Data Access aims to dethrone VSNL in ILD

Once bleeding as an Internet Service Provider (ISP), Data Access is now eyeing the Number One spot in the Indian international long distance (ILD) sector—and a neat 5 percent of the market worldwide. Rahul Neel Mani has the details

The deregulation of the international long distance market (ILD) in 2002 gave Data Access the opportunity it was waiting for, says Siddhartha Ray

If you study at the way Data Access (DA) does business, you will notice that it enters only those areas where it feels it has strong domain knowledge. The company knows that if it strays, the chances of success are minimal. For DA, understanding and learning the domain happened through its entry into the ISP business. The mandate was clear: the company would first learn the domain and then try to see how it could progress.

Today DA is one of the top 10 telecom companies in India. With current revenues pegged at Rs 800 crore, the company is confident of growing to Rs 2000 crore. Undersea cable is one huge opportunity that the company is looking at.

When DA first entered the ISP business it was boom time. But as the dot-com era melted, ISPs started bleeding. DA went through a learning curve after it launched its services in October 2000. "It was a game of eyeballs. The more the eyeballs, the more the valuation you got," recalls Siddhartha Ray, DA’s founder and managing director. But by May 2001, eyeball valuations evaporated all over the world. Ray felt it was time to change to traditional revenue-driven rules. Without revenues in the picture, an ISP did not have even a remote chance of surviving. "An ISP is just an intermediary switch operator with some servers and RAS boxes on its premises. Anybody who owns these servers and boxes can drive the business without the need of an ISP. That is why no ISP—including AOL—could see a future in a standalone mode," explains Ray.

In April 2001, DA claimed to be the third-largest ISP in India, with 250,000 subscribers and over 45 centres across the country. The reality was that out of those subscribers, two-thirds were not paying any money. This was problematic, and was eating too much of marketing money. The prices at which connections were sold at that time were dismal. DA fell into debt. Faced with this situation, DA was left with two choices—shut down the ISP business or find new business opportunities, which could leverage its existing infrastructure.

The company took the first hard call in April 2001 and refused to promote its retail dial-up business. But that was not the end of the road, for DA had a last chance to tap the wholesale market with the help of its satellite gateways. This was the second defining moment for the company, the start of a business which DA still continues. "We do a substantial amount of bandwidth wholesaling, and we have just commissioned 100 MB for BSNL," says Ray.

Two major happenings changed the company. In 2001, the Government of India decided to divest its stake in VSNL, the lone ILD carrier in India. It also indicated that the public monopoly would not be allowed to become a private monopoly. The government also advanced the deregulation of the ILD market by two years, so what was to happen in 2004 occurred in 2002. "That was the opportunity we were waiting for. As an ISP we’d already learnt a lot. We had IP connectivity across the world, so it was the most appropriate time for us to hit the iron when it was hot," says Ray.

Half the infrastructure to operate as an ILD was already there at DA, except for the voice switches. The company therefore decided to invest in voice switches, but continue with the same gateways and fibre. That’s how DA became an ILD player. "We didn’t know at all whether it would be a successful business, so we decided to use a technology which gave us the flexibility to share capacity between voice and data networks, and could be micro-managed," admits Ray. India was a huge centre for grey market voice through illegal VoIP, predominantly through public Internet, but from some managed networks as well. The total size of the opportunity? One-and-half billion minutes per annum.

The ILD licence terms then prevalent mandated that the operator should have at least four switches in the country. DA decided to go with carrier-class IP equipment, and open standards. Satellite was used as a dominant medium for bandwidth.

Why satellite?

"The choice of satellite or fibre had nothing to do with the difference in quality. All that mattered was price. Fibre across the world is significantly cheaper than satellite. But where a new market opens up the only thing that a newcomer faces is the reluctance of the incumbent to lend its fibre to any other player. "We correctly guessed that VSNL would be very reluctant to allow Data Access to take STM4 and STM16 capacity on their fibre. Till date they don’t allow us to use their fibre," says Ray.

This being the case, the company had no choice but to go for satellite bandwidth. "The moment you talk of satellite, the technology gets determined automatically. IP (packet switched) works much better on satellite than circuit switched." But satellite has a minimum latency of 450-540 milliseconds. This delay can create echo and jitter in a TDM switch. In IP technology, where one packet after another carries voice, only the first packet has the delay. Because the quality offered by satellite was as good as fibre, the company went for satellite connectivity. It caught the competition by surprise since they were expecting DA to roll out its services a year later. The company got its licence in April last year and commissioned the services in July—the delay was only because of security reasons. Bharti started its ILD services a day ahead of DA. "Bharti was on a TDM switch which takes a long time to stabilise. By the time their network was ready to terminate India traffic, it was December," says Ray. By that time, DA was miles ahead and was terminating a large volume of call minutes.

On the international front, the company went in for traffic aggregation at three nodal points. DA installed switches at London, Hong Kong and New York. The policy was clear—the company wanted switches where all carriers aggregate to make interconnect easier. During the first month of operations, DA had 34 carriers operating with it; today the figure has gone up to 84.

Going global

The company has already acquired licences for India, Sri Lanka, Britain, Hong Kong and the US, and Mexico is next in line. The Middle East, Africa and Bangladesh are also on the radar. Explains Ray, "This is a commodity business in which margins are small, so we need volumes." The legitimate Indian ILD market is pegged at 4.3 billion minutes a year, which roughly translates to $150 million in revenues. DA commands 30 percent of it, which means 1.3 billion minutes. "For bare survival we need to have at least six billion minutes, and that cannot be achieved by just operating in India, hence the company is expanding outside in multiple markets," adds Ray, who expects to reach the six billion figure by 2004.

The company plans to increase its share of the American market from the current 1 percent to 5-6 percent. The global market size of the carrier business is currently 300 billion minutes a year, and DA wants 5 percent of it, or 15 billion minutes.

More money, newer markets

The total revenues of the company in September 2003 will be around Rs 800 crore, which makes it the seventh largest telecom company in India. Till September 2003, almost 90 percent of this revenue came from its India operations. Now the projections say that revenue will grow to Rs 2,000 crore in 2003-04, and that 60 percent of this growth will come from overseas operations. "We believe in raising funds only when we feel there is a need for it, otherwise it is a wasteful exercise," says Ray, while indicating DA will come out with an IPO in the second quarter of 2004. The money from the IPO will go into creating additional capacity, which will come from laying an undersea fibre cable from Mumbai to Athens. "From Athens there are enough fibre links available, so there will be no problem," Ray says. Indeed, this is the most sought-after undersea cable path. The biggest beneficiary of this cable will be the Middle East market. The traffic between this region and India is 20 times higher than the traffic between India and the Far East. DA is partnering with a Middle East carrier company to lay the cable.

On the question of joining SeMeWe4, Ray insisted it is not going to happen in the near future. "Half the members of the SeMeWe project are losing billions of dollars. The rest have so much capacity that they would be wasting money if they added further capacity. Bharti has a pipe delivering 8.3 TB capacity, but where will they sell this? India’s total bandwidth requirement—data and voice put together—is not more than 10 GB," observes Ray.

Meanwhile, DA is commissioning a Global Telecom City for the Karnataka government. This will be the first Special Economic Zone in the country for the service industry. It is intended to move hubbing traffic from Singapore to India—completely non-Indian traffic for carriers in Hong Kong & Singapore. The work is being done by a separate business entity of Data Access. The company is not looking at the last-mile business at all, and will remain entirely focused on the global carrier business.