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First the good news: the number of broadband subscribers in India crossed 13.1 lakh as of March 31, 2006, and each month the numbers are increasing by over one lakh. The bad news is that this figure is way below the target set by the Broadband Policy 2004: 30 lakh subscribers by the end of 2005. So are the policy makers wishing for the moon or is it an achievable task if only the bottlenecks are overcome?

Both CII and TRAI have tried to answer this question in their respective reports on the Indian broadband sector (CII's 'India's Broadband Economy: Vision 2010', and TRAI's 'Recommendations on Internet and broadband penetration, 2004' and 'Consultation Paper for Broadcasting and Telecommunications, Jan 2006'). These reports identify the growth factors of broadband, explore the various bottlenecks, and suggest some steps to fuel broadband growth.

India has one of the lowest broadband penetration rates at 3%, while Korea and Hong Kong rank the highest with 62% and 57% respectively, according to a Forrester report. Significantly, the issue of last mile connectivity still tops the list of bottlenecks, followed by high bandwidth prices, choice of access network with Cable TV broadband lagging behind, low PC penetration, and lack of broadband content among others.

Deepak Maheshwari, Secretary, Internet Service Providers Association of India (ISPAI) identifies some restrictive factors. He says, “On the supply side, there is lack of effective competition for the subscribers and on the demand side, the low and sporadic level of local content continues to be a matter of concern.” Regarding policies: a favorable tax structure and subsidies are essential to increase the penetration.

To Unbundle or Not To
The pathway to last mile connectivity remains a niggling issue for regulatory authorities like TRAI, the ministry of IT and Communication, and for the ISPs. At the first meeting of a PMO-appointed panel, on opening PSU networks for increasing broadband penetration, on May 23, 2006, the differences became apparent as the PSUs continued their opposition to local loop unbundling (LLU).

The DoT is against giving any compensation to the PSUs in case they agree to open up, and the onus will be on the government to find a mechanism to facilitate unbundling. According to BSNL, only 70 lakh lines are capable of being used for broadband and the rest may not serve the purpose of opening the broadband avenues for all the 4.2 crore fixed line connections of BSNL.

The limitations of traditional copper cable network has found some echo in the words of Nripendra Misra, chairman TRAI, who suggests exploring wireless technologies as an alternative. Dr Gowri Krishna, VP, Network Design & Engineering, Tech Mahindra agrees, “The copper cable network lacks the potential to provide a giant leap in voice and data communication rates compared to other broadband technologies like ADSL, WiMAX, and HSDPA (high speed downlink packet access). However, the fruits of these explorations are still to cross the periphery of labs and enter the global market.”

CII's recommendation to throw open the existing copper to any new player, has found vocal support from several ISPs. LLU has harvested better results in countries like Japan, the UK, France and even Korea. Chirag Mehta, director, IceNet favors LLU over wireless technologies. “Along with unbundling of local loop, government policy should legalize VoIP in India and allow VoIP interconnect with PSTN,” he demands.

While ISPAI moots LLU, it also acknowledges that this alone would not suffice. Maheshwari adds, “We must make optimal utilization of all the resources to garner the 'last mile'. It is not about wireline vs wireless; rather, we need to think of wireline and wireless.” Understandably many ISPs have already taken up the challenge and are charting out their own roadmap without depending on BSNL's copper.

Bandwidth Price Squeeze
Leased lines constitute more than half of the total cost of broadband access. According to a latest TRAI release (Performance Indicators for the quarter ending December, 2005), the decline in the tariff for domestic bandwidth prices was around 65% whereas in the case of international bandwidth prices, it was around 60%. Some reports mention that the leased circuit prices are now 25% lesser than the levels notified by TRAI last year.

Jasjit Sawhney, CEO, Net4 India, however, laments the ineffectiveness of price reduction. He says, “Even though the cost of bandwidth to service providers has come down, it's still not competitively priced. Considering our per capita income, and the purchasing power parity (PPP) the prices should not be calculated by merely converting the dollar into rupee. It should, in fact, not be compared with International prices at all.”

ISPAI feels there is still further scope for downward reduction in the ceiling tariffs for domestic and international leased lines. Maheshwari adds, “This is the right time to consider introduction of resellers in the IPLC market.”

