Trends in Bandwidth Market

In early 2000, the government announced further deregulation to open up the

international gateway market—hitherto a monopoly of VSNL. In the past year, 30
private players entered the market to set up 63 private gateways.

Bandwidth-starved India is looking to this development as a possible

saviour, providing speedier and faster pipes at lower costs. An IDC India
report shows that Internet access rates came down by about 70% in leased
line and 60% in dial up connections—a spinoff of the 70% fall in
international bandwidth rates and heightening competition after the entry
of private ISPs.

Total International Bandwidth

Estimated International Bandwidth by 2003 is estimated at 100 Gbps on the
Submarine cable front. According to V&D estimates, India’s total present
bandwidth is in the range of 3 Gbps.

With SAFE, i2i and Flag fully operational along with the existing cables like SEA-ME-
WE, India will have a surplus capacity which will crash the international bandwidth
prices. Behemoths like VSNL are planning to spend approximately Rs. 20 billion
during the current financial year out of the capital outlay of Rs. 59.12 billion for the
five year period ending March, 2002. The plans of VSNL include increasing the
number of international circuits; increasing bandwidth; continuing our investments in
satellite transmission capacity and undersea fibre optic cables; creating high capacity
cyber ports for hosting and connectivity services; and building a low-cost, fully-
integrated digital network across the country with asynchronous transfer mode (ATM)
switches, to allow better transmission of voice and broadband data traffic.

International Submarine Capacity in India

Players System Capacity Initial Capacity
SEA-ME-WE-2 1 Gbps NA
SEA-ME-WE-3 20 Gbps NA
FLAG 10 Gbps NA
SAFE 80 Gbps NA
Network i2I 8.4 Tbps 160 Gbps
Dishnet DSL 7.68 Tbps 640 Gbps
Table: 2.5: Submarine capacity in India, V&D Estimates2002

SAFE is a $600 Million project of which VSNL has contributed $50 million. Network i2I
is a joint venture between Bharti and Singtel and its plans are limited between
Chennai to Singapore.

Even on the satellite front, almost all players like Eutelsat, Intelsat, Cyberstar,
Thiacom, Measat are present in India and abundant capacity provided by all the
players will create intense pressures on the margins of the players and will crash
prices by helping the end customers. This huge capacity on the supply side will result
in dropping prices by around 3to5 times of present pricing with respect to STM-1 link
and assuring a good demand in future.

International Leased Line Circuit

Consumption of the bandwidth on the IPLC circuit in India is estimated to
be 700 Mbps, majorly utilized by corporate. The crash in the prices of the
IPLC circuits will be expected with the launch of the services by private ILD
operators.

The major tier-1 carriers present in India are AT&T, BT, Cable and Wireless, Equant,
PCCW, Singtel, Sprint, TMI, and WorldCom. At present these companies are providing
the foreign half circuit and the Indian half-dedicated IPLC circuit is provided by VSNL
and STPI. Tier-1 foreign half carriers have tied up with VSNL and STPI to provide the
integrated services like IPLC, Frame Relay, IP over VPN and ATN Services. Major
consumption of bandwidth over these dedicated circuits are undergone by verticals
like IT sector and BPO. It is expected to increase with the rapid increase in the
software exports and exponential growth in the BPO/ITES sector.

Internet Bandwidth
The sharp fall in International bandwidth prices saw a huge increase in the number of
Internet subscribers, up to 2.2 million, with private players witnessing growth rates of
300%-plus. In this scenario was born the concept of free ISPs, with Caltiger emerging
as the largest in three of the four top markets—Kolkata, Bangalore and Mumbai.

Internet Bandwidth Requirements: Projections (2004-05) (in Gbps)

Total Internet bandwidth Requirements – 71.8
Retail Subscribers
Total Internet bandwidth Requirements – 167.7
Corporate Subscribers
Total Bandwidth Required 239.5
Table: 2.6, Internet Bandwidth requirements, V&D Estimates2002

The bandwidth growth as projected by NASSCOM in its recent report on IT Industry

(2001-02) is expected to grow at a tremendous pace. The growth in the corporate
segment is expected to be tremendous and estimated at 167.7 Gbps in 2005. The
estimated bandwidth in the retail segment is estimated at 71.8 Gbps.

Growth drivers in the Retail segment

• Development of newer applications will drive demand from usage

• Fall in PC prices / fall in access costs – fall in PC prices should help PC penetration
and improve Internet usage. As ISP access charges fall with increasing
competition and as they increasingly cross subsidize access charges with e-
commerce and advertisement revenues, the Internet penetration will increase.
• Improvement Quality of Service: As speeds of connection and speeds of data
transfer improve, the consumer usage is expected to improve.

