india - broadband market, internet services and forecasts

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India - Broadband Market Internet Services and Forecasts.doc 3/07/2011 5:28 PM 2

Copyright Paul Budde Communication Pty Ltd, 2011

Telecom Regulatory Authority of India (TRAI), described the situation in mid-2010, ... theperformance so far has not been up to the expectations.

A number of issues have been holding up the expansion of broadband services in India. DigitalSubscriber Line (DSL) technology had to wait on clarification of regulatory policy with respect to lastmile connectivity before it could become a serious option. At the same time, while cable modem

technology continued to be a serious contender for the broadband market, it has been held back by thegenerally poor quality of the available infrastructure. One alternative platform, wireless broadbandInternet, had attracted some interest but initially did not establish any significant market foothold. Thelong-awaited WiMAX licensing process was expected to change this. (See Chapter 2.8.2.) The TRAI

believed that red-tape was the major reason why the government was missing its targets for broadbandsubscriber levels.

In 2008 the DoT acknowledged the failure of its broadband policy and said it was seeking industryinputs to rescript the sectors growth path. Broadband and Internet has continued to be one of theworst performing sectors under DoT responsibility, contrasting sharply with the tremendous successachieved in mobile telephony. The policy collapse was illustrated by the huge shortfall in Internet and

broadband subscribers against national targets. The DoT held a meeting with Reliance, Tatas, Bharti,AT&T and Sify to discuss the policy challenges thought to be impeding the growth of broadband in

India. Mobile phone industry associations COAI and AUSPI were also represented at the meeting. Thesignificance of this discussion was that it was one of the first initiatives undertaken by a newlyappointed group of bureaucrats who had come into office six months previously.

2.1.1 Broadband statistics

Table 1 Broadband subscribers 2001 - 2012

Year Subscribers

2001 51,000

2002 76,500

2003 145,0002004 245,000

2005 890,000

2006 2,236,000

2007 3,130,000

2008 5,432,000

2009 7,820,000

2010 10,990,000

2011 (e) 15,000,000

2012 (e) 20,000,000(Source: BuddeComm based on ITU and TRAI data)

Table 2 Broadband subscribers and households 2010Category Units

Broadband subscribers:

Total number of subscribers 11.0 million

Annual growth 41%

Broadband (population) penetration 0.9%

Proportion of all Internet subscribers 59%

Broadband households:

No. of residential broadband subscribers (e) 10.0 million

Proportion of all households 5%(Source: BuddeComm based on TRAI and industry data)

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Table 3 Broadband subscribers by access and annual change 2010

Access Subscribers Annual change

DSL 9,480,000 40%

Non-DSL 1,510,000 43%

Total 10,990,000 41%(Source: BuddeComm based on TRAI and industry data)

Table 4 Internet subscribers and market share by access type 2010

Access Subscribers Market share

Dial up 5,550,000 29.7%

Leased line 40,000 0.2%

DSL 9,551,000 51.1%

Cable modem 766,000 4.1%

Ethernet LAN 598,000 3.2%

FttH 34,000 0.2%

Wireless 2,132,000 11.4%

Other 19,000 0.1%

Total 18,690,000 100%(Source: BuddeComm based on TRAI data)

Chart 1 Internet subscribers and market share by access type 2010

(Source: BuddeComm based on TRAI data)

2.2 MARKET DEVELOPMENT

As already noted, when the Indian government started to get involved in actively promoting broadband,it published a national broadband policy in 2004, setting a somewhat ambitious target of 20 million

broadband subscribers (as well as 40 million Internet subscribers) by 2010. The announcement of thegovernments broadband policy initially provided an immediate boost to the market. Many of the bigservice providers launched broadband products and services following the publication of the plan.However, the initial enthusiasm generated by the government policy release in 2004 had started to fade

by 2005. Although there was still plenty of activity on the broadband front it did not convert into theanticipated broadband subscriber numbers. The market in 2005 saw action that included:

The government continued to promote broadband de-licensing frequency bands for use by WiFiservices in 2005 and announcing an extension to its broadband policy whereby it was licensing Direct-to-Home (DTH) and Very Small Aperture Terminal (VSAT) operators. Importantly, tariffs for

broadband services started to fall significantly in 2005. And the DoT stated that in the governmentsview broadband expansion was second only in importance to increasing teledensity in rural areas.

