Much build-up and little show that’s how onlookers like to describe the XSP space. In fact, the very term XSP caught up during the days of dot-com boom, when it was generically used to connote a mix of service providers like application service providers, hosting service providers, and storage service providers.

When the dot-com bubble failed to sustain the largely self-created unrealistic hype, the XSP space managed to survive the splinters and has since continued to remain a hot area. However, the full-fledged takeoff continues to be delayed, mainly because enterprises are still not comfortable with the concept. Certain other issues too need to be ironed out before XSPs become a happening phenomenon.

The recently organized Top View panel discussion in Mumbai centered around some of the critical issues facing both the service providers and equipment vendors in the XSP domain. The panelists were Avinash J, president (hosting services), Satyam Infoway; Vitthal Joshi, V-P (technology and business development), Estel; Atanu Mandal, MD and CEO, CellNext Solutions; Shyam Bethanabotla, president (enterprise solutions), Global Telecom; Sharad Sanghi, CEO and founder, NetMagic Solutions; Anupam Nagar, country sales manager (storage), HP India. Ibrahim Ahmad, executive editor, Voice&Data moderated the discussion.

Looking Back
Ibrahim Ahmad, VOICE&DATA: We are here to do some brainstorming on the issues facing the XSPs, and come out with new ideas and lines of thoughts, and solutions. Let us begin with what has gone wrong in this entire game plan and business.

Avinash J, Satyam Infoway: The entire model of the IDC business was based on the assumption that the subscriber base of customers, who would use dial-up services or essentially interact as far as the Internet is concerned, would grow at a very rapid rate. Today, forget the number of users who are accessing the Internet, even if you take the number of subscribers, it is still not very high. Two million plus subscribers is too small a base for the Internet market. We assumed that India would have 50 million Internet subscribers in the next 2–3 years. The second problem was that just like us, many others believed that there was a lot of opportunity in the IDC market. The final thing was the total meltdown of the technology stocks at Nasdaq.

Atanu Mandal, CellNext Solutions: We have been focusing on ASP applications on mobile markets. And this is one business model, which is set to work simply because unlike the Internet model, it is a paid content model, mainly frontended by the service providers and operators. We have taken away the hassles of aggregating content, developing the applications and providing them to various operators who can focus on their marketing and their ARPUs. So in this context, I would say that nothing has really gone wrong, and if at all something has, it’s because there is too much expectation in too short a time frame.

Vitthal Joshi, Estel: We were very clear and fairly conservative in our approach. We never created any hype and we never had a business model where we ever thought that we would break even or have good figures coming in, in a year or two. We knew that it’s a long-drawn game and we concentrated on core competencies. So yes, actually it’s not that something has gone wrong—it’s just that we created a bigger hype and suddenly felt that we were not been able to achieve that.

Shyam Bethanabotla, Global Telecom: Today, if there is an XSP or an ASP, everybody is an XSP or an ASP—that’s the herd mentality. So has anything gone wrong? Yes, it has for the ‘me too’ players. Nobody will spend, unless services are modeled around some of the nontechnical aspects like risk-sharing model and now outsourcing. Why would anybody outsource unless there are some tangible benefits? Now, data centers are going to be leveraged in business continuity and disaster recovery. Bandwidth will be quite heavily consumed for a variety of Internet-related applications.

Sharad Sanghi, NetMagic Solutions: Talking of risk sharing, there are several components to that. One is the availability of applications. Application uptime also depends on things like the accessibility of the data center to the customer, which often depends on the likes of MTNL and BSNL who don’t offer SLAs. Now that has improved, with the advent of some private players in the market. But for an XSP to share the risk, it needs to have back-to-back arrangement with some of these players. I wouldn’t say things have really gone wrong. There was a setback in mismatch of expectations but I think things are picking up now and the future looks optimistic. True, nobody thought that dot-coms would rise and die so fast, but there are other ways of generating business. Business continuity, disaster recovery, and application outsourcing are some.

Anupam Nagar, HP India: I think there was a lot of hype in the market. Many of us saw some great business plans failing. We, as infrastructure and solution provider for some companies, can at times go ahead and finance a project for an XSP. But, the business model that some of these providers have did not give enough confidence to us. Look at the storage service market. One of the key inputs that we had got was that anyone looking at pure-play services was asking for disaster. We have arrived at the conclusion that those who have their own bandwidth should be successful SSP players.

Ibrahim Ahmad: Overall, what comes out is that the mood is upbeat; service providers have learned their lessons and are looking forward to grow.

Hurdles and Bottlenecks
Shyam Bethanabotla: I’m not trying to pour water here but the fact is that a whole lot in the ISP and XSP businesses depends on outsourcing that comes in. The key bottleneck there still is bandwidth. The backhaul business in India one of the most expensive business, it is almost a million dollar for a STM1. So the cost is not only the cost of the manpower, it is also the cost of infrastructure. That is not coming down.