Another shot in the arm came in May 2006, when the International Court of Arbitration allowed Flag Telecom (an Anil Ambani controlled Reliance group company) the right to VSNL's landing station in Mumbai. The court has also allowed it to upgrade and sell international bandwidth capacity. Effectively, VSNL loses its exclusive rights on the FEA cable system. This verdict could now lead to higher international bandwidth capacity for telecom traffic towards West Asia and Europe. It would also possibly lead to a reduction in international bandwidth prices as Flag Telecom is expected to add about 70 GB of additional capacity to its existing 10 GB.

Cable TV:  Under the Scanner
DSL and cable are the two key technologies for broadband, and, among the two, DSL is winning hands down. Unfortunately, even though over 6.1 crore homes are connected to cable TV currently, the industry hasn't done too well to augment broadband penetration. It is also facing an onslaught of new technologies and competition from alternative platforms.

A committee set up by TRAI to examine the issues dogging the Cable TV industry noted that there is no level playing field. There are different custom duty regimes in telecom and Cable TV networks providing broadband services. The equipment used for providing broadband over cable TV network attract much higher custom duties as compared to the equipment used in telecom network such as DSL/Fibre/Ethernet/WAN though performing similar functions.

There is also FDI disparity. The FDI limit for ISPs is already at 100% and for telcos it has been hiked to 74%. Apart from this, there are issues relating to VPN; high entry and annual license fee for telephony; and problems of interconnection as all ISPs must connect with NIXI (National Internet eXchange of India) as per the NIXI policy.

Parity with telecom industry by allowing similar duty structures for both Cable TV ISPs and other ISPs is the need of the hour. The onus is on TRAI to urge the Government to provide Right of Way to cable operators providing digital services, pending amendment in the Cable Act. There is also an urgent need for funding the Cable TV layers, to upgrade networks and install new equipment so as to cater to all 6 crore subscriber homes.

Beaming Up Satellite Players
“At an industry level, the satellite broadband players are faced with restrictive government policies where getting approvals take considerable amount of time and delays in the network provisioning process for a customer, creating an imbalance in the market,” states K Krishna, senior director, marketing, Hughes Communications India.

A great matter of concern is the high government levies for VSAT services-the license fee and WPC fee account for 14% of AGR. Added to this is a 10% service tax. Krishna adds, “VSAT operators pay 5% towards the USO fund, but are not eligible for its benefits. Almost 50% of the service charge is on account of payments to government agencies. If the operators were to drop their margins in the hope of greater volumes and make service more affordable, the percentage of government levies will progressively increase to as much as 60%.”

The present VSAT base of 50,000 installations in India translates to only 20% utilization of the infrastructure, thus indicating reduced RoI and high bandwidth price. The satellite broadband providers demand reduction in the levies and fiscal costs to fuel the use of underutilized resources. “If the effective reduction is as high as 30-50%, prices will be comparable to terrestrial bandwidth price, available in high-density urban areas,” suggests Krishna.

Content Lags
The broadband focus of ISPs is skewed more towards quantity rather than quality. ISPs and content providers have barely tapped the tip of the iceberg when it comes to proving localized content to Internet users. “Broadband content needs to evolve and that means development of new, locally-relevant applications in local languages, hosted locally; e-Governance, tele-medicine and e-learning might provide the requisite impetus,” says Maheshwari.

It appears to be a 'chicken and egg' situation-one needs content to increase broadband penetration while more Internet users are needed to motivate creation of content.

This year could be big for broadband content as triple play gains importance. Among the telcos in India, MTNL and BSNL are most prepared to offer these services. Both have the advantage of last mile infrastructure to deliver video content to consumer homes. MTNL has deployed a networking platform developed by Ericsson.

Sify identified the potential of local content early on, and has effectively captured a broad audience through its SifyMax content portal. It offers entertainment content such as film songs, sports action and special TV programs, mostly free. VSNL and Reliance Infocomm have struck a few content deals for movies, but there are other major issues waiting to be resolved, like last mile, set-top boxes and video multiplexing.

Affordability Factor
Without adequate PC penetration, the Indian broadband dream will remain a distant one. Encouragingly, PC sales crossed 5 mn units in fiscal 2005-06, with a healthy 32% growth over last fiscal. Household PC sales accounted for 25% of the market.

