In line with its ongoing efforts to accelerate internet and broadband growth in the country, the Telecom Regulatory Authority of India (TRAI) has released a study paper providing an analysis of the prevailing market structure and tariffs for internet service.

TRAI’s main concern stems from the fact that growth in the internet and broadband segments is not picking up. Against a target of 6 million internet broadband subscribers in 2005, there was a shortfall of 450,000 subscribers. This gap is widening. In June 2006, the segment registered a mere 7.71 million internet subscribers (including broadband) and 1.56 million broadband subscribers, which is way below the 2007 target of 18 million. To achieve this figure over the next three quarters, the growth rate required for internet subscribers would be 133 per cent and for broadband subscribers 477 per cent.

Market analysis
According to the study, a further break-up of the 7.71 million internet subscribers shows that about 20 per cent are broadband subscribers and this is the segment that is growing at a faster rate. There has been a discernible drop in usage of dial-up services, from 84 per cent in March 2005 to 66 per cent by March 2006 and 60 per cent at the end of June 2006. TRAI attributes this fall to a shift from bulk dial-up usage to broadband services.

The annual internet subscriber growth rate witnessed over the last three years is about 25 per cent. The growth rate for the quarter ended June 2006 has been 11 per cent, translating into an annual growth rate of about 44 per cent.

Of the 153 operational ISPs, the leading five ISPs alone account for 86 per cent of the total internet subscriber base (including broadband). Of this, 62 per cent is with the PSUs as against 56 per cent in March 2006. State-run Bharat Sanchar Nigam Limited (BSNL) enjoys the dominant position among ISPs with 43 per cent market share as of June 2006, followed by MTNL at a distant 19 per cent. According to TRAI, “Their pan-Indian presence and dominant status in fixed line services give them an advantage to offer combo plans where users of voice services can avail of internet services as well.”

Private ISP Sify has 11.83 per cent market share followed by VSNL, which now has 6 per cent followed by Bharti at 5.73 per cent.

Tariff analysis
 To analyse internet and broadband tariffs, TRAI has taken the effective tariff for internet access based on the fixed and variable charges, paid by subscribers. This excludes service tax.

TRAI concludes that internet access through cyber cafés is quite popular. The composite tariff for internet access through cyber cafés ranges between Rs 5 and Rs 15 for an hour (Rs 10 being the most common).

Dial-up tariffs
TRAI states that on the dial-up front, the tariff is divided into two parts: charge for internet access and charge for PSTN usage. While internet access charge is quite low, according to TRAI, the composite charge for dial-up usage is high on account of high PSTN usage charges. Therefore, the PSTN component is acting as a bottleneck in lowering the cost of using dial-up services and in increasing subscriber numbers.

In the prepaid dial-up segment, the effective charge per hour ranges between Rs 14.60 and Rs 32 during peak hours and Rs 4.80 and Rs 19 during off-peak hours. Most of the existing customers use dial-up services during off-peak hours. Over the years, internet access charges have declined from Rs 6 per hour in 2004-05 to Rs 5 per hour in 2005-06 during peak hours.

Considering the lowest tariff for dialup service offered by BSNL, an internet access charge of Rs 5 per hour translates into a charge of Re 0.08 per minute, whereas the PSTN charge is approximately double the internet access charge during peak hours and equivalent during off-peak hours. Therefore, TRAI feels that to bring down the composite dial-up charges, the PSTN charge for dial-up services has to come down. In the post-paid segment, the minimum monthly outgo of a dial-up subscriber for an average use of three hours per month (during peak hours) is about Rs 72 in Mumbai and Delhi, and Rs 47 in the rest of India. For off-peak hour usage, however, the monthly outgo drops. The effective charge per hour for dial-up service for high users (unlimited usage plan), assuming an average usage of eight hours per day, ranges from Rs 10.58 to Rs 24.59 during peak hours and Rs 5.78 to Rs 12.98 for off-peak hours.

Broadband tariffs
For broadband services, the charging pattern is based on the quantum of data usage and not the duration of internet access.

Broadband tariff plans are divided into two broad categories: limited and unlimited usage. Broadband plans offering a speed of 256 kbps, that is, the minimum mandated download speed, have been considered for the purpose of the tariff analysis.

Limited usage (volume-based) plans
 Under these plans, the subscriber gets internet access with specified free data transfer (in MBs) for a fixed monthly charge. Any additional usage is charged separately. The lower monthly rental plans offered by the five ISPs have been analysed. These offer free data transfer ranging from 400 MB to 500 MB. Therefore, the charges have been worked out based on a monthly usage of 500 MB of data transfer. According to the paper, the effective charge for 500 MB of data transfer ranges from Re 0.60 per MB to Re 0.75.

Unlimited usage plans
Under unlimited usage, where internet access is allowed without any limitation on the quantum of data transferred for a fixed monthly payment, the charges have been worked out assuming an average usage of eight hours per day. The effective charge for broadband (unlimited) service ranges from Rs 30 to Rs 47 per day. Assuming an average usage of eight hours per day, the effective charge per hour ranges from Rs 3.75 to Rs 5.83.

Overall, the minimum monthly outgo for a broadband subscriber is Rs 199 in Delhi and Mumbai, and Rs 250 in the rest of India. This essentially is the monthly rental that has to be paid even if the subscriber does not access the internet.

From the above, TRAI concludes that dial-up services are cheaper than broadband for very low-usage subscribers. As the usage and quality requirements of the subscriber go up, broadband effectively becomes cheaper.