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The Indian Internet revolution

Jul 1, 2000

REDF. To investors in the United States, this symbol represents just another dot.com. But for Indians, this marks a milestone. This symbol represents Rediff.com India Limited, the owners of India's most widely viewed portal – rediff.com. The company went public on the NASDAQ on 14th of June 2000. This may not surprise many readers, but the stock price nearly doubled on listing, despite the company having declared losses in excess of US$ 6.5 million in the year ended March 2000. Currently it quotes at a 50 percent premium to the issue price of US$ 12. To ask why the enthusiasm regarding Internet stocks may seem odd. Rather if one were to question the prospects of the Internet in India, it would generate much more meaningful discussion. But before you start writing off India on the grounds on low literacy levels, negligible personal computer base and weak infrastructure, it is essential to take a look at the projections made by the International Data Corporation (IDC).

The IDC estimates that India will have 11.3 million Internet users by 2003 as against the existing user base of 1 million. The e-commerce spending meanwhile is anticipated to jump to US$ 1.6 billion as compared to US$ 9.7 million currently. The personal computer base meanwhile is anticipated to increase to over 8 million in 2002 (1.9 million in 1998).

The fantastic growth is definitely attracting a lot of attention. Already, the government has issued 258 licenses to concerns looking at providing ISP services in the country. India even has its homegrown versions of ‘Freeserve’. It is difficult to put a number to India centric sites, but by the looks of it, they are being launched at the rate of a dozen a week. The enthusiasm is palpable.

Talking of ISPs, Satyam Infoway (Sify) has been creating waves in the Indian market. The company was one of India's first ISPs. It currently has over 170,000 Internet users spread across the country. However the reason it has been in the news is quite different.

Sify has entered into two deals in the recent year, which involved abnormally large NASDAQ like valuations. First was the deal to purchase Indiaworld.com for an all cash consideration of Rs 5 billion. And recently came the announcement that the company had entered into an agreement to purchase a 25% stake in Cricinfo.com, for a consideration of US$ 37.5 million (effectively valuing the portal at US$ 150 million). While the first surprised the market, the second came more as a shock (infact the company’s parent, Satyam Computers, saw its stock decline sharply on the announcement of the purchase). The two deals nevertheless increased the enthusiasm in the Indian Internet market, and attracted an even larger number of people into this field.

India's largest ISP, Videsh Sanchar Nigam Limited (VSNL) too is headed to the Mecca of technology stocks. The company plans to list its Internet subsidiary, VSNL Seamless Services Limited, on the NASDAQ in an effort to raise funds to boost its thrust in the Internet sector. Another hopeful is Mahanagar Telephone Nigam Limited (MTNL), which is targeting a dramatic increase in the contribution of Internet related services to its topline.

In the meantime there is a rush between companies to set up their independent payment gateways and international gateways (the government has diluted VSNL’s monopoly over data traffic). While the first will give a boost to e-commerce in India, the latter is anticipated to help remove the bottleneck Indians face in accessing the Internet. All in all these measures will give the Internet a boost.

The Indian Internet sector is gearing up for the big league. WAP and broadband are common parlance. Surprising for a country that has a tele-density of 3 and where mobile phone usage is still very limited (a user base of 1.8 million). Someone put it rightly in saying that although countries line India may have missed the telecom and cable revolution, they will more than make up by participating directly to the Internet revolution.


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