On a bull-run

The broadband market in 2005 saw phenomenal growth but fell short of actual projections. Vinutha V says that vendors need to bundle entertainment as a value-added service and unbundle the last mile for rapid growth

The broadband market (download speed of 256 kbps or more) has moved away from the hype curve in 2003-04 to an adoption curve in 2005. Even though the technology was available for the last five years, the market saw traction only in the last 18 months. 2005 has been a period of structural shift in Internet access in the country, when broadband emerged as a real alternative to slow dial-up services. From a low subscriber base of 49,000 in December 2004, the broadband market grew phenomenally to touch one million subscribers by January 2006 according to the Telecom Regulatory Authority of India (TRAI) (See growth chart: Broadband penetration).

Though the broadband market saw impressive growth, it failed to reach the target figure of three million by December 2005 set in the broadband policy issued by the government in October 2004. Half of the projection was supposed to be filled by PSU telecom operators BSNL and MTNL. And though the metro Ethernet services of Reliance and Tata Indicom did kick off, they could not really make a dent in the consumer market.

Nevertheless, the increase in broadband subscribers is attributed to three major factors: slashing of broadband prices, broadband service providers focussing on the SOHO and SMB segments, and value-added offerings by service providers.

Price drops encourage subscribers

One of the major factors that helped the growth of broadband subscriptions in the last year was the gradual slashing of the cost of the service. Broadband prices have been moving southward, increasing the number of subscribers.

Consider this: in September 2004, the minimum monthly tariff for a 256 kbps connection for 25 hours usage was Rs 1,000. By June 2005, broadband prices were slashed by 50 percent to Rs 500 per month. The second round of price reduction came in September 2005 making it even more affordable at Rs 250 per month. At this price, and with operators bundling broadband with PSTN telephone lines, this sector took off like never before.

SMB and SOHO drive initial momentum

Broadband service providers focussed only on the SOHO and SMB segments; they did not place much emphasis on the mass market. SMBs and SOHOs are using broadband services for business-supporting applications such as messaging, remote access services (SSL VPN) for enterprise mission-critical applications, and e-ticketing.

In 2006, the market will see some change in broadband adoption. The low PC penetration deterred broadband service providers in 2005, but they are gearing up to tap the retail market in 2006 with value-added services.

Moving from dial-up to broadband

"Unlike in Western countries, where the broadband boom is happening through a shift from dial-up to broadband, in India even first-time Internet users are going in for broadband as it has become affordable" -K Krishna Senior Director, Marketing Hughes Escorts Communications

From a ground-zero level, broadband service has taken off well in the last 18 months. Growth was fuelled by several factors such as the need for connectivity anytime, anywhere, without interruption.

Says A N J Aradhya, General Manager, Network Co-ordination, Broadband, BSNL, “The IT industry boom and burgeoning outsourcing prospects are adding to the growth of broadband penetration. Internet dependency within the end-customer segment and e-governance initiatives are increasing, which is leading to the expansion of broadband services in the country.”

Says Prem Pradeep, Chief Executive Officer, Karnataka and Kerala, Broadband Services, Airtel: “Especially in the last one year, the understanding of the value of bandwidth has dramatically increased. Surfing, chatting and downloading Internet content has caught on among the young crowd, which is a positive sign for broadband growth.”

India is positioned differently as far as the Internet is concerned. “Unlike in Western countries, where the broadband boom is happening through a shift from dial-up to broadband, in India even first-time Internet users are going in for broadband because it has become affordable. Additionally, users prefer always on-connectivity,” says Jasjit Sawhney, CEO, Net4India.

Dependency on the Internet for accessing data is increasing. K Krishna, Senior Director, Marketing, Hughes Escorts Communications adds, “The Internet is becoming an accepted medium for data transfer. Data transfer from business to consumer and consumer to government is increasing. The comfort in accessing banking services through Internet banking is also driving penetration.”

Telecom providers see broadband service as a business driver to increase their bottom-line growth. In a market where ARPUs of voice telephony services have been constantly falling, broadband and related value-added services offer telecom operators opportunities to boost revenues.

