Interview - Amitabh Kumar

Amitabh Kumar, Acting CMD, 

Videsh Sanchar Nigam Ltd. 

Amitabh Kumar has been a communications man since his BITS Pilani days. After completing his Bachelor of Engineering in electronics, Mr Kumar began his career with Overseas Communication Services. VSNL was the next job and he has had a varied job profile with the telecom monopoly. His former positions with the company include Director (Operations), Chief GM (Planning), GM (R&D) and Director (Switching) before assuming the current responsibility of Acting CMD in July 1998. 

During his two-decade association with VSNL, Kumar has added many feathers to his cap. These include the expansion of VSNL's network to 15,000 circuits, setting up of new satellite earth stations, fiber optic systems and gateway digital switches. Other achievements include the massive expansion plan worth about $1.3 billion during the Ninth Five Year Plan period, planning and implementation of electronic mail and Gateway Internet Access Services and the successful execution of the $185 million GDR issue. 

Mr Kumar is also the VSNL representative on the Board of Governors of Intelsat and a director on the boards of ICO Global Communications (Holdings), ICO Global Communications (Operations), Telstra

V-Comm and Iridium India Telecom. Recently in Delhi, Mr Kumar spoke to Yograj Varma of DATAQUEST about
VSNL, Internet and more VSNL. 

Excerpts:

What were the main strategies for your ISP business during the last fiscal?



During the last fiscal, we started with a very high focus on the Internet leased lines to
corporates. Earlier it was a done thing to have a private leased line and we have been explaining the advantages of TCP/IP leased lines. A TCP/IP leased line has direct application in intranets, extranets and other corporate

Networking environments. With an outlay of Rs 5 lakh for the leased line, a corporate can access mail, Internet and other applications. So you can send unlimited fax and mails with the Rs5 lakh investment. We continued our retail thrust and came out with innovative deals for customers.

What are your plans for the current year?



The ISP scenario has changed since the beginning of the current year with private ISPs entering the market.There are more than 100 ISPs getting in the business. Of course many of them are targeting niche areas. So the real ramifications will be evident in the current fiscal and coming years. However, the bigger challenge will be from big city players who are focusing on the same market,
viz, corporates and key identical areas.

How do you plan to tackle competition?



Our experience has shown that big players tend to focus on big corporate customers. The same cannot be said about their concern for smaller customers. This segment is very important to us and we intend to give more thrust to it. Though our 25 hours account has followed others, we believe that it will become a powerful tool in attracting customers to test our services and stay on with us. Another factor where we intend to retain the loyalty of our customers is by sprucing our network infrastructure. Apart from these, DoT and
MTNL, too have synchronized their exchanges to some extent resulting in lesser call drop and much more stable connections. We will never compromise on the quality to our subscribers. We feel these factors will increase our retail subscriber strength despite competition. 

What about the corporate segment? 



We will continue to remain the dominant player in the corporate segment. The big advantage for VSNL is that we are seen as a key provider of both leased line and direct connectivity. Hence they
(corporates) believe that we can provide much higher quality leased compared to any other player. For example, Satyam Infoway has taken a 2Mbps line from us. Apart from using it to service the retail segment they are also trying to resell it to the

corporates. So in reality, corporates are getting much lower bandwidth. We will give what we promise. I think that there is an in-built quality factor about VSNL's services, which we have been able to build over the years and will continue to sustain. Moreover, the corporates trust us much more in terms of

our technical manpower competency. Most private players have about two or three key people and beyond that only marketing people, whereas we have a core staff of about 200-300 people. I don't see much difficulty in retaining the major player tag in this segment for some time to come. 

What is your comment on the industry complaining of your dual role of infrastructure provider and ISP player? 



I don't see our dual role existing for long as we are going to convert our ISP operation into a subsidiary very soon. The proposal is in an advanced stage and a final decision will be taken by the board. With other agenda like
ICO, the board has not been able to give time to this issue. We are also thinking of de-merging various operations. The idea is to make telephony and Internet operations as two different business units. With the high valuation of Internet stocks, we think that we will enhance our shareholders' wealth.

Yet, there is scope for favoritism for the Internet subsidiary?



Well, there is no question about that. The de-merged company will have to pay the same rates to the bandwidth provider
(VSNL) as the other players. Moreover, they will have to pay for their own infrastructure like building, network and people. The idea is to give an equal play to the existing and new players in the industry vis-a-vis VSNL's ISP operations.

What is the bandwidth available to your business? 



Currently we have about 116Mb and expect to have another 45Mb with the commissioning of the FLAG fiber


optic cable network. Once that comes through, the network dynamics will change. Ultimately, I see most of the Internet traffic flowing through this 45Mb pipe. We think that this 45Mb will carry relatively more traffic
because of less delay. Besides the FLAG cable, we have signed up for more capacity. Recently, our board has signed up a further capacity of about 155Mb on the Japan-USA cable. Similarly on the Atlantic side, we are buying about 155Mb more. Using the FLAG or See-me-Wee3 cable, which goes through Japan and the UK, we are extending our reach to the US. So by the year-end we expect to cross the 400Mb mark. This means that we are talking of four-five times expansion in one year.

