Private ISPs in India - An Outlook White Paper

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Private ISPs in India - An Outlook White PaperMonday, October 18, 20107:53 PM Outlook White Paper:

Private Internet Service Providers in India 1997, 1998 Anindo Ghosh .This is a copyrighted document, with both copyright and authorship residing with the author, AnindoGhosh , of New Delhi, India. This document is not a commissioned article, and as such, no otherindividual or organization can distribute or lay any claims to the use of this document. Anindo Ghoshsolely reserves all rights on the use, further publication and distribution of this document.Document Dated: 15 th October, 1997

Contents: Introduction The History Entry of VSNL The Private ISP Outlook Potential Opportunity Areas Pointers for Success Budgetary Outline Foreseeable Problems Concluding Observations This document was originally written as an introduction to the Private ISP scenario in India, for clients who hadretained the author as consultant for setting up ISPs in India. The audience consisted primarily of potentialinvestors with little or no knowledge of the Internet and its technologies and terminology. Hence some very basicterms are explained in the footnotes . Further, as this document predated the release of the official Internet policydocument, some points raised in this document may not hold true. However in the main, this document is still fullyapplicable to the Indian Internet scenario. All opinions and value judgements are solely the authors personalviewpoint. With this publication of the document on the Internet, it is thrown open for criticism and discussion.

IntroductionThe recent directive by the Government of India to permit operation of Internet servicesby private Internet Service Providers (ISPs) in India has aroused a lot of interestamongst various parties throughout the country. In this light, the following white paper has been designed to bring the various aspects of ISP privatization into perspective. Onone hand, certain misconceptions and fallacies are dispelled, on the other hand, sectorsof opportunity and feasible strategies are mentioned. This document is not designed tobe a comprehensive project paper, only an introduction to the subject. Detailed projectpapers would be developed for interested clients on receipt of appropriate retainers andwork orders. The HistoryInternet access in a sense came into India in the early 90s. ERNet, a division of Department of Electronics (DoE), and NICNet (Department of Statistics) made the initialinroads in this field. Both ERNet and NICNet are Government projects, but with verydifferent charters and growth histories.The ERNet (Educational and Research Network) project was designed to provideInternet connectivity to the premier educational and research institutions of India, whileNICNet was assigned the provision of Internet services primarily to Governmentdepartments and organizations. Under the guidance of Dr. S. Ramakrishnan, Director,ERNet grew from a low-bandwidth, unreliable, shell 1 and UUCP 2 based Internet service
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to become the first to provide full TCP-IP 3 access to dial-up modem 4 customers throughSLIP 5 accounts around 1993. This was followed by an upgrade to a nationwide V-SAT 6 network and passably high-reliability services by 1996. The shaky technical skills of thenetwork management group at ERNet Delhi have perhaps been its weakest point.NICNet was designed to provide V-SAT and dial-up Internet access primarily to

Government departments. It began with shell-only access, at 2400 BPS, but nowprovides high speed TCP-IP access through 64 KBPS V-SAT links. Technologies werealso upgraded to follow current trends, under the guidance of Dr. Sheshagri, Director.NICNet may not quite match world ISP standards, but it is not too far behind.ERNet and NICNet are thus Indias first ISPs, though their operations have beenshackled by the restrictions put upon them by Government regulations and policies of the Department of Telecom (DoT). Despite this, they were doing quite well in providingthe essential Internet services to an Internet-starved India, until the advent of VSNLInternet services and the restrictive clampdown that followed.Another provider of Internet services that preceded VSNL is the Software TechnologyParks of India (STPI) Internet service. Again, this service was permitted only for a

restricted audience, the software exporters falling under the STP scheme of the DoE.STPI has been providing high-end Internet services through leased lines and dial-uplinks, in and around several of the Parks, including Bangalore, Hyderabad and NOIDA,through the respective SoftNET networks. Of these, the NOIDA network is perhaps themost ambitious, the most technologically sophisticated, and also the most complex ISPin India. This network, titled the National Capital Region IP Network ( NCR-IP 7 ), reachessoftware exporters in and around New Delhi, Gurgaon, and NOIDA. Connectivity isprovided via CDMA and TDMA radio networks, Ethernet LANs and dial-up lines.Currently dial-up access is only available to the STPN network administrators due toVSNL-imposed restrictions.Entry of VSNL

