Thanks to the free ISP business, Caltiger has a brandname-but no bucks. It needs more of the latter to fund its telecom ventures.

Discounting a grey Monday morning, it's apparent that Joe Silva has much on his mind. The 37-year-old Chairman of Caltiger.com-which launched the country's first free internet service in March, 2000-is busy planning forays into other vistas. At the outset, he warns, ''There's a lot happening all at once. I admit it could appear a bit confusing.''

Well, to be honest, Caltiger's business plan sounds like that of a pure-play IP TELCO-corporate connectivity, software licensing, network consultancy, gateways, even long-distance domestic telephony...whatever happened to the free ISP? Silva smiles: ''We are on our way to becoming an IP TELCO. Caltiger's free internet service will just be one of our businesses.'' He's now seeking funds to invest in telecom infrastructure. The plan: to raise debt worth Rs 70 crore in the next one-to-two months.

You don't need free connectivity to figure out the peg: the Caltiger brandname. Reiterates Silva: ''The free ISP created tremendous brand recall. But we have always been a telecom infrastructure provider.'' Caltiger's free ISP-warts and all-was a smash hit, racking up the subscriber base from 14,000 in March, 2000, to 2.5 lakh five months later. On an equity base of Rs 35 crore, Caltiger's valuation skyrocketed to Rs 600 crore. A domestic IPO was slated for October, 2000, followed by a listing on the London Stock Exchange.

But then the markets played truant, forcing the Calcutta-based company to rework its strategy. With the free ISP model in the doldrums, can Caltiger transmute a brandname to drive a whole new set of businesses? Warns Simon Bell, Principal, A.T. Kearney: ''An existing subscriber base offers good prospects for an IP TELCO only in the short-term. In the medium to long-term, not only do other TELCOs join the race, they could be those that have the advantage of an existing telecom infrastructure.''

So, for the greater cause, will Caltiger start charging for its ISP service? Fact is, barring Netzero in the US, the free ISP model hasn't worked anywhere in the world. The premise is simple enough: generate enough advertising revenue to offset the cost of access. Caltiger asserts that it is able to realise higher revenues as a result of demographically-targeted advertisements. However, the figures tell a different story.

Most consumers treat free ISPs at par with free e-mail providers. Most surfers barely use free e-mail, relying primarily on the e-mail address that comes with the ISP. In the same way, most surfers treat free ISPs as a back-up to their primary ISP. That explains why only 35 per cent of Caltiger's subscribers are active, or surf at least once a month. Caltiger's 70,000 active subscribers use the ISP for an average of seven hours a month. With network utilisation at 20 per cent, its hourly cost-per-user for network access works out to Rs 8.90 against revenues of Rs 10.50 per subscriber on a per hour basis. Clearly, banner ads, database monetisation, and co-promotions alone will not be enough. As Atul Kunwar, CEO, Mantra Online, points out: ''One needs to have a robust revenue model in place. Depending on ad revenues alone is not enough.'' Mantra runs a free internet service in Madhya Pradesh, where it has a revenue-sharing agreement with group company AirTel and does not depend on ad support. Adds Rajendra Sahay, CEO, Vedanth.com, a premier Calcutta-based ISP: ''Free ISPs are likely to account for not more than a small niche in the internet services market because the intrusive ads will appeal only to low-income users, who are not that appealing to advertisers.''

Caltiger's defence against the alarming usage patterns is that, in any case, the free ISP accounts for only 20 per cent of revenues. Corporate connectivity solutions like Virtual Private Networks (VPNs) generate nearly 60 per cent of revenues. ''We will make profits this year,'' claims Silva. Against an estimated revenue of Rs 24 crore, Caltiger is expected to make a gross profit of Rs 4 crore by the end of March, 2001. Hence, the decision to retain the free ISP business under the 'Caltiger' brandname, whereas an increasing proportion of their businesses will be grouped directly under Caltiger's parent company, Patriot Automation Projects Ltd (PAPL). ''After all, revenues in the long-term will come from telecom infrastructure,'' Silva points out.

Value-Added Dreams

And what are Caltiger's plans? PAPL plans to deliver value-added, business quality Internet Protocol services-like VPNs, managed firewalls, voice, and multimedia services-over a reliable, public-packet network infrastructure. Says Vikrant Sen Chowdhury, Co-founder and CTO, PAPL: ''Our solutions could enable the broadest portfolio of IP services across any kind of access media on a large scale. We have the processing capacity to route tens of thousands of users simultaneously.''

A big chunk of this will be the corporate VPN business: through a strategic agreement with HCL Comnet, PAPL will implement projects for the corporate market. HCL Comnet will buy most of its bandwidth from PAPL and provide services to its customers over PAPL's network. Sure, the market is big: there are about 10,000 companies seeking VPN services in the country. At $5,000 per location, and assuming at least five connectivity points per corporate, this adds up to a $250 million market over the next two to three years. However, competition will come from established, aggressive, and cash-rich players like Global Tele-Systems, Bharti-BT, Wipronet, and Satyam Infoway.

PAPL is also getting into other value-added services, such as licensing of network consultancy services. Says Chris Rebello, Director and Co-founder, Caltiger: ''We have signed deals to license narrowcasting technology to ISPs like Hemus in Sri Lanka and Quest in Hungary at $4 per subscriber.'' Caltiger has also received licences for setting up 10 gateways all over the country. Finally, it has bid for domestic long-distance telephone services in five circles in the eastern region: Orissa, West Bengal, Assam, the North East, Bihar, and Uttar Pradesh.

To meet the bandwidth and broadband service requirements, PAPL has just inked a deal to take up a majority stake in an 80:20 joint venture with Loral Cyberstar, Patriot Loral Cyber Project which will be based in Singapore. The JV with Loral makes bandwidth available to PAPL at rates as low as $1 per month (as opposed to the usual $6-8 per month). The gateways it plans to set up across the country (it has received licences to set up 10) are expected to provide the reach. Since uptime of satellite bandwidth is nearly 99.9 per cent (against dot's 90 per cent), PAPL hopes to charge a premium for the service.

Says Vandana Gangwar, a Senior Analyst at ICRA: ''ISPs have two revenue options apart from advertisements. One, becoming an application service provider; the other, a TELCO. But, in the immediate future, the TELCO option seems unlikely to grow fast, given dot and MTNL's stronghold in the infrastructure side of the business.'' Not only will Caltiger's plans require investments, but also adequate network engineering skills. While talent has a price, PAPL could face an uphill task in generating funds. It could, of course, leverage Caltiger's equity, but for how long? Remember, unlike its competitors, Caltiger has no single business that can ensure a steady flow of cash. As Silva is discovering, nothing, least of all business plans, comes for free.

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