Wipro's JV with KPN (Royal Dutch Telecom) to offer Internet services will commence operations with an initial investment of Rs 250 m. Wipro will hold a 55% stake in this JV. The decision to tie-up with an MNC was influenced by the capital-intensive nature of the ISP (Internet Service Provision) business.
It was in September 1998 that private Internet Service Providers (ISPs) were issued licences to set up international gateways, with a maximum of 49% foreign equity participation. The ISPs will be competing directly with VSNL and will not have to pay any licence fees for the first five years, after which a token fee of Re 1 will be charged annually. There are no restrictions on the number of licences to be issued to ISPs.
Reports reveal that the Department of Telecommunications (DoT) has already issued 72 licences by mid-February 1999 (from 19 licences until first week of December 1998). Some of the more prominent licencees include groups/companies like Reliance, Hughes Ispat, BPL, Bharti, ZEE Telefilms, CMC, Ernet and Sprint RPG.
Certain private ISPs have already commenced operations in selected areas, viz. Satyam Infoway and Bharti (Mantra). Initally, Wipro Net will be operating in a niche area by focusing primarily on business customers. Wipro Net already has a database of customers from its erstwhile communications division, who will now become customers of Wipro Net.
In the future, Wipro Net also plans to launch Web access, hosting and securing virtual private networks services and other services like global roaming.
By end of 1999, the company plans to break into the home segment, which Wipro Net may find a little too crowded for its comfort. MTNL and VSNL are already breathing down each other's necks, by slashing rates at the drop of a hat. Wipro Net will find it difficult to break VSNL's stranglehold on the home segment.
The internet services sector has become intensely competitive with a large number of service providers aiming to grab a larger market share. This situation has been compounded by the entry of a large number of new service providers into the sector. Although the sector is growing at a fast pace, it is likely that these companies will witness a fall in margins, although they may continue to post an increase in the topline.
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