On 15th

August 1995, VSNL launched the Gateway Internet Access Service , for providing public Internet access. Initially, DoT allowed VSNL the license to operate thisservice only in the 4 metros. By the VSNL charter, it is supposed to only provideinternational telecom gateways, not end-user services. Thus the name "GatewayService" was used to cover up for direct service provision.Starting with only dial-up shell and PPP 8 access in the 4 metros, VSNL followed withleased-line access to subscribers, followed by the setting up of points of presence(POP) in Bangalore and Pune. The DoT has turned a blind eye to these licenseviolations, and tacitly helped VSNL with post-facto ad hoc permissions along the way.VSNL has, since the inception of GIAS, portrayed itself in the press as Indias onlylegitimate ISP, while forcing many restrictions on the other ISPs through DoT

regulations and the telecom policy. The Telegraph Act of 1885, a pre-independenceBritish law, has been repeatedly invoked by VSNL and interpreted to give itself extended powers while forcing the other ISPs to curtail their operations.The Private ISP OutlookThe monopolistic practices of VSNL, coupled with undoubtedly high investments toincrease service capabilities, have had two results:

VSNL has successfully erased the existence of the older ISPs from public consciousness,through a high level of PR, promotional and marketing efforts.
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It has established a level of service that will be difficult for a new Private ISP to match withoutextremely deep pockets and a willingness to accept losses for a couple of years at least.

Facts to be kept in mind by potential Private ISPs: VSNL is not the only existing ISP they will have to compete with. VSNL and the DoT have a history of changing rules to suit themselves There is not yet any effective appellate body for telecom related disputes against VSNL or theDoT, though this is expected (not definite yet) to change in the near future. Any new player will be entering the field to compete with VSNL infrastructure already in place. VSNL has a high spending capacity for marketing and infrastructure investment that is nearlyimpossible to match. VSNL will defend its existing areas of operation, both GIAS and international voice telephony,which is threatened by Internet telephony. Public awareness of VSNL GIAS services is high, and establishing credibility will not be easy for Private ISPs. Availability and reliability of dial-up telephone lines and terrestrial leased lines are dependent onthe local telephony agency such as MTNL. Track records are not reassuring especially in non-metro telecom circles. Many new technologies like Cable Internet are currently forbidden due to a combination of Telecom and Broadcasting laws.

Potential Opportunity Areas Non-metropolitan cities where competition from other private ISPs as well as VSNL would be lessintense. Here marketing expenses would be lower, and a market could be created throughseminars and workshops. Private ISPs entering at a later date would have to contend withestablished loyalties. Primary target audience would be dial-up customers. Regions with high corporate activity, such as parts of Haryana, Lucknow, Agra, Ghaziabad, Goa,Kanpur, Jamshedpur, Nagpur, Chandigarh, Amritsar, Dehradun et cetera . In these areas, it wouldbe easier to get sufficient leased line subscribers from among research centers, private educationalinstitutions, corporate headquarters, major manufacturing facilities and export houses, to make theinitial set-up viable and self-sustaining. Dial-up customers would provide growth potential, with the

backbone paid for by leased line customers. Tourist and resort areas: Many premium hotels and resorts will require cyber clubs with Email andsurfing facilities, for which leased lines are needed. Educating these potential customers throughseminars, and providing very reliable service quality can capture these markets. Pricing for suchclients can be higher, thus ensuring lower risk, though with moderate growth potential due tosaturation. Clients would not switch providers easily if quality is maintained. Provision of wide range of ancillary services: Due to Internet access being a recent phenomenon,there is a dearth of related skills, such as information research and retrieval from the Internet, high-end technical support and consulting, and end-user training for leveraging the Internet. This isespecially true of non-metropolitan areas. Further, small cyber-clubs with trained personnel for thepublic to walk in and use for Email and Web surfing, much like the ubiquitous PCOs, wouldgenerate high revenue. Private ISPs with such services as part of the initial offering would gain highmarket share and customer loyalty.

Regions with poor telecom infrastructure and high industrial density. These areas are ideal for provision of radio-based leased line Internet access, which bypasses terrestrial leased lines andprovides the highest reliability. High concentration of automotive or steel goods manufacturerswould be a good starting point.

Pointers for SuccessThe key factors for success of a Private ISP will be a technical edge, financial capabilityto sustain losses over at least two years, high marketing and promotional budgets,strategic alliances with ancillary service providers, and lobbying power with the centraland state governments. These can be further examined further:


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The technical edge: The track record of ISPs in India, VSNL and the others before it, has beenbadly marred by poor service quality. Many Internet users would happily switch to a new private ISPif given a guarantee of reliability. "95% Uptime" and "Quality of Service" (available bandwidth)guarantees, while commonplace in the developed countries, are non-existent in India so far.Serious Internet users, especially those who depend upon it for business eagerly await suchguarantees. Once credibility is established, pricing can even be higher than competitors. This