Adding customers

The maximum addition of broadband customers came from the ADSL services of BSNL and MTNL. BSNL, which boasts of the largest copper loop infrastructure, has acquired 4.5 lakh customers across the country in over 240 cities and towns within 14 months of its broadband launch. Private telecom player Airtel, despite an initial hiccup in its infrastructure, has been able to get over seven lakh customers within three years of its broadband entry. Sify, with a customer base of 1.5 lakh, will now be looking at the retail market (home users) based on the Local Cable Operator model in 88 cities across India.

Broadband is also growing rapidly in the business segment. Several communication solutions organisations such as Net4India, HCL Infinet and Hughes Communications are also joining the bandwagon of broadband services by targeting only the SOHO and SMB segments.

Since corporate and high-end customers already have access to broadband through a gateway, obviously the feasibility for broadband vendors lies in targeting the business community rather than the mass market. Telecom service providers with the advantage of a telephone service can bundle broadband as a value-added service.

Broadband riding on DSL

Presently, Digital Subscriber Line (DSL) technology is ruling broadband services, and we saw that in 2005 as well. DSL refers to a class of technology used to obtain more bandwidth over existing copper telephone cabling running between a customer’s premises and a telecom’s location. DSL allows simultaneous voice and high-speed data services such as super-fast Internet access over a single pair of copper telephone wires.

As 95 percent of the copper loops in the country are laid by BSNL and MTNL, for other private broadband service providers it may be difficult to compete since 3G in broadband service has to be on copper. “DSL is a cost-effective, reliable and scalable technology. Broadband service is expected to thrive on DSL technology in the years to come,” says Pradeep.

Net4India and HCL Infinet are offering broadband over Ethernet, a technology usually offered for wireless LAN connectivity inside buildings, offices and campuses, whereas DSL is widely used for longer distances. Satellites are also used for broadband service. Take for instance Hughes, which has a centralised base in Gurgaon; the data is uplinked through satellite and transferred to the equipment at the customer-end. But there is an issue of affordability here as the cost of the modem goes up to between Rs 50,000 and Rs 70,000.

Unbundling the last mile

One major hindrance for broadband growth in India is the issue of ‘unbundling of the last mile,’ which means that telecoms provide voice while ISPs offer broadband services and share revenues. Currently, telecom companies are reluctant to go in for any such development.

Nareshchandra Singh, Manager, Communications Research, IDC India points out that, “Even with all the fibre optics put into the ground both by state telecoms as well as private operators, the last mile problem in India is not yet solved. Fixed line services, unlike mobile services, need a physical connection to every home, and that is a costly affair. The fact is that the last mile wireline connectivity of private operators is nowhere near that of state operators like BSNL and MTNL. It is likely to take many more years and many more dollars before private players can scale up their network to a comparable size.”

Apart from the infrastructure hindrances, broadband service providers have certain marketing challenges too. Everyone tends to rave about India’s IT outsourcing industry. But surprisingly, India figures nearly at the bottom of the barrel when it comes to PC adoption levels on the world stage, with a mere 3 percent. “For broadband service providers, even acquiring a market poses a major hurdle. Since TV density is higher than PC penetration, vendors are leveraging the entertainment angle,” feels Aradhya.

Even for broadband content per se, the offerings are meagre. Unfortunately, unlike the SMS story of mobile telephony, broadband has not yet come up with any value-added service that can potentially help the bottom-line of operators. Content will be a major issue as the broadcasters and content companies are still going slow on the IP front. More significantly, they have not even scratched the surface as far as content creation, rights acquisition, and digitisation are concerned. The ecosystem for this needs to be first created to have IP TV get going.

Comments M Ashok Kumar, Vice-president and Head, Operations, HCL Infinet, “Currently, the cost of deployment of wireless broadband services is a limiting factor for large-scale adoption, and the availability of spectrum for Wi-Max rollout itself is a challenge.”

BSNL’s plans

It is very important to familiarise customers with broadband services. To achieve this, BSNL has offered a free trial service for two months. “About 10,000 users have availed this service, and most of them are now our regular customers,” says Aradhya.

