Chennai:

“There is a perceptible shift in favour of broadband connectivity at the retail end,” says P Kailasam, head, Internet-over-cable-operations, Siti Cable Network.

Though broadband Internet is delivered by various routes — cable modem; digital subscriber line (DSL); integrated services digital network (ISDN); wireless; and others — the access speed that qualifies to be termed broadband is a matter of opinion.

In India, an access speed of 64 kbps is considered broadband, while overseas it is double that speed. Here at the retail level, Internet via cable is the most popular broadband access. Thanks to cable Internet service providers (ISPs), today households, small office and home office (SOHO) and small and medium enterprises (SME) segments are able to enjoy broadband connectivity.

With the quality of service stabilising, many cable net subscribers are taking advantage of the attractive schemes offered by ISPs like Hathway Cable & Datacom and switching over to annual plans, which is good for valuations. “This only shows the maturing of the markets,” says Karthik Bhaskaran, head (sales, marketing and customer services, south India), Hathway Cable.

Taking advantage of the market trend, the major cable net players — Siti Cable and the two Rajan Raheja group companies, Hathway Cable and Asianet Satellite Communications — are in an expansion mode.

Part of the Zee group, Siti Cable offers its net services in Bangalore, but will soon be wiring up the Hyderabad and Delhi markets (See Siti Cable to enter other cities).

On its part Hathway Cable is deepening its roots in Chennai, Bangalore, Pune, Mumbai and Delhi while trying to stabilise its Hyderabad operations. The company is in the process of investing around Rs 3 crore in its Chennai operations. Much of this investment will go towards expanding the company’s ‘apartment’ business (connecting different flats in a complex using a router) (See Hathway: Cable is the best way to homes).

Asianet is now present in two cities in Kerala (Thiruvananthapuram and Kochi), but is planning to wire up more cities and towns in the state. “We are planning to launch our ISP activities in Thrissur, Kozhikode, Kottayam and Kollam over the next six months,” says Praveen Shrikhande, senior vice-president, Asianet (See Asianet wiring up Kerala).

Though strictly not a coaxial cable player like the above, Dishnet DSL, which delivers DSL broadband via a dedicated copper cable to the subscriber premises, is expanding in north and west India. Apart from these biggies, there are small players who offer net access on local area network (LAN) basis at a much cheaper rate (See From dial-up to VDSL).

So what is prompting the cable Internet players to expand their operations?

With average revenue per subscriber per month amounting to Rs 1,000 (not including the revenues from value-added services like net telephony and others) it is really a tasty proposition for cable ISPs. On the other hand, poor revenues per subscriber have thrown many dialup ISPs out of business.

Secondly, having experienced the benefits of the Internet, but constrained by the slow dialup access, web-surfers are ready to pay that extra amount for better speeds. “The expected market size for broadband access by 2003 is 3 lakh connections,” says Kailasam. That will be around 10 per cent of the entire Internet subscriber base now.

In this buoyant situation, the service stoppage by Cyberwave Internet Solutions, Chennai, is nothing but an aberration (See Two players quit Chennai net cable field; Hathway benefits).

Similarly, the problems faced by BSES Telecom, Mumbai, is mostly due to its own making. At a time when other cable ISPs offered a speed of 64 kbps, BSES Telecom invited trouble by assuring 2 Mbps at uneconomical prices. The high cost of bandwidth dealt a serious blow to BSES Telecom.

The industry structure
The cable Internet industry is dominated by cable television operators, now known as multi-services operators (MSOs). Companies like Siti Cable, Hathway Cable and Asianet, which started out as cable TV operators, later transformed into MSOs when Internet-over-cable became a reality.

Consequently, the enterprise valuations of MSOs skyrocketed, attracting foreign investors like Rupert Murdoch’s Star group, and Intel, USA. Star group picked up 26 per cent stake in Hathway Cable for $75 million. Similarly Intel invested $49.23 million in IndusInd Media Communications, a Hinduja group company, in 2000 for 3.3 per cent stake.

According to IndusInd Media, Intel investment gave the company a valuation of $1.5 million, making it one of the country’s valuable unlisted companies. Group company In2Cable India provides cable net in association with IndusInd Media.

The notable absentee in the cable net arena is Sun Cable Vision (SCV) belonging to Sun TV network. SCV has been threatening to launch its ISP services for quite some time but is yet to carry out the same.

Leveraging on their network
The one big advantage the cable TV operations gave the MSOs in their Internet business is the link to the individual homes and apartment complexes and the experience in managing and safeguarding their cable network. The bloody fights between local cable operators to wire up homes for cable TV are well known.

According to estimates, there are around 40 million cable TV-connected homes in India. Though there are many more undeclared homes with cable TV connections, the market for Internet access is just a fraction of this number. It is very difficult to put an exact number to the total number of cable net subscribers in the country as companies like Hathway Cable are bit cagey about disclosing the numbers.

