bandwidth players. But on their part, they claim that there will be an exponential growth in demand, which perhaps research agencies and experts have not been able to envisage. Says Bapat, “The potential of corporate customers who are today using 64 Kbps to 2 Mbps to migrate to higher access speeds is very high with increasing deployment of sophisticated applications like ERP, SCM, CRM, e-commerce and multimedia. Add to that companies who are migrating from dial-up or ISDN connections to always on, 24/7 connectivity options.” Further, as Sinha points out, the bandwidth addition exercise by all players is under phased plans. All players are creating the minimum required infrastructure, which can be upgraded to higher bandwidth levels as demand rises.

But experts like Ray insist that a lack of business domain knowledge and aggressive, unrealistic forecasts have been the key drivers for excessive bandwidth plans. To be fair though, the dynamics of excessive bandwidth build-up are also sometimes governed by technical compulsions. For instance, there are certain standards for Synchronous Transmission Multiplexer systems. The standards available today include STM 1, which allows for .155 GB capacity, STM 4 for .622 GB, STM 16 for 2.5 GB and STM 64 for 10 GB capacity. So if a player wants to upgrade his network’s capacity from 2.5 GB to 5 GB, he cannot do that and will have to upgrade to a minimum of 10 GB.

Marketing will be key

How this excessive bandwidth is marketed will mark the point of differentiation. According to Irani, this will be through offering a number of value-added propositions to end-users. “These will have to be driven through retailers who will be able to create multiple products and ‘consumerise’ them. Thus allowing bandwidth providers to focus on their core business of building and maintaining infrastructure,” he adds. The challenge for private players will be to wean away existing BSNL customers by offering better services and more features. But as Sinha explains, BSNL will be no pushover. With various advantages such as the largest route length in the country (which is further expanding), early mover advantage, massive capacity, economies of scale, etc, BSNL holds an edge over other private players. But Sinha also grants that smaller operators might well turn out be wild cards in this game with smaller capital and operating costs.

Elaborating on the strategies that private players can adopt to counter the BSNL challenge, Irani says that they can look at providing technologically superior and better-engineered networks to attract customers. Take for instance the case of Gateway Systems’ Titan Broadband Wireless Access Service, which will be focusing its strategy on resolving the ‘last mile’ bottleneck, which is the most common network failure in India. “By owning the last mile a critical component of the service delivery chain to the end user we in fact have the first mover advantage. Our ownership of the last mile increases our ability to leverage the domestic and international long distance capacities that already exist or are planned to be added and thereby deliver on high QoS to corporate users,” explains Bapat. In addition, the company is providing a range of corporate focused service offerings, and is also contemplating International Long Distance (ILD) and the VoIP market when it opens up in the near future.

While players are evolving business strategies, which include plans like National Long Distance Telephony (NLD), cyber dhabas and kiosks, how much such measures will help in staving off BSNL is yet to be analysed. Says Ray, “Since the NLD market normally requires a long gestation period, it is very important that some realistic assessments of the situation are done at both the government and private level. Otherwise businesses might find it difficult to sustain themselves.” He also warns that players should not forget that the crux of the business is connectivity and value added services can only be very thin revenue streams, which cannot impact overall health very significantly. Hence, the answer will lie in providing improved Quality of Service (QoS) at prices matching BSNL’s pricing, which means an imminent price-war in coming years. But here too BSNL seems to hold all the aces. Irani explains: “A price war can be fought very effectively by BSNL because it has recovered a large part of its existing infrastructure costs.”

Cheaper than ever

While Sinha envisages prices dipping even below the price cap fixed by the Telecom Regulatory Authority of India (TRAI), Ray sees a 40 percent decline in point-to-point rates in the future. In fact, BSNL has already heralded the price war dropping its STD rates to Rs 9 per minute. And there’s certainly more to come. But the final picture will depend on the number of players entering the market and eventually the number of final survivors. Says Irani, “There will be an initial reduction in prices and this will bring the prices of bandwidth to reasonable levels at par with the US and Europe, down from the present unrealistically high prices. However, this will taper off and prices will stabilise in the next 18 months.”

According to Ashok Juneja, CEO of Bharti Broadband Networks Limited (BBNL), the price war can further lead to an equation where larger amounts of bandwidth at cheaper rates could further spur demand for greater volumes a hypothesis that most players are banking on for their survival. “In the long term there will be enough demand to sustain bandwidth offered by all players and most of them are in for a long haul. The quality of services factor will determine success or failure of these projects,” adds Juneja.

One significant impending outcome of this emerging scenario will be business failures. According to Ray, for every profitable player there might be two bleeding ones, which will eventually lead to a consolidated market operating, with at best three players. Irani estimates that BSNL, Bharti and Reliance will come on top. “In fact, the first two or three infrastructure providers will corner about 95 percent of the market,” he adds.

The greatest benefit though will come to the customer, who will command better quality levels at lower prices, as per his requirements, rather than unquestionably take whatever is on offer. The customer will be truly king. What remains to be seen is how long India’s bandwidth players will be able to sustain themselves under such a scenario.