However, metro cities account for the bulk of broadband subscribers though the service is available in close to 200 districts. This demands a harder look at the reasons for low PC penetration and infrastructure issues. Sawhney, emphasizes, “We need to take the PC and Internet to beyond the 'English speaking Indians'.”

The appearance of the sub-10K PC promises to boost broadband in cities beyond A and B circles. According to MAIT, the vendors have started positioning and promoting  the PC as an aid for education and entertainment.

Broadband subscription rates have nose-dived to Rs 1/MB of download as opposed to Rs 4/MB a year ago. But it's not enough. In Korea, the charge per 100 Kbps is $0.25 per month, while the Indian consumer pays 60 times more for the same speed. (Korean GDP per capita is $10,000 against India 's $50.) Thus, on an affordability basis, the Indian consumer pays 1,200 times more.

Emerging Technology Options
When it comes to access technology, there are plenty to choose from. The maximum addition of broadband customers in fiscal 2005-06 came from the ADSL services of BSNL and MTNL. Several emerging technologies are under the scanner of other ISPs. “Other operators are exploring wireless technologies such as the Wi-Max, HSDPA and Gigabit-capable Passive Optical Network (GPON over 1Gbps) on devices like the mobile handset and the television,” adds Dr Krishna.

Service providers worldwide are finding that with the growth of broadband, VoIP is an efficient and inexpensive way to develop value-added voice services. Cable operators-particularly those in North America-are using VoIP for triple play services to challenge incumbent telcos. VoIP is seen as an add-on to broadband services or as a way to deal with access-network limitations. 

In India, IceNet is among the first to introduce broadband Internet telephony. It works on state-of-the-art SIP Technology based on VoIP. “WiMax is the future,” exclaims Chirag Mehta, director, IceNet. “The technology is still very expensive to be deployed on a large scale. If the prices dip, it would be a major driver to push Internet. SIP is the other technology, which is very promising. The regulations in India are forbidding, otherwise voice-over-broadband (VoBB) will take Internet to new heights,” he remarks. Sudhir Narang, senior VP, Service Provider and Government, Cisco Systems, highlights Metro Ethernet as another alternative. He says, “ADSL can go upto a maximum bandwidth 25 MBPS with variation in speeds based on the distance from the central office. Metro Ethernet on the other hand can offer constant speeds of upto 100/1000 Mbps without any distance to bandwidth variation in downstream and upstream speeds.”

Indian broadband policy needs to be widened to accommodate examples of rich lessons learnt outside. Dr Krishna moots taking a leaf out of other broadband success stories. “Active policy support is cited as a key reason for Korea's pre-eminence in this area. Britain's regulator, Ofcom, had to pressurize British Telecom to meet its obligations of making its lines available to ISPs and also to reduce rates. Similar experiences have been reported in countries such as Australia and New Zealand,” says Dr Krishna.

Broad Road Ahead
Despite the bottlenecks, we must take heart from the fact that India has the world's fourth largest base of Internet users, exceeding 5 crore. According to ISPAI, during FY 2005-06, the percentage of broadband subscribers in the overall number of Internet subscribers grew from a mere 3.35% to 18.63%. The Indian broadband market is wide open for telecom giants, ISPs, cable operators and even the Indian Railways.

BSNL and MTNL have 5.86 lakh and 2.11 lakh broadband subscribers respectively (FY 2005-06). Bharti is at #3 with 1.57 lakh, owing largely to corporate accounts. Iqara Telecom thrives only on the broadband market, notching up one lakh subscribers, while VSNL inches closer with over 95,000 broadband subscribers.

Hughes, a pioneer in high-speed satellite broadband service, has partnered with both the government and private entities to help in the penetration of broadband.  Projects like Edusat, CIC initiative in the North East and ITC e-Choupal are good example of its initiatives. Hughes serves the consumer through its broadband kiosk project called “Fusion”.   

HCL Infinet has entered into a strategic relationship with Railtel to expand its wireless broadband reach to 104 locations in the country. As a strategy HCL Infinet plans to provide VPN, Internet, Internet telephony to increase penetration of broadband services.

The Indian broadband highway is still under construction and the ISPs are pulling out all stops to achieve the target of 90 lakh subscribers by the end of 2007.

Malovika Rao
malovikar@cybermedia.co.in