Growth Drivers for the Corporate Segment

• Cost benefits - Internet access enables savings on both time and cost aspects due
to improved communication and information gathering. The improvement in
productivity makes up for the costs associated with access.
• A presence on the web is now an important requirement to ensure adequate
publicity for any corporate to reach out to customers and investors.
• Businesses gain the ability to increase sales through e-commerce
• Transactions and decreased dependence on traditional distribution channels
Growth Driver for Bandwidth in Key Verticals
BFSI
1. Interlinking of branches is being done aggressively by all the banks, particularly
PSU banks. This is leading to high demand in bandwidth.
2. ATM networks are being laid
3. Inter bank connectivity: Example: RTGS, SWIFT
4. E-Banking

Manufacturing
1. Mainly the investment in this vertical is driven by Enterprise application software
deployment like ERP, SCM and CRM to integrate the processes in the enterprise,
which will drive the consumption of bandwidth.
2. The interconnectivity among wide spread networks will lead the organizations
towards investing in IP-VPN and VOIP, which in turn will result in increased
bandwidth consumption.
3. Growth in the occurrence of e-business will drive the organizations towards higher
cost efficiencies and economies of scale. As a result the bandwidth consumption
will increase.

Telecom
1. ILD traffic is predicted to increase leading to increase in voice traffic. This will
lead directly to higher bandwidth requirement.
2. NLD traffic is leading towards more inter/intra circle traffic. More and more
players are coming into the markets like cellular and basic telephony. Bandwidth
demand is projected to rise exponentially.

Software exporters:
1. One of the major drivers for bandwidth in software exporters is that they are
targeting newer geographical areas. Aside from the US, new destinations are
Western Europe, Japan and Latin America. This will clearly drive the IPLC market
with increased dedicated amounts of bandwidths being required.
2. One more driver is that of expanding service lines. Mush more attention will have
top be given to development work as well as communication and contact with
foreign customers. This will again drive the market for IPLC as well as IP.
3. More emphasis on convergence leads to higher amounts of bandwidth
requirements. Higher instances of video conferencing, teleconferencing etc will
lead to higher bandwidth requirements.

ITES
1. The major area for growth in ITES segment will be that of voice channels. Increase
in the number of call centers will drive demand for more and more voice
application ready channels. This will cause an increase in IPLC circuits.
2. BPO/BackOffice operations are on the rise. This is primarily a data hungry field
and will lead to more data channels being required. Both IP and IPLC demand is
likely to arise from this segment.
3. NCR has been attracting the major chunk of investment in India. This will lead to a
substantial growth in the IT spending and a higher consumption of bandwidth.

Government/PSUs
1. One driver for bandwidth in the government sector is the plan to interlink all the
villages by Internet. This will be a tremendous market as far as IP is concerned.
Cyber dhabas or sanchar hats will lead to a high demand in bandwidth. E-
governance will also demand higher connectivity requirement.
2. PSU’s will be the major targets for bandwidth in this segment. Since they are
driving It spending by 30%, there will be a need to have higher amount of
bandwidth to satisfy their connectivity requirements.

Service providers

1. Internet capacity is likely to increase because of increase in retail and corporate

customers.
2. The service providers will offer an increased range of products like VoIP, VPN etc
which will drive bandwidth demand.
Market Potential
Working out the Market potential and market size for STPI’s Data com services can
be fairly difficult, keeping in consideration that Bandwidth has emerged as a resource
in the present scenario, with a lot of services being offered on top of it.

We decided to use a mix of both quantitative and qualitative techniques to evolve a

Market potential for STPI’s service portfolio. This also involved primary research,
conducted by STPI’s Business Development team on its existing customer base and
prospective organizations. The existing customer base of STPI includes Software
Export Units and call centers. The prospective respondents were from all key
verticals operating in NCR, consisting of Gurgaon, Delhi and NOIDA. In total, 250
organizations were covered in the survey.
Keeping into consideration, the major growth drivers for bandwidth
demand as well as trends emerging in bandwidth consumption, the Market
potential for STPI is in the following key offerings:

International Private Leased Lines

It is estimated that by the end of the year, India shall have a supply of a minimum of
100 Gbps of international bandwidth. This is 33 times the present capacity. Thus
India shall have a surplus capacity both on Fiber and Satellite. This shall force
submarine cable and satellite bandwidth providers to reduce their prices drastically.
According to Industry insiders, the prices shall fall 3-5 times, assuring a
good demand, with the retail prices falling by 30-40%.
Till date, STPI and VSNL are the only service providers offering these services. The
total capacity utilization by IPLCs in India is around 300 Mbps, provided by STPI and
VSNL
Provider Bandwidth Technology
VSNL 220 Mbps Fiber + Satellite
STPI 80 Mbps Satellite
Table: 2.7, Total IPLC Bandwidth, V&D Estimates2002

Growth drivers for International connectivity, along with the reduction in

costs are vertical segments like Software export units and ITeS firms shall
see IPLC as a very lucrative offering.
Many ILD operators like Bharti and Reliance have started tying up with foreign end
providers like AT&T, MCI, SPRINT, PCCW to roll out these services, making the market
for this service more competitive.