To offer video on demand, BSNL is planning to tie-up with content providers such as the news media. It will be a franchisee agreement on a revenue basis. With this, the requirement to go through the gateway for downloading video will be absent. BSNL has already signed with content providers in Pune, Chennai, Bangalore and Kolkata. The additional service can start with basic access charges of about Rs 300. Depending on the video content (whether movie songs or complete films), prices will vary. BSNL is aiming to touch a customer base of 2.86 million by the end of 2006-07 fiscal. Additionally, through Wi-Max and Wi-Fi, BSNL is aiming to capture wireless broadband services too. The service provider has already completed a few pilots and is in the process of setting up 36 Wi-Fi hotspots across the country.

Sify, which is growing rapidly both in the enterprise and consumer segments, believes in adopting the latest technology and identifying the most apt mode of reaching out to end- customers. Says Shrikant Joshi, President, Access Media, Sify, “For the consumer market we offer services though local cable operators. There are about 65 million cable TV connections in the country operated by 25,000 cable TV operators. From the cable operators’ premises we offer broadband services through Ethernet to end-customers. In this way we can interact well with our end-customers, know their requirements, and meet those needs accordingly.” Through its SifyMax content portal, Sify has been working to get broadband subscribers. It offers entertainment content such as film songs and special TV programmes for free. Wi-Max will be a key technology for Sify to increase its customer base.

Hughes is planning to target the traditional cyber cafe market and Multi Dwelling Units so that the cost of the hardware gets distributed. Further, the company is contemplating introducing Triple-Play broadband access. Currently, Hughes provides video and Internet as Dual-Play and aims to tap the rural need by including voice.

HCL Infinet’s broadband rollout strategy is focussed around Internet and Internet-related value-added services. HCL Infinet aims to expand its wireless broadband reach to 104 locations in the country.

Further price cuts

"Internet is becoming an accepted medium for data transfer. Data transfer from business to consumer and consumer to government is increasing. The comfort in accessing banking services through Internet banking is also driving penetration" -Jasjit Sawhney CEO Net4India

“Earlier, Wi-Max was only at the pilot stage and there were many inter-operability issues that hindered growth. But now with Wi-Max maturing, there will be an increased demand worldwide. With this the cost of the equipment is also expected to come down, which will allow further reduction in the broadband service package,” predicts Sawhney. Even as the pricing comes down, adoption in sectors like healthcare and education will allow service providers to continue to increase market share. “Certain technology advancements such as modulation and compression will further drive down the cost. Currently, satellite transfer is only through ISRO, which is a government body. The government is contemplating a new telecom policy following which using any satellite provider (private) can further reduce the cost,” says Krishna.

IDC believes this leaves us with only one viable option for fast broadband penetration, and that is using the already-existing network of BSNL and MTNL. ISPs have already shown that they can build a viable Internet access business by using the local loop of the PSUs to provide their dial-up services. If they can do it for narrowband, why can’t they do it for broadband as well? The issue of local loop unbundling is going to be critical in 2006.

TRAI has already recommended that the ISPs be able to access any five-year-old local loop of the PSUs for providing broadband access. With the broadband target of three million subscribers by 2005 not being met, the government is under a lot of pressure to accede to this demand. A regulation to this or a similar effect could come out in 2006, though it will be a major challenge to make the PSUs comply with such a regulation.

Avenues for growth

Although growth is high, India has the lowest broadband penetration—less than 1 percent—when compared with the rest of the world. Broadband service providers believe that the hidden potential itself is a major incentive to target the untapped market. The boom is starting now. Broadband is expected to be all-pervasive, and one of the positive factors for broadband services is the rate of PC penetration, which is growing at 30 percent every year.

Joshi adds that in the enterprise segment online processes are bound to increase. Additionally, e-governance will be a major reason for the penetration of broadband service. Most of the e-governance projects are expected to be online, including railway ticketing and voter’s ID cards.

vinutha@expresscomputeronline.com