Small ISPs edged out of market, basic service oprators to stay

DECLINE OF ISPs

About four years ago, the competition in the Internet services business used to be cut-throat as over 700 ISPs vied for mindshare. Today, the business is being monopolised by a handful of integrated voice and data service providers.

Although about 180 ISPs are currently operating in India, basic service operators (BSOs) BSNL, VSNL, MTNL, Reliance and Bharti have more than 75 per cent market share. Industry analysts predict that a slew of factors may soon lead to most, if not all, stand-alone ISPs making way for BSOs.

"The primary advantage BSOs have over stand-alone ISPs is their independent infrastructure. BSOs, unlike such ISPs, offer multiple services and have the option of cross-subsidisation," said Amitab Singhal, president, Internet Service Providers' Association of India, the body representing all ISPs.

There are instances of BSOs often resorting to a vertical price squeeze to force stand-alone ISPs out of lucrative sectors. "BSOs like BSNL can afford to reduce tariffs for MPLS-VPN without commensurate reduction in leased line tariffs to other ISPs, which is equivalent to slashing the price of curd without reducing the price of milk. The regulator has failed to check this," said a senior executive with a private ISP.

Technology, too, has played a part. Most ISPs continue to offer dial-up Internet connections as infrastructure constraints have prevented them from switching to ADSL-based broadband services.

"Few ISPs have ventured into Internet on copper cable lines. As the policy does not allow infrastructure-sharing for the last-mile connectivity, dial-up services cannot sustain our operations," Singhal said. ISPs can set up their own infrastructure, but it is feasible only if one is a BSO.

A host of services that once drove profits are also slipping away from the surviving stand-alone ISPs. For instance, the department of telecommunications, in January 2005, raised the licence fee for ISPs offering VPN services to Rs 10 crore from Re 1 in addition to a revenue share of 8 per cent. This left just five ISPs, out of more than a 100 offering these services, seeking new licences.

Internet telephony, another lucrative service offered by ISPs, has failed to be a money-spinner as the regulations do not permit call-termination within domestic networks.

The scenario can be best summed up by the fact that more than 100 new ISPs that have obtained licences in the last two years are yet to commence operations.