In addition to the cable network, we are looking at satellite bandwidth. We are trying to tie up for a full transponder of 36MHz that can handle about 70Mb.

Do you have any plans to tackle the growing number of VSNL-dependent ISPs? 



One of the important initiatives to tackle this problem is to make the Internet exchange more viable. With over a hundred ISPs connecting, we automatically become an exchange whether we like it or not. Our endeavor is to see that everybody has good connectivity and plan to implement an all India ATM-based network. This has already been tendered and is in an advanced stage of evaluation. Once this comes through, then these different elements will get tied over across the country.

Can you describe your ISP gateway infrastructure? 



As such we don't have any special infrastructure for the ISP segment. We are using our gateway infrastructure for both the businesses. All the 22 earth stations have multimedia capabilities. The same earth station is used for broadcasting, Internet and telephony. This is why the overhead cost is very small. Thus our incremental cost to the ISP business in terms of setting up gateways is nearly zero as we have not put up any earth station solely for Internet business. Many of these earth stations have been created particularly to expand IT services in the country. So we have been looking at small places like
Goa, Indore, and Chandigarh apart from big cities like Mumbai and Bangalore to build strong support infrastructure for the Internet. So the traffic does not have to flow on the national backbones. That really helps us to provide better services to our customers.

How do you see the threat from private gateways?



Gateways are an important source of revenue and will continue to be so in the near future. In terms of
revenue, we have earned around Rs 450-500 crore in the last fiscal and we expect the revenue to touch about Rs 1,000 crore in the current fiscal. We welcome the government's initiative to allow private players to set up their own gateways but are not worried about the same. We see a few private gateways springing up in the country, but I am not sure about the advantages. It would cost around Rs 150-200 crore to set up a really good national gateway operation. Such investment can jeopardize the viability of the whole ISP project.

However, companies are trying to leverage on the opening up of the long distance telephony plans along with gateway investment. For a company only in the ISP business, it does not make sense to make such huge investments in setting up gateways and then buying capacities in various international cable companies. Moreover once you buy capacity on some cables, you are stuck for 20-25 years. So it is unlikely that ISP companies will set up their own gateways. But if they want to extend their role as telecom provider, then it makes better sense. Else it is better to move via the VSNL network. The rates are quite low for our network. It is Rs 40 lakh for a 2Mbps and Rs 5 lakh for a 64Kbps link.

Do you see further reduction in these rates?



Not really! I think the rates are quite reasonable and any further reduction is only possible if we have more cuts by the US carriers.

What are your views on the price warfare in the industry?



Competition, by and large, brings down prices in any industry and we are witnessing the same in this business. However, the industry needs to look at any company taking a hasty step to get a foothold in the industry. This can be detrimental to the growth of the entire industry. Measures like ETH's Rs 18 per hour can become a mechanism to make the whole industry sick. The rationale is not hard to understand. If they expand at such low prices, chances are they will not be able to perform and could go down taking the credibility of the industry with them. 

Do you think that MTNL has an advantage by virtue of being a telecom carrier?



I think that the recent announcement of MTNL providing a telephone connection in the metro region along with an Internet account is very anti-competitive. They are leveraging their telephony monopoly to get a share in the Internet slice.
VSNL, too, has been leveraging its telephony infrastructure for the ISP business. 

Does this not amount to anti-competitive practices?



I don't think that this is anti-competitive as we are following TRAI's rates for our ISP operations. On the other hand, the setting up of earth stations in various parts of the country has brought down the cost of Internet access in many parts of the country. For example, if we had only one earth station in Delhi, a user in Goa would have to pay the STD cost for Internet access. 

What will be the impact of lowering the cost of leased line?



Basically, we have been operating in a very high cost environment. So far the Indian market has followed the dynamics of high cost and low volumes. Now hopefully we should see a change to low cost and high volume. I think, like the worldwide experience, a drop in cost will lead to increase in volumes, which will be up for the price drop. For
VSNL, we see this as a profitable opportunity as international cable lines cost is also coming down. Earlier, STM1 giving a capacity of 155Mb cost us between $9-$12 million per link. Recently, on the Japan-US cable, we got the same capacity for about $2.8 million. So, if the cost of the basic infrastructure keeps moving downward, we will still be able to cover our margins by the volume growth.

In your scheme of things, do you see the ISP business gaining more importance than the traditional business?



Yes. It will be following a worldwide phenomenon of Internet business becoming high profile as applications, such as e-commerce, banking and personal applications move on to the Internet. Hence the very high valuations of Internet companies like Amazon.com and Yahoo. Of course telephony will still be a growing business for us. With penetration of just two per cent, the Indian market is still huge for this business. So, our telephony business is not going to level off but rise steeply and continue to rise till about 2010. I, therefore, do not see any business segment suffering because of the other in the near future.