technical edge can only be established and maintained by proactive, aggressive network design byexperienced consultants, coupled with a 24 hour Network Operations Center manned by well-trained experts in all aspects of ISP operation. Further, consultants must be available on 24-hour standby retainers. Close association with the ERNet and NCR-IP ISPs has shown thatcustomers are extremely sensitive on issues of service outage and unavailability of latesttechnologies. Financial sustaining power: The private airline industry in India makes a suitable parallel towhat is likely to happen with Private ISPs. Many private airlines started up, but with high levels of competition and price wars, coupled with changing government regulations, several could notcontinue sustaining losses. The recent closing down of several of the new private airlines has madethe market much more lucrative for those airlines which survived, so profit margins have shot up,and huge returns on investments are expected in the next few years. The same will happen withPrivate ISPs, since the scrapping of license fees for Private ISPs will allow many Private ISPs to setup services. Those that survive stand to gain excellent financial returns in 3 to 4 years. High marketing and promotional budgets: The opening up of ISP services without a licensefee by the DoT will result in many service providers in each region, and therefore inevitablecannibalization of each others market share by these providers. The only way to gain an edge inmarket share is by developing a larger audience base through regular Internet technologyawareness seminars and workshops, coupled with aggressive marketing, promotional campaignsand schemes. Every potential customer converted by a competitor would potentially recommendthat competitor to other customers too. This is especially true in this industry as the newness of thefield makes any user with even a months experience a relative expert for the novices. Strategic alliances with ancillary service providers: Potential customers will look for additionalservices besides Internet access, such as technical consulting, training, assistance in seekinginformation from the Internet, Web site design services, Internet advertising consultants, andnewsletters about Internet resources. It is nonviable for the ISP to maintain full time staff for allthese services that would be required from time to time. However, these services will be a source of additional significant revenue, for the ISP and third party service providers it is allied with. Within ayear or so of operations, revenue from this sector would be 25% or more of total revenue. Lobbying power with central and state Governments: Again drawing a parallel with theprivate airline industry in India, this would be an important factor for any realistic ISP business plan.Going by track records, the ground rules for the industry will be changed repeatedly throughunilateral policy announcements by various related Government departments. Like in the airlines,those startups who are able to get prior knowledge of upcoming changes in policy, and have thepower to influence these changes, will have better chance of survival as well as the possibility of eliminating competition. This is a reality in Indian Telecom that can not be ignored.

Budgetary OutlineBudgetary estimates of cost can only be made in very general terms until the exactterms of the Private ISP policy are announced. There may be many hidden cost factors

that the DoT throws in. Further, the costing would vary widely depending on the initiallevel of service offered, and existing telecom infrastructure in the target region. Theballpark budgetary figures for one year of operation are as follows:

Initial set-up, equipment, and bandwidth purchase (for 1 node): Rs. 4 Crore Manpower, personnel training, consulting fees, operating costs: Rs. 3 Crore Marketing and promotional activities, technology upgrades etc: Rs. 1 Crore Additional node set up and operating cost (in same region/state): Rs. 1 Crore Therefore, it is safe to start planning on a budget of 10 crore or so, for first year of operation.


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Foreseeable Problems Interconnection of networks is not permitted by the Telecom policy. Thus, if an ISP has multiplepoints of presence, it is not permitted to interconnect them directly, all connections must be viaVSNL. This is very expensive in terms of bandwidth requirements, and requirement of multipleNetwork Operations Centers (NOC) Laws are in existence in India that can be interpreted to read that transmission of data with any

form of encryption is illegal. Onus of prevention is upon the service provider concerned. However,much of current Internet technology, including secure Web servers, PGP encrypted Email, andVirtual Private Networks, are based on encryption. Prevention may be technically impossible, andthis could be used as grounds for revocation of a Private ISP license. A significant source of revenue for VSNL comes from being the sole international trunk carrier for voice calls. Revenues of between Rs.500 Crore and Rs.1500 Crore could be threatened over thenext few years if Internet telephony becomes popular. Therefore, VSNL is bound to demandprevention of Internet telephony by Private ISPs. Again, prevention may be technically impossible,by the very nature of technology used for voice communications on the Internet. This could be usedas grounds for strictures on ISPs. Monitoring of Internet usage may become a prerequisite in India. Though there is no censorshipof Internet content in existence in India at the moment, such restrictions have been proposed byVSNL and could come into force at any time. Such content monitoring, for prevention of

pornography et cetera would raise the network management costs by at least 100%. Further, thequality of service would automatically fall with such restrictions. Since all international trunk bandwidth to the Internet will still be controlled by VSNL, all PrivateISPs will have to buy bandwidth from VSNL. Prices to be fixed for this bandwidth by VSNL are notyet known, and this could have significant impact on the set up and operational costs of ISPs, asthere is no alternative provider available. Further, control of upstream bandwidth by VSNL meansthat monopolistic action by VSNL to protect its existing GIAS Internet service markets is possibleand likely. Further, competition would be on a very uneven playing field, in any sectors where VSNLis already an established service provider. Availability of high quality telephone and POTS exchange facility in a given target region will playa significant role in quality of service for ISPs. Those opting for their own fiber-optic exchanges with500 or more MTNL lines would definitely have higher service quality, though at a high initialinvestment. This investment would only start paying off with at least 4000 heavy use subscribers.