Fixed broadband customers reach 11.2 million by the end of January 2011.



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2.3 NATIONAL BROADBAND POLICY

When the government, through the Ministry of Communications & Information Technology (MCIT),issued its key framework policy for broadband development in the country in 2004, the policydocument specifically defined broadband connectivity as:

An always-on data connection that is able to support interactive services includingInternet access and has the capability of the minimum download speed of 256Kb/s to an

individual subscriber from the Point of Presence (PoP) of the service provider intendingto provide Broadband service where multiple such individual Broadband connectionsare aggregated and the subscriber is able to access these interactive services includingthe Internet through this PoP. The interactive services would exclude any services forwhich a separate licence is specifically required, for example, real-time voicetransmission, except to the extent that it is presently permitted under ISP licence withInternet Telephony.

Some key points noted in the Broadband Policy 2004 document included:

In the spread of the networks, the private service providers have to play an important role inbringing optical fibre to homes as well as the rural areas and they are expected to focus on it.

The owners of the copper loop have to be given a high priority because their role is critical as keydrivers in the Broadband service market using DSL. BSNL and MTNL, as well as other access

providers, are expected to aggressively use their copper loop infrastructure for providingBroadband services using this technology.

Access providers will be free to enter into mutually agreed commercial arrangements for utilisationof available copper loop for expansion of broadband services. The owner of local loop will be freeto decide the areas in which investment is to be made to upgrade the infrastructure for broadbandservices.

It is noted that cable TV connection as last mile infrastructure reaches more people than even thetelephone copper infrastructure and can be leveraged in providing cable operators a new businessmodel while giving a stimulus to Broadband penetration. Therefore, Cable TV network can beused as franchisee network of the service provider for provisioning Broadband services. However,all responsibilities for ensuring compliance of terms and conditions of the licence will vest with theLicensee.

VSAT and DTH services were to be encouraged in raising the penetration of Broadband andInternet services with the added advantage in serving remote and inaccessible areas.

It is the intention of the Government to make available transponder capacity for VSAT services atcompetitive rates after taking into consideration the security requirements. Department of Space isalready interacting with VSAT service providers. Department of Telecommunications, inconsultation with the concerned Ministries, would soon propose measures in the direction of OpenSky Policy for VSAT operators.

Recognising that terrestrial wireless is another upcoming technology platform for Broadband, ithas been decided in principle to de-license the 2.40-2.48GHz band for low-power outdoor use onnon-protection, non-interference and non-exclusive basis. Necessary notification will be issued.Further, notification regarding de-licensing 2.40-2.48MHz band for low power indoor permittinguse of all technologies, which inter-alia include those based on IEEE 802.11b and 802.11gstandards, has been issued.

In the changing technology scenario, there is a possibility of new options being used forprovisioning of Broadband services. These technologies can also be utilised for provisioning ofsuch services within the licensing framework of the service provider and the spectrummanagement policy of DoT.

Within the governments policy framework, a series of targets was set for broadband and Internetrollout. See Table 5.

Table 5 India - Broadband and Internet subscriber targets 2005; 2007; 2010

Internet BroadbandAccess

Subscribers (million)

2005 6 3

2007 18 9



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AccessInternet Broadband


2010 40 20(Source: BuddeComm based on DoT data)

2.3.1 Implementation of National Broadband Policy

In working towards objectives set out in the National Broadband Policy, the 2005 target for Internetsubscribers was achieved, but the country fell well short of the target for broadband subscribers, withonly around one million by end-2005. India also fell well short of both the Internet and broadbandtargets for 2007. There were 10.4 million Internet subscribers in the country by end-2007 (target: 18million) and 3.1 million broadband subscribers (target: 9 million). For the 2010 targets, the marketagain fell short. There were 18.7 million Internet subscribers in the country by end-2010 (target: 40million) and 11 million broadband subscribers (target: 20 million).

