ISPs will be looking at new strategiesBy Monica Deveshwar
The Internet is basically a network of networks. It is a network of servers, across the world, which are connected with the help of high speed communication facilities that carry data over the Transmission Control Protocol and Internet Protocol (TCP/IP) standard. TCP/IP is a universal standard adopted internationally to transmit data across channels.
There is a high acceptance level of Internet and e-commerce in most end-user companies - large, medium and small. This is evident from the adoption of e-commerce as a key element in companies’ overall strategy. Medium and small-sized companies, however, lack appropriate understanding of technologies. They also do not possess enhanced infrastructure.
Most companies adopt a similar path towards becoming e-commerce enabled. The norm is to move from an established network to an Intranet presence for information flow and then connect the local Intranet to the Extranet/Internet.
Almost all large corporates already have the essential infrastructure in place, namely a strong local network, connectivity to the Intranet, and a website. Though medium sized companies lack connectivity to an Extranet for business purposes, they have a networked organization via the Intranet.
Small sized companies, on the other hand, still require appropriate guidance. These companies are creating websites without actually assessing their requirements or understanding all the advantages of adopting a planned information strategy and networking the organization accordingly.
Familiarity with and use of Internet facilities and web tools is high in large companies. Typically, any large company uses some form of company mail, has a website of its own, is involved in EDI transactions with the vendors, and has a Intranet for internal information flow. But even these companies are yet to adopt electronic funds transfer.
Medium and small companies have adopted e-mail for communication on a large scale and can boast of a website. Such companies use EDI sparsely. They are yet to tap the potential of the Internet to enable smooth internal information flow.
A number of reasons are responsible for the lack of e-commerce and under-utilization of the potential applications of the Internet. The two most important reasons are:
The lack of proper legal and regulatory framework. This restraint is recognized by every large Indian company, which sets up an e-business branch.
The lack of security procedures.Large sized companies are confident enough of technical competence within and of their partners/vendors, to be able to set up an end-to-end solution. These companies are confident of being able to streamline, rationalize and integrate their business processes and the value chain of their business partners through the latest connecting technologies.
Competent service providers and integrators, who can provide such integrated business solutions to medium and small sized companies, seem to be rare in the Indian market. Also post-setup issues are prime concerns among Indian businesses. Companies may not balk at the initial investment. But most of them will be wary of the operating and maintenance costs of e-commerce solutions.
Vendors need to educate customers about the short, medium and long-term benefits accruing to their businesses. A quick cost-benefit analysis should make them aware of the costs involved in each step. Transparency in the costs for each benefit accruing to the customer will speed up adoption of the internetworking applications.
Certain characteristics of payment are very important in every e-business venture. These should be integrated in every e-commerce solution. These characteristics are:
Privacy
Low financial risk
Easy exchangeability
Low transaction cost
Low fixed cost
No intermediaries/third parties
Reliability and trustworthinessThe e-industry comprises Internet service providers, third party e-solution providers, and value-added service.
Internet service providers are responsible for providing access to Internet. This may be for transferring data and/or for transmitting voice, picture (as in videoconferencing), etc. ISPs provide the customer with connectivity and access to the World Wide Web (WWW), which is a connection to different web servers, with the help of high-speed telephone connections. Servers across the globe are connected through international gateways located around the world.Third party e-solution providers are responsible for providing end-to-end interconnectivity, and business solutions namely electronic data interchange, Intranet, Extranet and e-commerceValue added services providers provide Internet related services namely leased line services, messaging including e-mail, Web communication services like web hosting, web designing, content development, fax services, virtual private networks etc.Indian ISP Scenario
The Indian telecom market is primarily dominated by three government agencies:
The Department of Telecom (DoT) is still the largest basic service operator and provides services in the entire country.
Mahanagar Telecom Nigam Limited (MTNL), which is the largest basic service provider in Delhi and Mumbai.
Videsh Sanchar Nigam Limited (VSNL) is still the only long distance service provider in the country.In 1994, liberalization saw the opening up of the telecom market to private participation. The potential of this untapped market attracted the interest of many international companies. But this enthusiasm waned as the bureaucratic nature of the Indian government and business became evident.
Although Internet has been available in India for more than a decade now, it was made commercially available only in 1995. But only VSNL was allowed to provide access services. Soon, however, it was realized that VSNL alone would not be able to meet the demand for Internet access. Hence a new Internet policy was introduced. Satyam Infoway and Weikfield Mnemonix Infonetworks were the first private ISP services.
Very few companies have set up their own international gateways. On achieving domestic critical mass, it will be viable for companies to invest in international gateways. MTNL, value-added services providers like Satyam and Global, and cable companies like Siticable are trying to achieve domestic critical mass so as to be able to set up their own international gateways.
The number of ISPs is, however, increasing gradually. Some factors likely to be responsible for the evolution of the ISP industry are:
Increasing demand for Internet services
Demand for better and more efficient services
Government initiative for promoting the Internet
Growth in international business
High bandwidth of service providers
Underutilized capacity in certain sectors which will increase growth prospect for ISPs.
Entry of cable operators
Investments in upgrading network facilityDemand in the Internet services market has shown a robust increase. In 1998, the number of subscribers increased to 2,59,000 at a growth rate of over 80 percent. As per industry estimates, by the end of 1999, there were about 1.4 million Internet users in India.
