India Broadband Report, April 2, 2005

By Dr. Abhishek Puri

Local regulators are mandating that international bandwidth providers cut their prices, especially VSNL, the incumbent with virtual monopoly. This has unleashed a legal battle, but in the end the real winners of the price declines could be big bandwidth buyers – the outsourcing companies.

The costs of international bandwidth are finally going to decline in India. The local regulator Telecom Regulatory Authority of India(TRAI) recently passed a telecom order drastically reducing the rates for International bandwidth. The order of the price cuts ranged from 35-70% on the various International line circuits.

Research group, Telegeography has predicted that the Intra-Asian Internet traffic will grow over 200% but still account for less than 10% of all international traffic. Long-haul bandwidth prices will decline by over 50% on newly competitive routes into Asia and the Middle East. This puts India right in the mix of things. The TRAI order seems to tie in with the ruling

Significantly, Videsh Sanchar Nigam Limited(VSNL), now owned by Tata’s was most hit by the order. Thus far, VSNL had a virtual monopoly over International bandwidth, and was said to be over charging customers. Tata’s also recently picked up bankrupt Tyco Networks for a song, and tried to milk this cash cow for all its worth. The other players Bharti and Reliance had not made any significant moves despite have access to terabit scale networks.

As expected VSNL legal department is appealing the order, arguing that price cuts would only benefit BSNL in it’s broadband roll out. How, we don’t understand, since international prices being a small part of the component for providing “affordable broadband.” TRAI is pushing very aggressively for reduction in local bandwidth prices as well. VSNL has managed to postpone the price cuts for at least a month, by filing an appeal in Telecom Dispute Settlement Appelatte Tribunal(TDSAT.)

The move is going to help the burgeoning outsourcing sector which has been starved for bandwidth despite being premium buyers. The reduction in the rates was welcomed by NASSCOM- the apex body of the IT service providers in India. If the prices decline in accordance with TRAI wishes you can expect a nice fiscal surprise from the BPO behemoths like InfoSys and Wipro who spend most of their dollars buying up bandwidth. (VSNL owns the gateways and most of the ISP’s and BPO’s lease their circuits from them.)

What’s most surprising is that the other biggies Bharti and Reliance are keeping mum about it. Would these players sink in their differences and form a cartel? This is my apprehension.