Shyam Bethanabotla: Destination for what? India still needs to get an identity in terms of that. What should be the USP? What is it that we can aggregate? Do we need roads, IT or telecom infrastructure? Do we need HP and IBM around? What exactly is the recipe needed for companies like Citibank, StanChart, HP, etc to do 10 percent of their business worldwide out of India? Those are the questions and that is where the XSPs come into the picture. But each company has put its flag here, so that is a good start.

Avinash J: There are two kinds of hurdles—the technology hurdles and the marketing hurdles. Bandwidth is an issue when Internet infrastructure is available on your site. But in case of remote services, provisioning from our locations, the equipment remaining in the customer’s location, bandwidth is not an issue. However, if we want this market to explode, the bandwidth prices have to come down. Customs and regulatory issues also have to be tackled. There is also a positioning problem. It is who and how you are you going to market to? We are becoming a back-end player and transferring the positioning problem to the guy who does sales at the front end.

Atanu Mandal: I believe there will always be bottlenecks, and solutions will be found. Bandwidth today is not a major issue. There are other regulation- and infrastructure-related bottlenecks. One of the bottlenecks I would like to talk about, specific to our kind of business, is the network operator’s infrastructure. Most of the network operators have built their infrastructure for access services. When we look at new content or application services, we find that the radio frequency network of various operators gets choked. How do you handle that problem? No operator will set up base stations. The networks are built for handling access services where traffic is stretched over 10 years’ peak period. They would refuse to augment their networks to handle other services. So we are looking at applications where the surge is minimized.

Sharad Sanghi: Hopefully, the bottlenecks raised by the panel here will be resolved in the next 12 months if you believe the announcements made by the likes of Reliance and Bharti. One of the things we have not talked about is that the service providers within the country do not interconnect with each other. We are kicking ourselves in the foot for making VSNL so powerful. There are exceptions though in interconnects. It is a short-term issue; hopefully, within a year it will also be solved.

Vitthal Joshi: We face the problem. For example, Philippines is given preference over India, day in and day out. We serve the telecom operators in Europe, West Asia and Southeast Asia. We look at partnerships where we realize what are our core strengths. Technically, I would say that you need to build you core competencies.

India’s Positioning

Ibrahim Ahmad: How does the panel think India should be positioned as?
Sharad Sanghi: Frankly, I have not been able to fine-tune that, I think we should concentrate more on the technology front. It should be software related, as I think we lost the hardware race. We should concentrate on solutions more on the software side.

Shyam Bethanabotla: The country can be positioned as disaster recovery or business continuity destination for the rest of the world across applications, infrastructures and networks.

Ibrahim Ahmad: What is more important for the service providers today? Is it making commercial business sense, being reliable and QoS capable or is it breaking resistance to outsourcing? How difficult is the CFO or CIO nut to crack? What are the changes we are seeing there?

Sharad Sanghi: I think it has improved considerably. I do not blame the CIOs. It’s partly the infrastructure issues, and the issues pertaining to security, expectations of engineers and staff of a third party that need to be proven. To a large extent, it has been done over the last few years and the battle has gone in favor of XSPs. I don’t think it will be 100 percent outsourcing and there will be selective outsourcing. Even CIOs are realizing that it makes sense for them to outsource.

Avinash J: I agree. A lot of change is taking place. Every company wants to reduce its costs. If an outsourcing agency is able to demonstrate that there is a definite reduction in costs, then the arguments with respect to CIOs and CFOs is easier to win than otherwise. So economically, they are beginning to understand that it makes sense commercially to outsource to XSPs.

Ibrahim Ahmad: I think that’s an interesting point. I’m not too sure how great are the CIOs or CFOs in terms of the offering of QoS to their own internal customers but that then they also have the issue in mind of the security of data. Shyam, would you like to throw some more light on this?

Shyam Bethanabotla: I think I can share some personal examples. The CIOs in the last two years have evolved to a point where they are smarter than the service providers. They understand their business processes, IT and are in a position to take much better decisions and manage their transactions better than anyone else. So, there is a lot of catch up to do in understanding the clients’ business.

Vitthal Joshi: It makes sense for him to understand that the onus is on us to show that there is a differentiation. Unless we show that there is something different, he will not change his mindset.

Atanu Mandal: I can share my views from the telco perspective. We have seen a paradigm shift in the CTO’s attitude towards the XSPs. I think the reason is the time to market, particularly to deploy new applications and solutions. So they themselves started looking out at the service providers. Eventually, it is more driven by the marketing department and the CFO comes in and you have to convince him through a business case, which is not too difficult. So the CTO has become more of an enabler.

Anupam Nagar: CIOs and CTOs are far smarter than all vendors and service providers put together. The biggest misconception they carry is that they will probably lose their power and jobs if they outsource. But the most successful stories of outsourcing have come from clients where the CIOs retained their jobs in the capacity of consultants and were the prime mover of the outsourcing process altogether. Almost all our wins have come when we have been able to take the CIOs as well as the CFOs on our side.

Deepak Kumar