Internet war — Second round may see further cut in tariff levels

MUMBAI, April 1: A second round of internet rate reductions is on the anvil following government approval for the tariffs announced by th...

MUMBAI, April 1: A second round of internet rate reductions is on the anvil following government approval for the tariffs announced by the Telecom Regulatory Authority of India (TRAI). The drop in leased line and internet pipe tariffs by as much as 85 per cent and 30 per cent respectively has cut infrastructure costs down for internet service providers (ISPs). Costs of e-commerce services like messaging and virtual private network are also expected to come down correspondingly.

"The overall cost for the ISP could come down by about 30 per cent," an industry observer said. This could roughly translate to an 18 per cent discount over existing rates for the customer. The first round of reductions took place when the Mahanagar Telephone Nigam Limited (MTNL) entered the market at a 15 per cent discount to existing rates.

Players are currently evaluating the impact of the new tariffs on network costs and benefits which can be passed on to the subscriber. A senior official from Satyam Infoway said if their costswent down, customers would certainly benefit. "We don’t know the full impact as yet," he said, refusing to comment on how much and whether they would be slashed. Satyam has all along maintained that it would compete on service rather than on price. This is the first time it has actually said it is considering a price drop. Sources said, the ISP had already factored the new rates in pricing for bulk customers but not for retail customers. Satyam has 30,000 subscribers spread over 12 cities and is the second largest player after Videsh Sanchar Nigam Limited.

Rolta India, which is launching ISP services in May, said it was also re-working its costs. "Definitely, it will affect prices," said a Rolta official about the drop in leased line and internet pipe rates. "Internet rates will take at least three to four months to stabilise. We cannot comment on our price as yet," he added. Rolta, a software house, is getting into the ISP business to gain expertise in internet technologies and offer consultancy tooverseas clients, according to chairman K K Singh.

Another ISP slated to enter the market in May, said it could buy more bandwidth for the same money, so prices would certainly come down. "In our case, bandwidth is not a very major part of our project cost," said a top official, "but prices will come down… there will be more customers."Dominant ISP VSNL said it had already anticipated the TRAI announcement and factored it in its new internet access rates. "There are no immediate plans to cut rates again," officiating chairman Amitabh Kumar said. However, he did not rule out a review in the rates before March 2000 the date set by DoT in view of the changed market conditions. "It would be possible. Networking costs are close to 50 per cent of the total project cost," he said.

The MTNL, which is slated to review its internet rates in April end, could also be dictated by the market as there would not be any significant impact in costs for the public sector undertaking. "We are in the market, so we have tobe competitive. Once other players drop their rates we will also have to do it," K J Chacko, general manager (marketing) of MTNL, said.The picture is expected to get clearer in the next quarter as many of the new rates are incorporated in the pricing strategy of existing ISPs and more players make their debut, according to analysts.

By June, the number of ISPs in Mumbai — which has the highest count of internet subscribers in India is expected to double. Three more companies — Global Electronic Commerce Services, Rolta India and Dishnet Limited have said they will launch here in May, taking the total number of ISPs in the city to six.