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BT DOTCOM: COVER STORY
Broadband Highway Or Logjam? 
Skewed economics, whimsical regulations, and poor consumer demand seem set to derail the broadband bandwagon.

By Suveen K. Sinha

Escotel CEO Manoj Kohli remembers the time when an almost insignificant Rs 25 increase in cable charges earned the cable guy his (Kohli's) mother's ire. ''The fate of broadband players,'' chuckles Kohli who never seems short of a homespun anecdote to prove his point, ''has to be seen in the light of this mindset of the typical Indian consumer.'' The companies Kohli is commenting on could argue that it is him, not his mother they are targeting and that they will eventually do alright, thank you, but fact is, their prospects do look bleak.

Net Impasse 
What's hot

Some of the biggest names in broadband-that's any medium, technology, or network that enables data transfer at speeds higher than the 64 kbps possible on an analogue telephone line-don't seem all that big anymore. And a few are already jumping off the broadband-wagon.

Like Spectranet, a venture of the Delhi-based Punj Lloyd group, one of the most high-profile-reports put its advertising budget at Rs 22 crore-companies in the business. It has 600 km of optic fibres down in Delhi, Bangalore, Gurgaon, Ghaziabad, and Noida, and a modest service in parts of South Delhi. And, yes, the Punj's are looking for a buyer for it.

ATUL PUNJ, CEO, SpectranetLike Enron, which has junked its plans for Powertel, a joint venture with the Maharashtra State Electricity Board (MSEB) and Global TeleSystems to build a 5,000-km Optic Fibre Cable (OFC) network. Says an Enron spokesperson: ''We are not participating as far as fibre optic is concerned. We are only concentrating on data centres in Mumbai.''

Like BPL Innovision, which has rolled back its plans to build a 3,000-km broadband network across Pune, Bangalore, and Chennai. And executives at the Zee Group's Siticable, which has 3,000 subscribers for its net-over-cable broadband service in Bangalore, confess that the business model is not viable right now.

And these are just some of the big names. For every Spectranet, there are a dozen independent cable operators across the country whose broadband-dreams are now dust. For every BPL, there are 10 local real estate magnates who smelled broadband wealth some time back, but are now left holding a few kilometers of OFC and waiting for a buyer.

This isn't really a phase of consolidation in the business; it's too early for that. What we're seeing now is a sort of pre-race disqualification.

Reasons For The Rumble

It's so simple that one can't help but wonder why companies didn't forsee the way things would pan out before rushing into the fray. Infrastructure costs are high. Customers, at least most of them, aren't exactly eager to pay 20 times more for an always-on internet link. And installation charges could vary from Rs 1,000, for broadband-through-cable-you'll still have to shell out close to Rs 15,000 for the cable modem-to Rs 30,000 for broadband-through-Digital Subscriber Line (DSL). ''Even in mature markets like the US, only 5 per cent of the internet users have broadband connections. The rest have dial-up,'' says Dataccess Managing Director, Siddharth Ray.

Then there are regulations, rather the lack of them. Anyone with an ISP licence and the persistence required to get the local administration's permission to dig up roads to lay OFC can offer broadband servies. In Enron's case, the company was initially granted exclusive right of way to lay its network; then the laws were changed to throw the field open to everyone. Says the Enron spokesperson of the transnational's experience: ''There was no clarity on regulatory aspects.''

Broadband players have also faced a problem, which is perhaps unique to India: rodents seem to like optic fibre. Spectranet was one company at the receiving end as its pipes were four feet below the ground; well within the rodents' reach. That's one reason why Reliance, which has broadband aspirations of its own, has installed its pipes eight to 12 feet below the ground.

The slow growth nature of broadband also warrants that it be funded through long-term debt and not venture capital. Says Rediff CEO Ajit Balakrishnan: ''It's a slow growth industry. It cannot be grown through VC money. You need long-term debt with a very small interest charge.''

Shakeout-Survivors

MUKESH AMBANI, MD, Reliance Ind.Now that they have woken up and smelt the coffee, companies offering broadband services and analysts are unanimous that broadband won't be viable as a stand-alone business. Says Sunil Mittal, the CEO of Bharti Enterprises: ''Broadband accounts for 5 per cent (in terms of value) of the global telecom pie. A business plan based on this alone just won't work.''

Given that, it makes better business sense for a broadband network to complement other services, preferably a bouquet of them. Which was precisely what Mittal was looking at when Bharti was considering acquiring Spectranet; the latter's network would have played a crucial role when Bharti began providing basic telephony services in Delhi. The ready-to-use last mile connections would have enabled a quick rollout. But that wasn't to be. The companies have been unable to agree on a price.

Reliance's plans run along the same lines. Its all-OFC network connecting 115 cities will support its domestic-long-distance-telephony plans.

It is also the fear of Reliance that is driving some players, especially smaller ones like Spectranet, out of the broadband business. All its pipes are said to be already in place and reaching right up to consumers' doorsteps. All that is left to be done is pull optic fibre through the pipes. That optic fibre is now being shipped. No one wants to be in direct competition with Reliance-given the scale of their plans, almost every other player will be-as it has been established beyond all reasonable doubt that Reliance wins; its rivals don't.

Siticable, too, may not do too badly if it leverages its over 5 million cable television subscribers. ''Life will be tough for stand-alone players,'' says Deepak Kapoor, Head (Technology Practice) PricewaterhouseCoopers.

This is not to say that the broadband sector will only have the likes of Bharti and Reliance. There will be other players: the likes of the Railways and PowerGrid, performing the specific function of providing the infrastructure by upgrading their existing overhead and underground network.

This may well work, especially as these outfits already have the right of way. But that isn't really being a broadband player, is it?

 

India Today Group Online

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