Internet price war begins: new entrants undercutting rates

MTNL, which is slated to launch internet services at Mumbai and Delhi from February 9, had initially indicated it would go up to 30 per cent lower than existing rates. However, it ultimately undercut VSNL rates by only 15 per cent.

The best deal from Dishnet will be a one-yearpackage at Rs 3,000. The package will entitle users for one hour of free surfing everyday of the year. This means, savings of nearly Rs 10,000 if the tariff is calculated at the rate of Rs 35 per hour, which is what VSNL charges for its 100 hour account. Even at Rs 20 per hour (VSNL, MTNL tariff for a 500-hour account) it means savings of Rs 4,300 or 215 hours of surfing time. Extra surfing hours (over and above the free one hour) will be charged at the rate of Rs 20 per hour.

"Different players have different strategies. Our strategy is to have the largest volumes with a radical pricing," said Prakash Arya, marketing director, Dishnet. The company will start services at Pune in March under the brand name of ETH (education-to-home). Mumbai and Chennai launches are scheduled for April. In all, it will launch in 35 cities and target a subscriber base of 30,000 users, by the end of the year. A major chunk of its subscribers are expected to come from Mumbai.

The company will make a total investment of Rs 400crore over a period of five years. Retailing will through franchisees who will also provide net surfing points at Rs 50 per hour. "We will break even after the second year," Arya admitted. The firm has projected a revenue of Rs 45 crore, Rs 180 crore and Rs 370 crore respectively for the first three years of operations. Major players like Satyam Infoway have shied away from undercutting VSNL because setting up an ISP business involves considerable investment in infrastructure. However, the changed market situation may now force them to rethink.

"The business will have to move with the market," said a senior Satyam official when asked about the possibility of a drop in subscription rates. MTNL chairman and managing director S Rajagopalan has also stated its internet tariffs are likely to be revised downward after three months. The next couple of months promise to be far more interesting for the consumer who has been waiting for tariffs to drop ever since internet services were privatised in November. Andthis might just prove to be the catalyst needed the kick-start the price-sensitive Indian market towards higher volumes.