Into 2008 the TRAI was pressuring the government to speed up the process of distributing 3G licencesas a means of boosting broadband Internet access in the country. By this stage the DoT wasacknowledging the failure of its broadband policy and said it was seeking industry inputs to rescriptthe sectors growth path. Broadband and Internet continued to be one of the worst performing sectorsunder DoT responsibility, contrasting sharply with the tremendous success achieved in mobiletelephony. The DoT held a key meeting at that stage with Reliance, Tatas, Bharti, AT&T and Sify todiscuss the policy challenges thought to be impeding the growth of broadband in India. Mobile phoneindustry associations COAI and AUSPI were also represented at the meeting. The significance of thisdiscussion was that this was one of the first initiatives undertaken by newly appointed group of

bureaucrats who had come into office six months previously.

2.4 NATIONAL BROADBAND PLAN

In June 2010 the TRAI issued a consultation paper on a proposed National Broadband Plan for the

country. The DoT had also approached the TRAI seeking its recommendations on the need to reviewthe definition of broadband connectivity in view of future growth in Internet/broadband being driven

by wireless technologies. The push for a national plan had come at a time when the industry saw it as amatter of concern that broadband penetration in India was low in spite of the fact that 104 telecomservice providers are providing broadband services. With a broadband penetration of just 0.7%,compared with a teledensity of 53% at the time, there was a need to identify impediments and create anenvironment to encourage broadband growth.

Of further concern was the lopsided nature of the development of broadband. Though 70% of Indiaspopulation lives in rural areas; broadband facility was limited to metro and major cities. It wasrecognised that the availability of broadband was critical for development of rural areas. Out of a totalof 9.0 million broadband subscribers in April 2010, just 5% were in rural areas. The low broadband

penetration in rural areas was attributed to the non-availability of transmission connectivity to village

level.

In inviting consultation on the proposed national plan, the TRAI said that the situation demanded anurgent focus on the creation of robust national infrastructure scalable to cater to future requirements notonly in urban areas but also up to villages. For making all villages broadband-enabled, an option beingexplored was taking optical fibre to 375,552 villages having populations of 500 or more. Such anetwork would require laying of about 12 billion kilometres of optical fibre at a cost of about INR323

billion (US$7 billion). The regulator suggested that funding for such a project could be sourced fromthe Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) for the non-skilledlabour costs and from the Universal Services Obligation Fund (USOF) for the material and equipmentcosts. Such an optical fibre network would need to be integrated with the backbones of various service

providers and would allow users to access broadband with a variety of wired and wireless solutions.

By early 2011 the National Broadband Plan was starting to take shape. The ministry flagged that theplan will include a target to connect 160 million households with high-speed internet connections by



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2014. In the meantime the ministry was meeting with industry representatives in order to finalise theplan and progress the strategy to roll out optical fibre. Key stakeholders included the TRAI, industrychambers, mobile, internet, cable and PCO service providers and their associations, as well as RailTel,Power Grid, the MICT and the MIB.

The MCIT released its rural broadband subsidy plan in June 2011, as part of a major strategy to finance

rural wireless broadband in India. At the same time it announced the start of the tender process. A totalof INR80 billion (US$1.8 billion) to promote rural wireless broadband is to be paid out of the USOF.

2.5 PERSONAL COMPUTERS

The MCIT launched a low-cost personal computer in India in 2005. It was based on processors fromAMD and was introduced in a bid to help increase Internet usage across the country. The launch cameshortly after the TRAI reported that the country was likely to miss its end-2005 target of 3 million

broadband subscribers, given that there were only about 600,000 subscribers as of September. Theministry said the low-cost PC would promote Internet penetration in India. The product was launchedas part of AMDs 50x15 initiative which has been designed to enable affordable Internet access andcomputing capabilities for 50% of the world population by the year 2015. In association with Indiancomputer manufacturer HCL, the PC was being made available for 9,990 rupees (US$222) or 11,240rupees with Windows XP.

BenQ, a digital network devices brand, announced its foray into the laptop segment in India in mid-2008 with a range of designer Joybooks. The Joybooks incorporate Intel Core 2 Duo Processor andWindows Vista Premium, as well as wireless connectivity, built-in Bluetooth, speakers, microphonesand back-up process for data security.