The revenue and expense stream
Like cable TV, cable net also offers multiple revenue streams for companies. Monthly subscription, including charges for excess downloads, is one stream. The others are modem sales/rent, value-added services like web-hosting, net-telephony, managing virtual private networks (VPN), sale of bandwidth and advertisements on the site.

While renting out modems gives a steady income, servicing them is a headache. Outright sale, on the other hand, gives the company immediate cash with hefty margins. As of now, the share of value-added services to the total revenue is small for all the players. Siti Cable is the only cable ISP that owns a gateway and sells bandwidth.

On the distribution side, cable TV franchisees were not able to meet the additional investment to upgrade their infrastructure, investing in amplifiers (Rs 13,000 per unit), better quality cable, human resources and others. Thus MSOs like Hathway Cable funded the capital expenditure entirely out of their pockets and are mostly running the Internet business by themselves. Hathway Cable does have franchisees, but only in some areas.

The major capital outgo for the companies is in the setting up of the backbone, bandwidth charges and drawing the cable to the homes from the head end. “We use coaxial cable (RG6) for giving our ISP connection costing around Rs 12 per metre,” says Shrikhande.

According to him, the approximate rate for bandwidth is Rs 2 lakh/Mbps/month. “Over the past one year, the rate has remained stable and we expect the price to come down gradually. We source 16 Mbps bandwidth from Singtel, Bharat Sanchar Nigam (BSNL) and Videsh Sanchar Nigam (VSNL).”

In order to reduce capital costs, ISPs are now sharing the existing infrastructure. Hathway Cable, for instance, has joined hands with two Tata group companies to use their optic-fibre cable network. The ISP will use around 200 kms of Tata Power’s fibre-optic backbone in Mumbai; in Hyderabad the Internet service provider will use Tata Teleservices’ network.

“The tie-up enables us to expand our operations in cities where we have rolled out our Internet services, while saving on heavy investments,” says A Krishnan, general manager (technical), Hathway Cable.

In addition, the Tatas’ cable infrastructure is expected to improve the quality of Hathway Cable’s television signals and also value-added services like net-telephony. The other outgo is towards payment to municipal corporation/other agencies for right of way.

Competition in monopoly
From the outside it may seem that competition exists between these cable ISPs in the cities they are present. But actually it is not so. The service is available only in select pockets in a city and even in those areas it is a monopoly situation.

For instance, in Bangalore though Siti Cable and Hathway Cable are present, both operate in different pockets of the garden city. Similarly in Kerala, it is Asianet that is ruling the market while in Chennai the turf is free for Hathway Cable.

In Mumbai too, Hathway rules the roost, although the majority of its customers are corporate and not individual. The other major cable television provider, the Hindujas’ In2cable, has not made a significant dent in the cable Internet market as yet, and in any case, there is little overlap between the areas served by the various cable Internet providers.

Only Dishnet gives cable ISPs a run for their money. The company recently introduced some attractive subscription packages (See Dishnet DSL: Trying to live up to its expectations). But now a real competition is emerging from Satyam Infoway and telcos like BSNL and Bharti Telenet.

Declining growth in dialup Internet subscriber base and the resultant excess bandwidth has forced dialup ISPs like Sify to take a serious look at the retail broadband market. The company is expanding its hybrid broadband connectivity, which it now offers in Mumbai and Chennai at Rs 999 per month (See Sify’s hybrid option).

But it is the telecom companies that cable ISPs should watch out for. Like them, BSNL has an extensive last-mile reach. For the customers, BSNL rates are cheaper and they have the advantage of simultaneous use of data/Internet and voice traffic (See The challengers are challenged).

BSNL uses the direct Internet access system (DIAS), a DSL technology developed by the Intel-financed Banyan Networks, Chennai. Bharti, on the other hand, uses Siemens’ DSL technology.

“While alternatives are coming in, we believe that cable-over-Internet will still offer value for money in terms of cost as well as bandwidth carrying capability,” says Siti Cable’s Kailasam.

Growth markets
While the cable net service is available in major metros/cities, the growth happens in Bangalore, Chennai, Hyderabad and Pune. All these cities are known for their software centres and has good number of personal computer population.

In terms of subscriber category, households constitute nearly 80 per cent of the cable ISPs’ customer base followed by cyber cafes and corporates. Most of the cyber cafes have switched over to cable connection from the costly leased-line connection.

According to Bhaskaran, Hathway Cable gets around 150 enquiries in Bangalore every day and the conversion ratio is quite good. “In Hyderabad we are concentrating in areas like Banjara Hills and Jubilee Hills.” In terms of revenue, the average billing is higher in Bangalore than Chennai and Hyderabad.

The one major limiting factor for the sector’s growth is the high cost of personal computers (PCs). If there were PCs in the Rs 10,000-15,000 brackets, then the sector will witness a tremendous growth.

Amen.