Connectivity Providers Database

Date: Sat, 19 Feb 2000 13:38:48 +0500 From: Irfan Khan <KhanIA@super.net.pk> To: s-asia-it@apnic.net Subject: [India] Nascent net service sector wants infrastructure status Nascent net service sector wants infrastructure status Harshad Oke MUMBAI 17 FEBRUARY IT IS an industry which is just 13 months old, but is already clamouring to be recognised as a key infrastructure industry. The internet industry in India, currently made up of 175 licensed internet service providers (ISPs), may still be in its diapers, but wants to be taken much more seriously. Consider this: Between August '95 and December '98, VSNL, the only ISP, had signed up 2.5 lakh subscribers. This number is now expected to touch 6.5 lakh by the end of the current financial year and nearly 50 ISPs are offering connectivity to Cyberia. Cause for cheer? Some, but a lot more needs to be done. The growth may seem explosive, but for a country with an installed PC base of nearly 4m, the figures are pretty low. Also, for internet to be a truly national phenomenon, there is a need for some policy rationalisation. For instance, out of the 175 licensed ISPs, nearly 60 per cent are "Category C" ISPs who offer connectivity in a single location, while another 25 per cent are regional ISPs and only 15 per cent hope to have a national presence. The smaller ISPs are somewhat hampered in their growth ambitions because of a duty structure which appears to be somewhat lopsided. For instance, VSAT, radio trunking and basic and cellular telecom operators pay a basic customs duty rate of 5 per cent and an effective duty rate of 21.8 per cent on hardware imports. On the other hand, ISPs have to pay a basic rate of 35 per cent and an effective customs duty rate of nearly 61 per cent to import equipment like routers, ATM switches, frame relay switches, high speed modems and cable modems. Says Amitabh Kumar, director (operations) VSNL, "The country can do well if the budget gives an exemption in customs duty on hardware use in the field of IT communications and media. This will bring down the high cost of high-end servers, routers and production equipment for animation and media to global levels. Today, these rates are around 150 per cent of those prevailing in some of the other Asian countries which are competing with companies in India." The genesis for this argument is to be found in the revenue models for ISPs globally. In the US and some other parts of the world, subscribers pay nothing or a very small fee to access the net. The ISPs subsidise the cost of offering connectivity through advertising and e-commerce revenues which are still sorely lacking in India. Though internet access rates are falling, they still hover around the Rs 5,000 mark for a 500-hour account. Add to it the local telephony charge (which works out close to Rs 28 an hour in Mumbai and Delhi), and the cost becomes prohibitive. What compounds the matter further is the low bandwidth and lower quality levels. Consider: India has a total of 165 mbps of bandwidth which is expected to rise to 300 mbps in the next 12 months, which compares poorly with Malaysia which alone can pump 5.5 gbps of data. In terms of revenue, it has been accepted globally that advertising alone is not enough to cover costs and an ISP needs stable e-commerce billings to make profits. For that to happen, there is an urgent need for the internet to penetrate homes either through a PC or through other devices such as televisions. Said Mr Kumar, "One reason for the growth and proliferation of TVs in India - around 55m - is the significantly lower cost compared to a PC. It would be desirable to drop duties on components and hardware used for manufacturing PCs, modems and other access devices for the industry to grow." Though some argue that there is a need to restrict duty cuts to just PCs as a means of internet access device, the greater need is to slash duties on cable modems which are currently charged an effective rate of nearly 61 per cent. Currently, a cable modem costs around Rs 15,000, which puts it beyond the reach of many. It's not as if the potential for e-commerce is bleak. According to a survey done by Nasscom (National Association of Software and Service Companies), e- commerce revenues for the current financial year are pegged at Rs 300 crore. But by '04, Nasscom expects this figure to rise to a phenomenal Rs 10,000 crore. For that to happen, most ISPs need to invest heavily in setting up and expanding their networks which might prove difficult for small ISPs. Though Satyam Infoway, the first private sector ISP to launch its services and list on the Nasdaq, may be a shining star on the ISP horizon, smaller ISPs are restricted in funding options. As a result, the ISP Association of India is making a strong case to allow ISPs to issue tax-free bonds, under Section 10(23)G of the Income Tax Act, to raise long-term finance. The association is also making representations for the industry to be considered as an infrastructure sector and be treated at par with telecom services. http://www.economictimes.com/today/18indu04.htm