2.6 CABLE MODEMS

Lack of bandwidth and the high price of cable modems have been major obstacles to the development

of Internet over cable in India. This has been despite a large number of pilot projects carried out.Private independent operators in Mumbai, Surat, Delhi, Pune, Bangalore, Jaipur, Ahmedabad and

Nagpur became enthusiastic about the prospects of broadband. Some actually started their services.But, the market simply did not take off. Cable TV Internet access started to spread tentatively intoIndias major metros with entry level costs still too high to encourage mass consumption. A major

problem for cable modem Internet access has been poor infrastructure. Cable modem access continuedto struggle; by 2007, this form of broadband access had less than 600,000 subscribers or just 8% of thetotal broadband market. This was down from 12% only two years earlier. Coming into 2011 cablemodem technology was supporting just over 4% of broadband services in India.

Table 6 Cable modem subscribers 2001 - 2010

Year Subscribers

2001 30,0002002 36,400

2003 87,300

2004 130,000

2005 196,000

2006 240,000

2007 340,000

2008 485,000

2009 589,600

2010 766,000(Source: BuddeComm based on TRAI and industry data)

For more information on cable TV operators see separate report: India Broadcasting and DigitalMedia.

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2.7 DIGITAL SUBSCRIBERLINE (DSL)

The TRAI reported 86.3% of the broadband subscribers were using Digital Subscriber Line (DSL)technology by December 2010.

The first DSL service in India was introduced by DishnetDSL in 1999. Digital Subscriber Line AccessMultiplexers (DSLAMs) were installed in Chennai, Mumbai, Delhi and Bangalore, followed by 55other large cities and towns. The ISP had attracted around 10,000 DSL subscribers by 2001. It

progressively extended its service to other cities, launching a broadband service in Hyderabad in thatyear. DishnetDSL had 25,000 DSL subscribers by 2002.

A number of other service providers followed Dishnet into Indias DSL market. These includedHughes Telecom and Bharti Touchtel. The latter launched a DSL service in 2002 in Delhi, Chennai,Karnataka and Haryana under the brand name of Zipnet. Interesting in the light of the regulatorsdefinition of broadband, bandwidth packages of 64Kb/s, 128Kb/s and 256Kb/s were offered.

In an important ruling in 2004 that impacted on the DSL market the TRAI recommended that ISPs beallowed to use any media (including optical fibre, radio and copper cable), for establishing their ownlast mile connection to their customers and that ISP licences would be amended accordingly.

The number of DSL subscribers in India reached 639,000 subscribers by December 2005, after a yearin which the subscriber base had experienced a huge increase of more than 400%. This followed theissue of the National Broadband Policy in 2004.

Table 7 DSL subscribers 2001 - 2010

Year Subscribers

2001 20,000

2002 38,000

2003 53,000

2004 105,0002005 639,000

2006 1,700,000

2007 2,603,000

2008 4,387,000

2009 6,767,400

2010 9,480,000(Source: BuddeComm based on Point Topic and TRAI data)

2.8 WIRELESS BROADBAND

India has been playing catch up in the wireless Internet market. While countries in Asia like SouthKorea, Taiwan, Japan and Singapore had been racing ahead with the creation of wireless hotspots,India had only just started to explore the application of the technology.

By 2010 wireless was the fastest growing broadband market segment with subscriber numbersincreasing by 109% in the year to reach 2.1 million.

Table 8 Wireless broadband subscribers 2003; 2006 - 2010

Year Subscribers

2003 2,500

2006 10,500

2007 30,000

2008 72,0002009 1,019,800



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Year Subscribers

2010 2,132,000(Source: BuddeComm based on TRAI and industry data)

In 2004, in a move designed to encourage the development of wireless Internet technologies in thecountry, the DoT scrapped the licence needed for using low-power equipment in the 2.4GHz to

2.48GHz frequency band. In future no licence would be required to establish, maintain, work, possessor deal in any wireless equipment in this frequency band. The move was to allow ISPs and telecomcompanies like BSNL, Reliance and Tata Telecom to offer wireless broadband services on alternativetechnologies like WiFi.

Motorola announced in early 2006 that it had begun installing a wireless broadband system in theIndian state of Rajasthan as part of a state-wide wireless network. The network was the first state-widedeployment of wireless broadband infrastructure in the country. (Rajasthan, one of Indias 26 states,had a population of more than 60 million.) In the same year Teledata Informatics signed an agreementwith the state government of Madhya Pradesh to provide rural wireless broadband connectivity incooperation with Motorola.

