Trick Backbone

The Sankhya Vahini project involves the establishment of a high-speed nationwide data transmission backbone, using surplus capacity in the telecom department's existing fibre-optic network. It was one of the recommendations of the National Taskforce on Information Technology and Software Development. The project has been criticised on two grounds. The first is procedural, concerning the government's decision to enter into an arrangement with IUNet, a subsidiary organisation of the Carnegie Mellon University in Pittsburgh, USA, to set it up. The arrangement was made without following conventional tendering procedures: no other potential collaborators were given a chance to bid for the project. Indeed, the agreement with IUNet was signed when it hadn't even been incorporated. The second is about the involvement of a foreign entity in this key infrastructure area, which is said to have implications for national security.

These concerns may be entirely valid and need to be taken account of as the project is put into place. However, in a project of this nature, there are some broader economic issues, which must also be given due consideration. Where does Sankhya Vahini stand with respect to these? The first concern is with cost. The initial project documents placed the cost of this venture at Rs 600 crore, with a third of this required for activation of dark fibres in the network, and the remainder for setting up the urban links through which subscribers could access the system. But recent media reports put the paid-up capital of the project at Rs 1000 crore, if not more. The important thing is that there is virtually no cash outgo involved; DOT's share of the equity comes in the form of the dark fibres and IUNet's in the form of the terminal equipment. The critical question: is DOT's contribution being fairly valued? What value would these fibres realise if they were auctioned off to a private company getting into the high-speed transmission business?

The second is with capacity. DOT itself is putting up an internet backbone, and there are several other players who plan to enter this business. Putting up a new network is obviously more expensive than utilising existing slack. On the one hand, looking at India's internet potential, one could argue that the market will grow large enough to adequately utilise all of the networks that eventually materialise. On the other, the investment has to be made upfront, while the revenues may take a while to start coming in. The first mover clearly has a huge advantage in this situation, because as he attracts business, his unit costs keep falling, and he can simply outprice the later entrants. Sankhya Vahini, as it stands, does not offer a first mover competitive threat to the other networks. However, to the extent that its capacity is determined by the terminal equipment and not the fibres, it does have the potential, with further investment in such equipment, to pose a credible competitive threat to all other players. The question: what does this do to the economics of the potential networks? Does it mean that capacity which the country will need eventually, will just not be set up? The project would be better served if some thought was given to these questions as well.