The Rising Cost Of Surfing

What is sad is that VSNL seems to have taken the immediate, non-sustainable route to making profits on its Internet venture by raising prices to equate demand and supply, rather than making more money in the long-term by keeping prices steady or even bringing them down but increasing the size of the market.

There are reports that in Mumbai and Chennai, the company has already stopped taking on new customers. And with the prices of PCs, multimedia kit and modems plummeting, there is every likelihood that the demand for Internet access will double every year till the end of the millennium. So instead of investing heavily in better infrastructure and providing better service, it has decided to exploit the popularity of its service by extracting every penny it can from its subscribers.

 

Its prices are anyway among the highest in the world. For full access, Indian users currently pay Rs 15,000 for 500 hours or Rs 30 rupees an hour. Add to that the charges levied by MTNL for the call to VSNL, which is almost Rs 15 per hour. A surfer is actually paying Rs 45 per hour. Mind you, this is assuming that a user utilises the entire annual quota of 500 hours; otherwise the hourly cost is even higher.

The VSNL now wants to further raise its prices. Its new pricing structure which has temporarily been put in abeyance following a flood of E-mail complaints from virtually all the 29,000 subscribers nation-wide may seem reasonable at first glance, but is more expensive.

Instead of paying a lumpsum, the VSNL had proposed a tariff of Rs 30 per hour to be charged on the basis of usage, with clients being billed every quarter. However, in addition to this, users also have to pay an annual account maintenance fee of Rs 6,000 besides a security deposit (to make sure people pay their bills on time) of Rs 5,000. Add to that the local call charges, and suddenly the cost of surfing for 60 minutes rises sharply to Rs 54. This is more than a 30 per cent increase in the cost of surfing.

But all this is not accompanied by any degree of quality service. Instant log in is still a fantasy: during office hours, for instance, it takes an average of at least 10 minutes to log on to VSNLs servers. Neither can subscribers access news groups on the Internet, nor is VSNL particular about telling users when the service will be shut down for maintenance. Users only find out when they either cannot log in despite hearing the phone ring or when their passwords are rejected by the server.

So, on what basis is VSNL charging more?. In places, where Internet service providers have to compete, the charges, on an average, are $20 a month for unlimited usage. VSNLs argument could be that it also provides a cheaper shell account (where a surfer has access to text but no graphics), which is virtually free for students. But that argument cuts little ice since having a shell account is like studying geography without a world map. In no other country is such a foolish service allowed to masquerade as Internet access. Besides, shell accounts are used by companies which want to transmit data to other countries without the attendant cost of using international direct dialing lines.

VSNLs apathy may stem from the belief that being an Internet service, the provider is not its core activity. Therefore, it is likely to spend less time, effort and cash on a peripheral business. For instance, one question which the VSNL pricing committee has probably not analysed or measured too closely is the price sensitivity of Internet surfers. It may soon find out that they are not as insensitive as VSNL has figured them out to be. While the huge response generated over the last year may have encouraged it to hike rates, it remains to be seen how many people renew their subscriptions.

For its own good, if not for the benefit of subscribers, VSNL should think about giving up its monopoly position. Or at least some of it.

It may well be better off subcontracting the task of providing Internet service to private parties in different cities for about Rs 8 lakh in rent every year. This way it would be able to focus on maintaining the backbone of Internet connectivity and investing in infrastructure without attempting to provide service to users. Not only would this spur demand from different places in the country (more centres than VSNL services now) but would also allow VSNL to earn more from its lease rentals.

If VSNL takes the business of being an Internet service provider seriously, it should start by demonstrating an understanding about the price of its product.