Many other risk factors exist, that are difficult to predict at this time. Among them are changes inpolicy, possible high VSNL tariffs, ceilings or floors on service pricing, restrictions on type of use,permissions for operating cyber-clubs, and so on.

Concluding ObservationsThe setting up of a Private ISP has potential for high returns on investment, but withhigh risk factors. The initial investments are significantly high despite the Governmentsdecision to scrap license fees. This field will be intensely competitive, and only a fewservice providers will survive the first two years of operation. Those that do survive,stand to gain anywhere up to 70% ROI per annum over the following years. However,the entire window of operation is not more than a decade, as technologies like Iridium(low-orbit satellites providing global public Internet access) will start entering India withvery low service tariffs.A service that is not well designed right from the planning stage will not be able tosurvive, so the use of expert consultants, and well trained personnel is criticallyimportant. Further, the service must be designed to adopt new Internet technologies asearly as possible, regardless of cost. Resource planning should be done with buffer capacity of 100% or more, to cope with bursts of growth. Local connectivity options


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other than POTS, such as Radio, should be given preference, so that the service is notat the mercy of the weather and the telephone departments.This document is an attempt to reflect the ground realities in India, which are verydifferent from the book of rules that ISPs in other countries are subject to.Foreknowledge of these realities will mark the difference between success and failure

for every Private ISP in India.

Footnotes:1 Shell access:

Internet access supporting only textual interfaces, with Unix or Unix-like operatingsystem commands. Requires "logging in" to a Unix-type user account, and thenoperating via textual commands or text-based menu systems. Shell access doesnot use the TCP-IP network protocols between the user (client) end and theservers. Therefore, applications like Netscape, NFS file sharing, and Internettelephony can not be used.

2 UUCP:Unix to Unix Copy Program , an early Internet Electronic mail transfer protocolthat is still used in many legacy Email situations, and in situations whereconnection reliability is very poor.

3 TCP-IP: Transmission Control Protocol / Internetworking Protocol , a whole suite of networking protocols that form the basis of the Internet. Often extended inmeaning to cover the entire Internet Protocol (IP) suite, including UDP and ICMPprotocols, as distinct from TCP. TCP-IP access is required for operation of IP-dependent applications like Netscape, Internet Explorer, mIRC, Internet telephonyand video, and many other modern applications.

4 Dial-up modem: As opposed to leased-line modems, this device is connected between a computeror Data Terminal Equipment and a conventional POTS analog telephone line. Usedto dial in to a corresponding modem at the service provider, and connect to the

Internet or other services (e.g. INET X.25 network). 5 SLIP: Serial Line Internet Protocol , one of the more popular protocols for IP accessover dial-up and analog leased lines. Now commonly superceded by PPP , thoughstill in use by some ISPs. See also: PPP .

6 V-SAT: Very Small Aperture Terminal , satellite-based digital communication systemconsisting of 1.8 meter (usually) diameter satellite dishes establishing point-to-point connections, often via a V-SAT hub , a central switching system.Bandwidths can be from 2400 BPS to 256 KBPS. Communication delay is high,due to the two satellite hops between endpoints, and hub latency.

7 NCR-IP Network: This network was originally designed and implemented by the author, in a

consultant capacity, for STP NOIDA. The project was executed, fromconceptualization to final implementation, between March 1996 and February1996. (Reference contact: Mr.P.S.Narotra, Director, STP NOIDA, Tel: +91 11 4363108).

8 PPP Point to Point Protocol , currently among the most popular protocols used fordial-up TCP-IP access. Variations like Multilink PPP are supported by some ISPs,allowing use of multiple modems for increased bandwidth.

About the Author:


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Anindo Ghosh has been a consultant for large network design and implementation fornearly a decade, and has been specializing in Internet related network solutions for thelast 3 years. His design and implementation of the National Capital Region IP Network,a project of the Software Technology Park, NOIDA, makes him one of the fewconsultants in India with experience in design of a modern ISP using leading edgetechnologies. The NCR-IP Network uses Windows NT and Silicon Graphics servers,

network routers from CISCO and Network Dynamics, and communications mediaincluding digital radio, Ethernet and dial-up modems. The network connects thesoftware export units in the National Capital Region to the Internet, and hence hasbeen designed to keep pace with their high-end Internet access requirements. Theentire network was conceptualized, designed, implemented and maintained during theinitial 6 months, by the author. During this time, STP NOIDA personnel were trained inthe operation and management of the network, and it is now fully operated by them.

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