Private ISPs: It is your Call

If you thought that the only fire works that happened in

India last month was at the borders, you are wrong. Think again. In what seemed like rapid

fire activity, the Indian government made several major IT/telecom decisions that will

have major impact on the domestic Internet Service Provider (ISP) and telecom businesses.

Some of these are clearing the path for private ISPs to set up gateways, reversing the

messy telecom licensing structure to a revenue sharing model and allowing private radio

stations in 40 cities.

Consider the move to allow setting up of gateways by

private ISPs. By clarifying the security issues, the Government completed its earlier

ruling on removing VSNL' s monopoly and allowing private ISPs to offer services. The new

rule requires a committee to provide clearances for gateway requests and all routers

(>2Mbps) of the ISP to be monitored by security agencies. This will entail additional

monitoring equipment cost to the ISP besides having to accommodate the security agency in

its premises.

The gateway is a critical component in the ISP backbone

that will interface to a high bandwidth pipe of an overseas carrier. The overseas carrier

could be another ISP or a large bandwidth provider. If the overseas carrier is also an ISP

(such as UUNET or AT&T, chances are the carrier will terminate the line to its own

gateway in the US or Europe). This is a good arrangement for the Indian ISP. If the pipe

belongs to a bandwidth provider such as FLAG or SEAMEWE3 then the ISP would have to make a

second arrangement with an ISP that would carry traffic from the landing point to the POP

of the overseas carrier.

The gateway, a capital expenditure for the ISP, is a

one-time investment (except for upgrades required driven by increase in demand). However

the leased international pipe from Indian gateway to US / Europe gateway is the recurring

component that can blow the operational costs high. What makes this particularly difficult

is the fact that the Indian ISP will be required to pay for the entire length of the pipe.

Unlike the telephony world, the wireless world of IP defies

circuit switched pricing and settlement type accounting methods. This component easily

amounts to about Rs 2.5 crore per year for a single E1 line from India to the US.

If a private ISP with 12 POPs builds four international

gateways, the average annual cost incurred on international bandwidth alone is about Rs10

crore. Together with alternate/ back-up lines, gateway equipment and domestic leased lines

to provide alternate routing between gateways, this could run into a huge annual outflow

toward bandwidth. While huge capital outlays are common in any infrastructure business, it

is the dependencies of the ISP that can make or break the financial viability of their

business.

The corporate customers are the highest revenue generating

segment for an ISP. The huge domestic leased line costs charged by DoT are a perpetual

deterrent. Besides, the DoT should be able to respond immediately for a requested leased

circuit and move in 'Internet time'. If not the ISP will bleed to bankruptcy. Notice that

the DoT is safe.

Look closely and there could be an opportunity here. Of

Indian ISP s that acquired the license not all are ready with network build outs and

customer bases. If an ISP has not yet invested in a network here is an opportunity. The

ISP can build a new business by hosting a series of international gateways in strategic

locations nation wide and lease international bandwidth with a complete set of alternate

routes to various other ISPs. What makes this most attractive is that international

bandwidth is best negotiated in bulk, for example multiple STM 1s (155 Mbps).

This kind of third party leasing of International gateway

and bandwidth will attract competition. With three or four such agencies competing to

provide international gateway access and bandwidth, that could potentially bring down

rates for all ISPs.

For some ISPs it is important to understand that it is

better for them to outsource and share international bandwidth than invest in dedicated

facilities. For others, it is time to make the call on whether to retail or wholesale

bandwidth.



Sridhar T. Pai