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Connecting India - Views on News from Equitymaster
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  • Dec 11, 1999

    Connecting India

    Here are some estimates from the International Data Corporation:

    • The installed personal and network computer base in India will grow at a rate that averages 44 percent annually from 1.9 million in 1998 to 8.2 million in 2002;
    • Internet users in India will grow at a rate that averages 76 percent annually from 0.5 million in 1998 to 4.5 million in 2002; and
    • Internet commerce in India will grow at a rate that averages 260 percent annually from US$ 3.5 million in 1998 to US$ 593.6 million in 2002.

    If that hasn't left you gasping for breath, then here is a second dose.

    Within a year of permitting private participation in the internet industry, a total of 129 companies have obtained licenses to offer internet service provider services. Included in this are 22 companies that have obtained licenses to offer internet service provider (ISP) services throughout India. The gold rush has commenced in earnest.

    Videsh Sanchar Nigam Limited (VSNL), India's monopoly international telephony services provider, is the largest ISP in the country having over 285,000 customers (in September 1999). Next in line is Satyam Infoway, with over 87,000 customers (in September 1999), which recently floated an American Depository Receipts Issue (ADR) on NASDAQ. Its ADR currently trades at a premium of 195 percent to the issue price. A number of the other licensees are yet to commence operations while some have rolled out their services in select markets only.

    Another company that is creating waves is Mahanagar Telephone Nigam Limited (MTNL), the basic telephony services provider in the Delhi and Bombay circles. It has set itself an ambitious target to generate 25 percent of its revenues from infotech and internet related services by 2002. Currently, these services command a 10 percent share. It is aggressively beefing up its ISP infrastructure and is bundling services to make its offer look more attractive.

    The beneficiary of this surge in competition has been the customer. He has benefited from lower rates (down atleast 50 percent from peak rates) and better quality of service. India also has its version of Freeserve, which offers ISP services free of cost. Zee Telefilms, which owns Siticable, a cable service provider, is gearing up to launch broadband services in India. The customer is enjoying every bit of it.

    The government too is doing its bit. Initially it resisted temptation by forgoing license fees for offering such services. More recently, it has permitted ISPs to set up their own international gateways, thus giving them an opportunity to bypass VSNL, the monopoly provider of international telephony services. A few of the ISPs including Satyam Infoway have firmed up plans to set up their international gateways in the coming moths.

    The ISPs meanwhile have as yet to disclose their profitability.

    VSNL has been in the ISP business since the service was available in India. During the first half of the current financial year the company clocked a 96 percent growth in revenues from internet related services to Rs 980 million. However, it does not disclose the profit break up between the various services it provides and as a result, it is difficult to ascertain the profitability of the ISP business. Now with several dedicated ISP companies in the market, it won't be long before profits are known.

    The ISP segment has recorded a blistering rate of growth and it is likely to sustain this growth over the next couple of years. Consolidation in the sector, however, is inevitable. Satyam Infoway has already made public its desire to buy out regional ISPs. With the government's support, this sector is bound to go places in the coming years.



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