Several developments in the ISP industry in recent times, indicate that the industry is undergoing pangs of growing up. Leading ISPs like MantraOnline and WiproNet underwent internal restructuring to merge with larger entities within the organization. Others like Data Access (NOW) has announced its focus on the corporate sector, while the ISP arm of the Zee Group has also decided not to provide retail services. Tan Tong Hai, president and CEO of the Singapore-based Pacific Internet says, "No ISP in India is making money. The reason why we are continuing our presence is that the country can have an Asia-Pacific presence in the region".

So what went wrong with the sunrise industry of yesterday? Obviously the hype surrounding the segment far belied reality. "Following the herd mentality, people from all walks of life joined the gold rush—from steel makers to real-estate builders, people who had no idea about the technology and had no viable business models in place", says Saurav Adhikari, president of HCL Infinet.

A number of things have emerged from the current scenario. First, the earlier ball game of volumes is over. Retail as a segment is no longer the priority of ISPs, what with the dismal infrastructure and the usage patterns evident in this segment. Clearly, the numbers game is over and the focus has moved to the quality customer, who is none other the corporate customer.

Companies with a sound technology base will succeed in this segment, as the key is to offer a bouquet of value-added services. Says Adhikari, "It is now that the real survivors will emerge, as the test of technology will be the key. While technology companies like Wipro should find the sailing relatively smooth, it may not be so easy for some other large players". The corporate market in the country is expected to grow by 65 to 75 percent in the next two years, says a recent AccessMedia survey. However, with most ISPs gunning for the corporate market, there may not be room for everyone. Ultimately, industry observers say that only six or seven players will remain in the race.

Second, only those ISPs with deep pockets are going to survive the pressure, as the market is not going to improve in the near future. The industry is set to witness a phase of consolidation in every sense of the word. While smaller ISPs offering only dial-up access will either close down or get acquired, access technologies like DSL and cable modems are going to become popular. While many hold reservations about the success of DSL, as the country is likely to have more fiber-optic than copper, others are more optimistic about its success.

Challenges Ahead

There are several issues that the industry needs to address urgently. First, it has to get the telcos to agree to a revenue sharing regime. Since there are only a few private basic telephone operators, it is largely MTNL and BSNL which the ISPs have to deal with. Although ISPs believe revenue sharing by telcos is inevitable, it may not be so easy to wrench out such an arrangement with the monopolistic PSUs.

Second, ISPs need to work in closer alignment with each other and undertake peering services. This would enable them to overcome the bandwidth hurdle to a large extent and contain the traffic domestically.

Third, ISP as an industry, needs to carry combined exercises in market-building activities. This would involve both educating the retail and corporate customers as well as packaging their services more attractively.

Balaka Barua Aggarwal