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Teledata

Tele Data

Mobile Subscribers Yearwise comparision

High Speed, Low Price - BSNL/MTNL flag off broadband services at very competitive rates

February 15, 2005



 -

Consumers can look forward to a veritable feast of new-generation convergence services. Last month, Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL) flagged off their broadband services in Chennai, Mumbai, Delhi, Kolkata, Hyderabad and Karnataka.

The copper wire that provides voice telephony and internet services will also offer television. And the internet will be available at much faster speeds of 256 kbps and above.

While BSNL is investing around Rs 6 billion, MTNL is investing Rs 840 million. MTNL has planned for a capacity of 350,000 lines initially in both Mumbai and Delhi, which will eventually be scaled up to 10 million lines. BSNL proposes to provide the service across 198 cities.

India is the second country in the world to launch broadband services using the latest technology –­ ADSL 2+ (asynchronous digital subscriber line) –­ and that too fairly soon after the US launched it first.

BSNL and MTNL bought the latest technology "off the shelf" and tied up with two turnkey suppliers for the equipment. The two PSUs are using two-pronged strategies to market their broadband services. First, they are offering these services with minimum access speeds of 256 kbps and going up to 1 Mbps for homes and 2 Mbps for businesses. They have also been fairly liberal with the data download/ upload limit. This has been fixed at 1 GB at the lower end by BSNL, and at 400 MB by MTNL. At present, most private operators such as Bharti, Sify and Iqara, offer broadband services at speeds of between 64 kbps and 512 kbps.

Second, the two giants have positioned themselves as aggressive price-setters. BSNL has set its DataOne broadband tariffs at a monthly charge of Rs 500 (for 256 kbps). MTNL in New Delhi and Mumbai offers its TriBand services at Rs 399 (for 256 kbps).

In this fiercely competitive market, even the installation charges and modem sale price/rentals have been set at attractive rates. It's all designed to sound the alarm bells in the private sector where no company can match such rates, at least not yet.

 On average, most private players offer a variety of packages depending on the customer's usage pattern. These can start from Rs 397 a month but they tend to come with limits on the amount of data transfer that can be made, that is, the cumulative size of the files that can be downloaded or uploaded.

For instance, Tata Indicom offers a Rs 397-a-month package with a 200 MB per month limit. To give an idea of what this means, typically, if you access the home page of a website that is low on graphics, you will download around 20 kB of data. If the website is heavy on graphics, you will download about 150 kB of data.

Most service providers charge extra –­ from Rs 1.40 to Rs 2 per MB –­ for downloads/uploads in excess of your entitlement. All the files that you download/ upload from your mail account are also included in the tally.

In addition, these service providers charge from Rs 2,500 to Rs 3,500 for the cable modem and the cable wires they install. Or they charge a monthly rental of around Rs 100 for the modem. Bharti, Hathway and Tata Indicom also levy a Rs 1,000 registration charge.

For high-volume net users such as offices, Hathway offers two plans with unlimited downloads for Rs 35,000 a month (for a 512 kbps connection) and for Rs 70,000 a month (1,024 kbps).

As consumers realise that MTNL and BSNL are offering competitive prices, most of these private players will scramble to rework their pricing structures. Bharti has already responded. Its broadband services in Noida, Uttar Pradesh are available at Rs 500 a month for 256 kbps with 1 GB download. But the installation charges are higher than those of BSNL/MTNL.

Industry observers believe that the tariff war in the broadband market is bound to become mean and nasty.

But Sify, for one, is not considering any immediate reduction in broadband rates. As Shrikant Joshi, president, Access Media, Sify, says: "Sify already has tariff plans as low as Rs 220 per month, so we do not see a need to reduce our prices.

Joshi says that with the entry of more players, the key differentiator will be quality rather than price. "Ultimately, quality of service will prevail over low tariff rates. BSNL is providing broadband services on its existing copper infrastructure. About 30 per cent of this is old and therefore not usable. This will have an adverse effect on the quality of service. In contrast, Sify uses fixed wireless technology that ensures high speed and flexibility."

BSNL/MTNL currently control over 90 per cent of the fixed line market of 45 million. This instantly offers them economies of scale to price aggressively. Even if only 7-10 million lines are technically fit to offer DSL technology (using existing copper cables), it still leaves BSNL/MTNL considerable leeway to achieve their target of 1 million subscribers in 2005 and 6 million over the next three years.

Moreover, the experience gleaned from mobile telephony clearly shows that a drop in average revenue per user below Rs 500 a month acts as a catalyst for an explosion in the subscriber base. Although, BSNL claims its low prices are introductory and applicable for only six months from the commercial launch, these prices will nevertheless become de facto benchmarks for the future.

Private operators are preparing themselves for this expected meteoric growth. Videsh Sanchar Nigam Limited (VSNL) has signed a major contract with Cisco Systems for the deployment of the Metro Ethernet solution. The solution is the largest broadband Metro Ethernet deployment in India, and will provide VSNL's enterprise and residential customers with high quality broadband services of 10/100 Mbps connectivity.

Cisco's technology enables the delivery of bundled services like voice over IP, broadcast TV, video-on-demand for residential customers and IP VPN, and video conferencing services for enterprise customers. The deployment of Cisco's technology is in line with VSNL's endeavour to provide state-of-the-art "triple-play" (voice-data-video) broadband services across eight cities in the country. The current deployment has the capability to connect over a million customers.

Going forward, analysts believe that three factors need to be watched carefully in the contest for broadband growth:

  • Quality of service/content: Assuming that competitive forces are going to drive prices down to Rs 500 to start with, quality of service is going to be the key differentiator. Since pricing is bound to give BSNL/MTNL a huge headstart, the first six months will be crucial for them in terms of customer addition. Since broadband customers are savvy internet users, quality of service and customer care are high on their priorities when they select a service provider.
  • PC penetration: The second factor is personal computer (PC) penetration and access to content. Unless greater fiscal incentives are provided for hardware manufacturers to reduce prices, PC penetration and internet access will not take off in a big way. Similarly, the utility of broadband will be enhanced only when India-centric or local language content becomes available. 
  • Policy initiatives in the public interest: If the broadband subscriber base is to take off dramatically, the Department of Telecommunications will have to give broadband a fillip by allowing shared unbundling of the local loop (or the last mile) for data services or bit stream unbundling for the private sector.

In shared unbundling, private operators will be able to offer data services using BSNL's infrastructure, while BSNL will offer voice services. In bit stream unbundling, BSNL will invest in the broadband network and allow access to private operators for a fee.

The regulator has already recommended this and ways of putting it into motion need to be found. This alone will broaden the market for broadband in the short run.



 
 

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