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The overall modem market shrunk by almost 19 percent, from Rs 179 crore to Rs 145 crore during 2003–04. However, this fall was registered only in the total revenues, due to the fall in per unit price. In terms of units sold the market remained stable though the broadband modems-DSL, ISDN, and leased lines-showed signs of doing good business in coming days.

Dial-up Refuses to Quit
The dial-up modems have proved the industry pundits wrong. While everyone predicted their exit, they still occupy almost 60 percent market share and at least for the next couple of years this number is not expected to change much. With the PC and Internet users increasing, their future is not as bad as it was predicted when the ISPs were downing shutters. And, dial-up modems still come cheaper than DSL or cable modems.

Though cheaper modems might sound good for the customers, for vendors it means lower profit margins. The market numbers show very high sales volume but these numbers are not getting translated into revenues proportionately. However, the good news is that the prices of dial-up modems have bottomed out and are not expected to fall further.

Within dial-up modems, the fight for customer share is between external and internal modems. External modems have a market share of 20–25 percent and internal modems take the rest.

The bundling of internal modems with computers units has further hit the external modem market. Internal ones are cheaper and do away with messy wires. While an internal dial-up modem can be bought for about Rs 500, external ones are priced at about Rs 1,000.

Loss-making ISPs could not write the obituary for the dial-ups. In fact, the incumbent service providers, BSNL and MTNL, through their schemes have been able to retain and increase their subscriber base. Unless the Internet users themselves write-off dial-up connection and subsequently the modems, the will be always a market for these dial-up modems. The US experience shows that dial-ups, being the easiest way to get connected, co-exist along with high-speed broadband services.

Bye-bye Cable
Internet through the cables has been a success story in many western countries. But in India, which has a huge cable viewing population, it has unfortunately not translated into Internet-over-cable susbcribers.

Big cable operators like Hathway have been trying to get the pricing part right to attract more Internet customers but factors like the last mile problems and costly modems have created roadblocks.

V&D estimates CyberMedia Research

Hathway has sold over 30,000 cable modems for its customers, but the numbers are still not enough to ensure a good return on the overall investments made. The conditional access system (CAS) held some hope, but a policy flip-flop by the government has dashed hopes now.

Hence, cable modems have been almost written off by the vendors. Today, most of the manufacturers are phasing out their cable modems and are not aggressively marketing them.

A Broadband Future
With service providers concentrating on broadband access, the focus has now shifted to leased line, DSL, ISDN, and managed-fiber optic modems.

Leased-line modems occupy around 17 percent of the market. The high speed 64 kbps and 2 Mbps modems have also emerged as the hot favorites. Banking and financial institutions, riding the online transactions bandwagon, have been the primary drivers for these modems.

A drop in the tariff rates of leased line connections has pushed the sales of these modems. And, with BSNL and MTNL further planning further cuts in prices, a surge in demand is being seen in the leased line segment.

However, stiff competition would come from DSL as service providers like Bharti Infotel and Tata Teleservices are getting very aggressive in the market.

The ISDN modem market is also gaining in the small office home office (SOHO) segment. Together, DSL and ISDN have a 20 percent modem market share. However, the leased line and DSL modems are also among the costlier segments hence the number of units is less, when compared to dial-ups, but they generate more revenues. At the current market rate, the average price of a leased line modem is crossing Rs 16,000.

New Year, New Players
After the exit of Microtek from the modem market, D-link is leading the dial-up segment, selling over four lakh units in 2003–04. The company was also leading the DSL market with 9,500 units. However, in the leased lines, D-link managed 4,500 units.

A surprise entry in the top 5 club in the modem market this year has been the Hyderabad-based Team Engineers, which sold 8,400 modems (including both dial-up and leased-line) worth a total of Rs 5.2 crore. The company has Crompton Greaves, ITI, BHEL, BEL, ECL, BSNL, and railways as its customers for the leased line modems.

In terms of the sales revenue, MRO-Tek still led the market with Rs 51.5 crore from leased line and ISDN modems. It sold 21,000 leased-line modems and 5000 ISDN ones. In the leased line segment the company had SBI, LIC, Citibank, ICICI, Jet Airways as its customers and was providing DSL modems to Bharti Infotel and Tata Teleservices. The company also had Tata Power for its managed fiber optic modems.

The other major player, Dax Networks, sold 93,000 units of dial-up modems. However, it could manage only 856 units of leased lines and 2,100 units of ISDN modems.

The Taiwanese company Atrie led the leased-line modems with 35,000 units and bagged Rs 36 crore from its 64 kbps and 2 Mbps E1 modems for the enterprise users.

Bharti Teletech, known for Beetel phones, also jumped into the ADSL segment this year and hit a jackpot with sales of 17,000 units in less than a year. They are making their ADSL modems in Korea through a joint venture with Korea Telecom Networks. The company is mainly supplying these modems to Touchtel and expects to sell 50,000–70,000 units this year. Bharti Teletech has plans to shift the manufacturing base to India once demand picks up.

Nomus Comm systems sold 2973 modems last year for Rs 2.91 crore. Of this only 10 percent share was of dial-ups and rest 90 percent was evenly distributed among the leased line and DSL modems. The company has targeting the corporates customers for its dial-up modems. Nomus has railways, SBI, VSNL, BSNL, Dishnet among its clients for DSL and leased line modems.

There are also equipment vendors like Multi-Tech who have good market presence in the modem segment. For Multi-Tech, DSL modems are giving maximum business after the dial-ups followed by leased lines and ISDN. The company has also tied up with L&T, ITI, and Indraprastha Gas Limited for testing their embedded modems. These modems are used in devices that remotely communicate with other machines, sucg as vending machines. The embedded modems facilitate data transfer between the central control unit and vending machines.

Trends for 2004–05
As the number of Internet-enabled computers is growing, the modem market is not expected to slow down. In terms of units sold, the market would grow by 10–15 percent. The home segment would take a huge chunk of the modem pie, close to 67 percent, and the rest would go to enterprise users. Cheaper internal modems would push hard to kick out their external counterparts.

The prices of dial-up modems are already near rock bottom and further price reduction is not likely to be more than five percent. With most of the ISPs now offering broadband connectivity, these modems are likely to see a jump in the sales figures.

The competition is heating up in the leased line and DSL segments, which might see price wars. And a lot will depend on pricing of the products, as the customers would weigh their options vis-ŕ-vis the dial-up.

Will the Dragon Breath Fire?
Though a lot of noise is being made about Chinese companies entering the modem business, the Indian companies really need not worry. As happened with other Chinese products, the quality of the modems would matter more than the price of the devices. The Indian companies are well settled in terms of understanding the market and its requirements. Plus, the duty concessions should keep the price factor in favor of local companies. If a Chinese company imports modems into India, duties would make the devices costlier. Also Indian companies are banking heavily on their better service support to keep the customers away from foreign brands.

The threat from Chinese players is mostly in the dial-up segment. In other segments like ISDN, DSL, and leased lines, it is the service providers who usually supply the modems. These are made according to their requirements and pricing is done accordingly. In the dial-up segment the margins have gone down so much that Indian companies are finding it difficult to sustain themselves in the market, even though the volumes are high.

However, the OEM factor cannot be discounted. Most Indian companies source their modems from Taiwan. The success of Atrie shows that the competition from these companies cannot be ignored.

Anurag Prasad

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