To augment the bandwidth required by the ISPs, the government has allowed the sale of excess bandwidth by telecom providers. VSAT companies are expected to capitalize on this opportunity as they can provide uninterrupted high-speed connections to ISPs. Already some VSAT providers are providing a host of value-added service like Intranet, Extranet, VPN, and EDI solutions that require high-speed connections. Broadcasting companies are also expected to benefit from leasing their excess bandwidth. A few of these companies are likely to become international gateway providers.
Private ISPs have to invest large sums of money to be able to provide efficient and reliable service. Some cable companies such as DishNet are already planning to provide access through cable. The advantages for cable companies are multiple:
Transmission speeds through cable wires are much higher than through telephone lines.
Cable wires provide constant connectivity to the Internet.
Subscribers will not have to invest in a computer. With just a cable modem or Internet TV, a keyboard and a mouse, subscribers can log onto the WWW .Very soon copper wires will cease to be the medium of communication around the world. With the increasing use of high bandwidth applications, which involve simultaneous transfer of voice data and video, connectivity mediums will have to be massively restructured. Copper wires cannot support communication applications that require very high speeds. Hence the development of fiber optic technology, which can provide very high and reliable speeds for data, voice and video communications. The government of India is currently involved in international projects like FLAG and project Oxygen that provide international fiber connectivity to many countries.
At present, 150 companies have obtained license for providing ISP services, although only 4 to 5 ISPs are visible.
The basic cost of setting up an ISP can be divided into costs of:
Infrastructure
Hardware
Servers
Peripherals
Routers
Personal computers
Backup devices
Software
Network management software
Billing software
Security & server maintenance software
Networking
Telecom
Backbone
Upgrading
AccessThe infrastructure costs at each point of presence varies from Rs.1.5 million to Rs. 3 million.
The access cost is variable and dependent on the number of subscribers and the number of ports. The ideal ratio between the number of ports and the number of subscribers varies between 1:10 and 1:15.
Significant costs are involved in connectivity to Internet gateway. Of the total costs involved, a large amount is fixed and independent of the use of the network. Frost & Sullivan estimates that to break even, an ISP would need at least 50,000 subscribers at Rs. 3,000 per annum.
The number of ISP subscribers, currently at around 3.5 lakh, is likely to grow at a high annual rate. Most of the future players are therefore gearing up to provide access along with other value-added services.
At present an ISP is judged on the basis of bandwidth support. But the more practical approach would be to go by the number of multi-user connections such as corporate connections, and connections to cyber cafes etc. VSNL currently has a bandwidth support of 165Mbps. By international standards this is sufficient to support its subscriber base. Yet VSNL subscribers find it difficult to access the Internet. This could be because VSNL caters to a large number of corporate clients. Corporate clients have a number of users simultaneously using the access. As a result, the bandwidth availability per user decreases. A futuristic solution to this problem could be charging on the basis of bandwidth usage instead of the duration of access. Customers should be charged a fixed rate for the connection cost and a variable rate according to bandwidth usage.
VSNL has been constantly revising its rates and upgrading its services. For ISP services, it has technical collaboration with IBM and Telecom Italia. For frame-relay services, it has tied up with British Telecom. Its geographical reach in India is through land and satellite. Radio link/radio modem are expected to be introduced soon. The primary strengths of the organization are:
Financial muscle
Large, established subscriber base
International gatewaysIts prime weaknesses could be ‘low customer confidence’ and lack of customer service and support.
ISPs such as Satyam have set up call centers. Satyam Online was the first private company to launch ISP services. At present, the company’s services are available in around 30 cities. The service differentiator for this ISP is the availability of countrywide roaming facility.
Mantra Online, the joint venture between Bharti Telecom group and British telecom, has ISP services available in 3 metros, linked with 2Mbps fiber optic lines.
ISP Future
Vendors will ask "after access what?"
Crystal Gazing
Application Service Provider is the future. An Application Service Provider is a service model, wherein software, hardware and networking technologies converge to offer a service-based application to the end-user. The following characteristics define the ASP:
Application Oriented
Many-one Relationship
Independent Centralized Management
Single Point Caretaker
Delivery via Internet/ WANAn ASP owns, possibly in partnership with other service providers, the infrastructure on which these applications reside. It coordinates the various hardware purchases, software licensing or development, and network connections. Customers rent the services from the ASP on a monthly basis. ASPs enable cost sharing among many customers. This makes them cheaper than traditional corporate-owned-run-maintained applications.
ASPs need to target various customer segments and offer a multitude of services. They could focus on a select vertical market, and customize hardware, software and application/solutions accordingly.
ASP services offer many advantages to customers:
Reduced redundancy or complexity of systems
Reduced cost of applications
Reduce capital outlay budgets for expensive application software
Reduced personnel costs
Reduced hardware/software maintenance costs
Higher level of customer service
Improved system reliability and higher system uptime
Additional functionality provided by the vendor
Access to high-end application softwareASPs are likely to include single application offerings or multi-application offerings. An ASP domain is likely to include applications such as ERP, SCM, CRM, SFA, Business Intelligence, Financial/Accounting software, Human Resources, e-commerce, etc.
The writer is Industry Manager -- Information Technology at Frost & Sullivan (I) Pvt Ltd, and can be contacted on mdeveshwar@fsindia.com