Indian Government ISPs Contribute To Price War

Salvos are being fired on the Internet service rate front by the two government-owned telecom operators, Videsh Sanchar Nigam Ltd.
(VSNL) and Mahanagar Telephone Nigam Ltd. (MTNL), who are reducing
their Net rates to corner a larger, loyal clientele base.

VSNL, whose subscriber base has crossed 90,000, is gearing up to
provide Internet access free of cost within the next year.

In the meantime, a 20 per cent renewal discount to clients who renew their
accounts for the first time is in the offing as well as a 30 per cent
discount for customers who wish to renew their accounts for the second
time and subsequent renewals.

A fresh cut in rates for newcomers is
currently on the drawing board.

VSNL sources indicated that following clearance from the Department of
Telecommunications (DoT), the new tariff would be implemented by
March 1.

VSNL currently charges Rs 3,000 (US $70.68) for 100 hours, Rs 6,500
(US $153.15) for 250 hours and Rs 10,000 (US $235.62) for 500 hours.
An additional Rs 500 (US $11.78) is taken at the time of registration.

On the other hand, MTNL charges Rs 2,250 (US $60.08) for 100 hours, Rs
5,525 (US $130.18) for 250 hours and Rs 8,500 (US $200.28) for 500

The tariff war has taken unprecedented turns here following MTNL’s
introductory tariff pegged 15 per cent lower than VSNL’s.

Sources say
that MTNL top brass may further reduce their tariff during the second
phase of the project, which is scheduled to begin in the next six

According to VSNL acting chairman and managing director Amitabh Kumar,
the international trend is to be able to provide Net-access free of

While bigger players like British Telecom in the UK is the
latest to provide the facility free, in the US, most ISPs provide the
service free of charge.

“This is going to happen in several countries and we are gearing up
for such a situation to take place in India in a year or so. In the
meantime, we will bring down rates during this period as well, like we
have in the past. Price will no longer be the driving force as this
will anyway come down to nil. The market will be driven by high
quality service,” he said.

Commenting on revenues, he said they would come from advertisements as
well as a possible hike in local call charges. Increased e-commerce
activity too will hold the key, he added.

“All these factors point to one thing–providing access to larger
volumes of users and yet retaining high quality of service. This is
the challenge we are gearing up for,” he said.

Even after the cut in Net rates, VSNL is looking at revenues of Rs
300-400 crore (US$70.7-94.3 million) from Internet-related
services in fiscal 1999-2000.

Moreover, VSNL will continue to generate revenue by offering gateway
services to the 50-odd private ISPs.

These ISPs, sources maintain,
will not find it cost effective to set up their own gateways and hence
will depend on VSNL to offer their services to them.

Commenting on the future course of action, Kumar pointed out that
by the end of next year, a 500 mega bits per second (mbps) bandwidth
capacity is expected to be in place.

This is almost as high as the 600 mbps capacity which VSNL has for voice telephony. At present, VSNL has about 80 mbps of capacity dedicated to the Internet and is increasing this to about 150 mbps by mid-March.

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