2.8.1 WiFi

There was steady progress made over a number of years in the rollout of WiFI services in India.Dishnet was an early mover launching WiFi services in Chennai under the brand name Red in 2005.Dishnet had rolled out around 6,000 WiFi hotspots by end-2006.

In a somewhat innovative project, in 2005, the Indian Institute of Technology at Kanpur developed a100 square kilometre WiFi network in the Gangetic Plain area of central India. By late in that year thehotspot reportedly covered about 2,000 villages, dramatically transforming their communicationsservices.

Ittiam Systems, a local provider of digital media processing and communication Intellectual Property

solutions, achieved WiFi Certification from the WiFi Alliance in 2007 for IEEE 802.11b, IEEE802.11g, WPA, WPA2 and EAP for its WLAN IP. The company said that WLAN was a criticalcomponent in its licensed portfolio.

By early 2008 there were signs that WiFi technology adoption was on the rise in India. It was alsoevident that WiFi was enabling social and economic development. A report titled Wi-Fi in India: AKey Enabler of Economic, Social and Community Development issued in March 2008 cited growinglaptop sales, rising broadband penetration and pervasive use of mobile phones for rich content transferas key signs of widespread WiFi use among a growing segment of Indias people. The study forecastthat the market for WiFi networking gear and services (excluding laptops, handsets and chipsets) inIndia would top US$890 million, representing a 36% compound annual growth rate from 2008. Withreal estate development exceeding 30% annual growth, deployment of WiFi networks in newresidential, retail and corporate construction was cited as a key opportunity for WiFi device

manufacturers and service providers. The report built on previous research sponsored by the WiFiAlliance.

At the same time the report also profiled the work of a non-profit organisation, the Byrraju Foundation,which had been leveraging WiFi technology to connect rural farmers to experts in agriculture, remote

patients to doctors and young villagers to training and employment opportunities. The report added thatWiFi adoption patterns were expected to be unique in India as it was likely to occur via handsets aswell as notebook computers. Indias huge mobile subscriber base was increasingly using handsets forentertainment and social networking applications. With WiFi being deployed as a feature on thehandset and the WiFi hotspot footprint on the rise, many Indian citizens were likely to use WiFiwithout ever owning a computer.



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2.8.2 WiMAX

2.8.2.1 Background

There has been considerable anticipation regarding the advent of WiMAX in India. Some early movesinto the technology were aimed at evaluation prior to large scale roll-out. ISP Dishnet had launched a

WiMAX service in 2005, making it the first mover in the technology in India. Customers could choosefrom various access speed options ranging from 128Kb/s to 1Mb/s. Dishnet initially set up fiveWiMAX base stations in Chennai allowing around 150 WiFi customers to experience the fasterWiMAX speeds in a trial mode.

The Internet Service Providers Association of India (ISPAI) wrote to the DoT in 2005 urging it toderegulate the wireless spectrum used by WiMAX service providers in order to stimulate growth in thesector. The associations submission pointed out that the governments removal of the licensing

process for WiFi spectrum in 2004 had led to a rapid spreading of WiFi hotspots across the country.The ISPAI believed similar action with regard to WiMAX licensing would have the same positiveeffect on the service.

The TRAI issued a consultation paper in 2006 on the subject of wireless broadband services, including

both Universal Mobile Telecommunications Service (UMTS) and WiMAX. The paper identified twooverriding issues concerning the introduction of high-speed wireless services frequency allocationand licence fees. The TRAI had previously proposed allocating spectrum in the IMT-2000 standard2GHz frequency band, for both GSM and CDMA operators, designed to support both Wideband CodeDivision Multiple Access (WCDMA) and CDMA2000 1x EV-DO 3G development. While thecountrys GSM operators supported the plan, the CDMA lobby was demanding that the 1900MHz band

be made available, saying that there was a shortage of CDMA equipment and handsets available for usein the 2GHz spectrum. The issue of spectrum fees was similarly undecided and the TRAI was askingwhether pricing should be determined by an auction or other bidding process, or be cost-baseddependent on the price for redeployment of spectrum.

