Impending ISP Shakeout

With the ISP segment getting overcrowded, the writing on the wall is clear. A BT close-up on the shakeout that is waiting to happen.

By E.Kumar Sharma

It has taken years of ignoring the bottomline to learn that Net companies can crash and burn. It is perhaps not too harsh to even say that some companies face a sort of deathwatch. Talk to players in the domestic Internet service providers (ISP) market and concerns over an impending shake-out are evident. ''Today, there are around 110 ISPs operating in the country and in this only eight are genuinely national players with presence in more than 15 cities. Anybody who is not a national player will find it hard to survive and therefore a shake-out is bound to happen,'' says Joe Silva, 37, Chairman, Caltiger, a Calcutta-based ISP. He however feels a clear picture will emerge about two years from now.

The reasons for the approaching denouement are obvious: while the ISP field has low entry barriers, access charges have fallen dramatically from Rs 40 per hour last year to around Rs 10-15 at present. Moreover, ad spend is still low for advertising-based revenue models to tick. In fact, Caltiger, which was the first to introduce free access, justifies it with the argument that it is a necessary prelude to ensuring larger subscriber base. Caltiger claims a subscriber base of 2.8 lakh with a growth of 2,000 subscribers per day.

''Only those ISPs which can add value will be able to survive in future,'' says Ramesh Ramanathan, 45, President (Internet Access), Satyam Infoway (Sify). Little wonder, therefore, that offering value-added services is beginning to figure prominently in the constantly-changing revenue models of the ISPs. From just access charges and advertising, the revenue streams are increasingly being seen in activities like web hosting, portal services, b2b exchanges, and even e-commerce. The most important revenue source, however, appears to be the corporate services segment, with a special focus on offering virtual private networks or VPNs that connect a company's offices both as a corporate intranet and also with suppliers and distributors.

Sify, for instance, gets 40 per cent of its revenue from corporate services (such as consulting, web-site design, web-site development, web hosting, and VPNs), 42 per cent from access, 10-12 per cent from portal services and the balance from cyber cafés.

Having to cope with these changes and facing a direct impact are smaller and city-specific operators. Says Satish Kumar, 30, Executive Director, Southern Online, a B-category player in Andhra Pradesh, ''Tie-ups with majors and backbone providers is crucial for survival in future.'' Analysts looking at this market, therefore, foresee ISPs emerging in three flavours: Those providing infrastructure (bandwidth); select national-level players with focus on corporate services; and small players with tie-ups with majors to provide front-end operations. It is also estimated that with convergence of technologies taking place there may well be a scenario where even the basic services will work on Internet Protocol (IP) platforms and there will be the same backbone for various services.

At the moment, however, hitch lies in poor PC penetration numbers, coupled with restricted Net usage by corporates. As Caltiger's Joe Silva points out: ''Today, it is estimated that there are in all about 1.2 million subscribers in the country, but this figure has a lot of overlapping as many people have more than one account. India's unique subscriber base is not more than 4 lakh.'' What, according to him, is more worrying is the fact that: ''Corporates have not yet adopted the Net for purposes other than sending and receiving e-mails. The net effect of all this is that the industry is not making money.'' Coming from a player who kicked off India's free Net service last year, it could very well put some check on the dotcom hubris.

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