Bandwidth gains

A lot of churning is taking place in the telecom bandwidth sector. The dominant player, the government-owned VSNL has dropped its price upto 40 percent for the bandwidth it supplies to Internet Service Providers (ISPs) and other corporate users. Further, policy alterations have been announced which would allow other players, mainly foreign telecom bandwidth suppliers, to access customers directly.

So far India's overseas telecom monopoly VSNL which was the first ISP has been keeping the bandwidth access close to its chest. VSNL had ensured through appropriate policy measures that its monopoly turf is protected. So much so the nascent private ISP business has been thrown into a disarray, having to compete unfairly with the first ISP, on various fronts.

Perhaps, VSNL had no choice when it announced its price cuts. The telecom landscape is changing fast in the run up to the termination of VSNL's monopoly on overseas telecom services on 31 March, 2002. From April 1, this segment too is being thrown open to the private companies. Another significant development is the settlement of a dispute between VSNL and Flag Telecom, which has landing points in the country for its globe-girdling undersea cables that carry Internet traffic. Flag Telecom had to sell its bandwidth only to VSNL so far. Now the foreign carrier will be able to sell directly to customers.

This is certainly good news for the bandwidth-starved nation. Right away about 1000 megabits per second(MBPS) of bandwidth lying idle with Flag will be available to Indian companies. On its own, the nation has a bandwidth of 870 MBPS.

Of course, these actions may not result in immediate gains for Indian customers. Many ISPs and other bandwidth providers have reportedly entered into long term contracts with satellite-based bandwidth providers to route their Internet traffic.

Satellite bandwidths are typically more expensive than the optical fiber based pipes. So many of these companies will have to renegotiate their contracts before they could switch over to the now less expensive services from
VSNL.

Also, it is unlikely that ISPs would pass on the benefits of such reduction, if any, to their retail customers right away. It could be sometime before the prices begin to fall as the loss-making ISPs use the immediate opportunity to shore up their bottomlines first before passing on the reduced costs to their customers. Unless of course, competition and customer pressure force them to do so.

But why has VSNL acted at this time to hurt its own foot is a mystery. After all, the government is receiving bids to offer 25 percent of its stake in the company this week. VSNL's valuations are bound to fall further with the news about weakening of its monopoly position in yet another key segment where it is a dominant player. Experts estimate that the government may lost Rs 100-150 crore in VSNL's valuations.

Competition is a good thing for the segment. Software exporters and IT-enabled services should feel happy about the development. In the long run, it would offer more choices and decrease the cost of bandwidth, which is a key ingredient in their business. Especially so when the chances of orders of outsourced work from abroad are in the pipeline in the wake of the global economic slowdown. Cheers to the entry of competitive forces in yet another arena in telecom.