Industry group the WiMAX Forum predicted in 2008 that by 2012 India would represent 20% of theglobal WIMAX subscriber base. The forum noted that with Indias decision to auction off the 2.5GHz

and 3.5GHz spectrum bands for WiMAX use, the government had paved the way for rapid take-up ofthe technology. Another reason given for the predicted rapid growth was the relative lack of anestablished broadband market to serve as competition.

2.8.2.2 Pilot projects and early networks

MTNL announced in 2006 that it was launching pilot WiMAX projects in Delhi and Mumbai andwould launch services commercially once the regulator assigned WiMAX spectrum.

Intel also launched a series of WiMAX trials throughout India in 2006, with the first pilot network roll-outs in Mumbai, Delhi, Pune and Bangalore. Intel had also reported on its drive to encourage theadoption of WiMAX, noting that it was spending about US$1 billion in promoting the technologyglobally. The Indian town of Baramati had been adopted by Intel under its World Ahead Program, a

project that sought to expedite access to technology and education for people in the worlds poorernations. Intel was also investing US$1.1 billion over a five-year period ending in 2010 to expand itsoperations in India and in particular invest in local technology companies.

Aircel launched WiMAX services in Chennai in 2006 and also rolled out wireless broadband networksin Bangalore. Aircels 802.16d WiMAX network in Chennai was offering download speeds of up to10Mb/s with 90% coverage of the citys business districts.

Aperto Networks was contracted by BSNL at the end of 2006 to rollout a WiMAX network. Apertosaid that the deployment was across six cities and four rural areas. The six cities involved wereKolkata, Bangalore, Chennai, Ahmedabad, Hyderabad and Pune; the deployment was also set to coverfour rural districts in Haryana. By the start of 2007 BSNL was in the process of connecting 80,000villages with high-speed wireless broadband services via its extensive WiMAX network.



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Major ISP Sify launched in 2007 what it called a first-of-its-kind WiMAX solution with mobilityfeatures using the 5.8GHz frequency band. The ISP had deployed over 700 base stations and 3,500subscriber units to provide Internet access, voice and video broadband services to enterprise, residentialand cybercaf subscribers in over 200 cities throughout India.

BSNL continued to pursue its strong involvement with WiMAX and by 2007 the company was

preparing to offer WiMAX services in 1,000 cities across the country. It said, however, that it waswaiting on a final policy announcement by DoT on 3G spectrum and broadband wireless access.By 2008 BSNL had set up ten WiMAX base stations in Bangalore, Chennai, Calcutta, Pune,Hyderabad, Ahmedabad, Hissar, Pinjore, Rohtak and Panipat, and confirmed its plans to connect over10,000 villages with high-speed wireless broadband services via an extensive WiMAX network.

In early 2008 Reliance Communications, which was already providing WiMAX services to businesssubscribers in Bangalore and Pune, said it would extend its network to ten more cities.

VSNL confirmed in 2008 that its planned roll-out of WiMAX networks was on track and set to covereleven additional cities; this would be in addition to the network already launched in Bangalore. VSNLsaid it was investing INR20 billion (US$508 million) in its WiMAX operations.

Tata Communications selected equipment company Telsima in 2008 to provide WiMAX solutions forits broadband wireless network in India. Tata Communications claimed to be the first to launch

broadband services on the WiMAX platform on a large scale for retail consumers in India. The projectwas touted as the largest WiMAX network in India with coverage of 110 cities for the enterprisesegment, and 15 for retail with Telsima deploying around 3,000 base stations. The initial phase was toextend wireless broadband Internet access, already available in Bangalore since 2007, to a total of ninecities; Delhi, Mumbai, Pune, Bangalore, Chennai, Hyderabad, Cochin, Chandigarh, and Kolkata, risingto 15 by the end of 2008.

Bharti Airtel signed a contract with Alvarion in 2008 to expand its WiMAX network for business usersacross key cities. Airtel planned to offer enterprise customers the advantages of the technology byoffering last mile connectivity for MPLS/VPN/Internet leased lines and other data services.

Sify Technologies installed Redlines RedMAX products in five cities in 2008. The RedMAX 4C wasbased on the WiMAX industrys 802.16e-2005 standards for mobile WiMAX and supported a range offixed, portable and mobile wireless services including Voice and Video over IP, broadband Internetaccess, VPNs and other communications services.