Broadband Internet Access

The market for broadband access in India is one of the most dynamic markets in the
telecommunication market space. IDC predicts a healthy growth rate for different
broadband access technologies. IDC expects Fixed Wireless and satellite broadband
access to be the front runner in the broadband access market ahead of alternative
technologies such as cable and DSL.
Overall broadband equipment market is expected to increase from Rs.
153.42 million in 2001 to Rs. 665.25 million in 2005 (excluding satellite).
According to NASSCOM, by 2004-05, the subscriber base for Broadband
access, in the corporate segment shall be 1.64 million, (40 % share in this
segment), with international capacity utilization of 90 Mbps

The broadband area is stratified by fundamentally different technologies involved.

IDC in this report tries to present separate set of opportunities and challenges for
equipment market for different broadband technologies mainly including DSL, Fiber,
FWA and Satellite.

1997 -8 2000 -1 2002 -2003 2003+

Internet
Access
IP-VPNs
VoIP

IP-VAS
According to IDC, the Fixed Wireless Access will have a major chunk of the Indian
broadband pie. There will be lot of investments for increasing the infrastructure next
year and on an overall level a healthy growth rate is expected in the total equipment
market.

Converged IP Based Value added Services

The explosive growth in the ISP market is expected to come from a host of value
added services that would pick up in India in the coming years. The motivator for the
adoption of these value added services would primarily be the fulfillment of the
organization goal, simultaneously decreasing the cost and improving productivity
through cheaper and better communication capabilities.

The value added services market is still quite Growth: IP-VAS ($ mn)
nascent, but is expected to grow at a CAGR of
more than 159% for the period 2000-2004.
800 634
The new entrants in this market are IP service 600
providers and ISPs. Competitive pressures have 400
pushed traditional carriers and GSPs into the IP 200
market 14
0
2000 2004
Source: IDC, Directions
2002

The key value added services to watch out in the future are as follows:

Virtual Private Network IP-VPN Revenue

12000
9938
Corporate in the present economic circumstances 10000
are under tremendous pressures to reduce inter 8000
and intra office communication costs. Hence
newer flexible connectivity media like VPNs are 6000

gaining acceptance amongst the corporate. 4000

2000 500
IDC expects the Indian VPN services and
0
equipment market to grow to Rs. 12.76
2001 2006
billion in 2005 from Rs. 1.68 billion in 2001.
Source: IDC Press Release
IDC believes that the major segments that would lead in2002
terms of adopting VPN in
India are:

• Finance and Banking for countrywide branch connectivity

• Manufacturing and Distribution industry for connecting various regional offices
and online logistics
• Government institutions such as Income Tax Department and police Force.

Apart from above travel and tourism is also an important target segment because of
its wide geographical spread and need for online logistics.

Drivers of VPN market in India

• Cost effectiveness
• E-Business activities
• Workforce mobility and virtual organization

IP telephony
75000
The IP telephony market would really boom due 59347.8
to fact that voice calls made over an IP network 60000
are really cheaper as compared to those made on
45000
a circuit switched PSTN network. Further value IP Telephony Revenue
30000

15000 1802.5

0
2002 2006
added IP telephony services like voice enabled web site features such as click to chat
and click to conference. Also included can be pay services such as news, stock
market reports and sports news.

While more than half of top corporate in the US are not even considering to
implement VoIP in their organization, 43% of Indian corporate are
considering it in the near future.

This is to be seen with the context that the technology is comparatively new in the
country. This is a quantum jump as compared to the last year.
Source: IDC Press Release
2002

Source: IDC Press Release

The single most strong motivator for using VoIP is its cost effectiveness, vis-à-vis
2002
other conventional mode of communication. In fact this has been stated by more
number of respondents this year as compared to the last year, apparently the users
have become more cautious on cost effectiveness of any new adoption after the
slowdown.

Other IP-VAS

Value-added services and service bundles will be key to provide both service
differentiation & additional revenues

Recently DoT (Department of Telecommunications) has specified terms for

unified messaging in India. As per the terms a UMS service provider would
get a license from TRAI (Telecom Regulator Authority of India). Further the
UMS providers must have an ISP license with him for providing these
services.

Apart from these services an entire gamut of value added services are present that
would pick up in the future these include videoconferencing, hosting, collocation
services, application services, Intranet and extranet services.

Enterprise Requirements and Issues

 An IDC study, conducted this year throw lights on the major factors considered by the
enterprises while selecting a telecom carrier. While price and customer services are
major factors considered by equal percentage of people (one third) this year, price
was a much weaker factor last year. Reliability, one of the most important factors
according to US companies, fails to get importance in India, particularly in this year.

Source: IDC Press Release

2002

This is in tune with the study done at STPI on the major customer
requirements and factors taken into consideration while evaluating a new
service provider.

Major Issues while selecting Service Provider

100
90
80
70
60
50
40
30
20
10
0
Service Pricing Packaged Support Technology SLA
Quality services

Source: STPI 2002

Clearly, Pricing and cost effectiveness emerges as the single most important issue
taken into consideration by customers, while evaluating a new service provider.
Interestingly, technology also emerged as a strong factor, with an increasing number
of customers looking for low latency and CPE cost solutions. BPO and Software
exporters, in particular gave due consideration to 24 x 7 solutions with inbuilt
redundancy