2.8.2.3 Licensing process

Despite strong lobbying from the industry, the government had been moving slowly on the process forgranting WiMAX licences. The plan was steadily evolving that there was to be auctions held for both3G and WiMAX spectrum and that the 3G auction would precede the WiMAX auction. Ahead of theseauctions the state-owned operators BSNL and MTNL were to be awarded spectrum. The MCITapproved the award of 3G mobile and WiMAX wireless broadband spectrum to BSNL and MTNL in2008. Both were to be allocated blocks of 2x5MHz in the 2.1GHz frequency band while also eachreceiving a 20MHz block of WiMAX spectrum in the 2.5GHz band. Once the private companies had

participated in their 3G and WiMAX spectrum auctions, the highest bids would decide the prices thatBSNL and MTNL would eventually pay for their frequencies.

According to the DoT 3G licensing guidelines released in August 2008, applicants could also opt for800MHz or 450MHz licences suitable for CDMA2000 1x EV-DO services. It was the intention of thegovernment that operators would roll out converged 3G/WiMAX mobile services by the middle of2009. The proposed WiMAX auction was for two 20MHz blocks in both the 2.3GHz and 2.5GHz

bands. The government had also announced that blocks of frequencies in the 700MHz and 3.3-3.6GHzbands would be auctioned as they become available to offer fixed WiMAX and rural wirelessbroadband services to consumers.

The government intended to award three WiMAX licences in the 2.3GHz and 2.5GHz bands ineach of the 23 telecoms circles via a four-stage bidding process. The auction for the WiMAX



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concessions was to be held two days after the 3G spectrum auction set for January 2009. Both theauctions were subject to delays, however, as the government was unable to agree on its licence fee

policies.

2.8.3 Spectrum auctions

2.8.3.1 2.3GHz

It was not until May 2010, once the 3G auctions had been completed, that the first moves were made toformally initiate the auction process to sell bandwidth for broadband wireless services. The auctionshad been deferred three times since early 2009 due to disagreements over the base price, the number ofslots to be sold and the availability of bandwidth. The companies bidding for the spectrum were listedas:

Qualcomm Inc (US);

Bharti Airtel Ltd;

Vodafone Essar Ltd;

Idea Cellular Ltd; Aircel Ltd;

Tata Communications Ltd;

Augere (Mauritius) Ltd;

Infotel Broadband Services Pvt Ltd;

Spice Internet Service Provider Pvt Ltd;

Tikona Digital Networks Pvt Ltd;

Reliance WiMax Ltd.

The government confirmed that it was auctioning two bandwidth slots (two 20MHz blocks ofbandwidth in the 2.3GHz range) in each of the countrys 22 service areas. It has set INR17.50 billion(US$370 million) as the base price for one such slot to provide nationwide services; it was noted that

this was half of the starting price in the auction for 3G bandwidth.

The bidding took place over 16 days and 117 rounds of bids. The following is a snapshot of thebidding:

Base price: INR17.50 billion (US$370 million);

Day 1 bidding ended: at INR23.53 billion (US$490 million);

Day 2 bidding ended: INR31.98 billion (US$670 million);

Day 3 bidding ended: INR41.84 billion (US$880 million);

Day 6 bidding ended: INR72.22 billion (US$1.56 million);

Day 9 bidding ended: INR89.80 billion (US$1.93 billion);





Day 16 bidding ended: INR128.48 billion (US$2.74 billion).

In June 2010 the DoT published the provisional results of its broadband wireless spectrum auction. TheDoT report revealed that Infotel Broadband Services Pvt Ltd acquired spectrum in all 22 of the serviceareas for a final price of INR128.48 billion (US$2.74 billion). In fact Infotel proved to be the surprise

package of the auction. (See 2.8.3.4 for more information on Infotel.) Other winners included BhartiAirtel, which paid INR33.14 billion (US$708 million) for spectrum in four circles, and Aircel, whichacquired bandwidth in eight circles for INR34.38 billion (US$735 million). Qualcomm also wonspectrum in four circles with a total bid price of INR49.13 billion ($1.05 billion). Augere won just oneconcession for INR1.25 billion. Mobile operators Reliance Com, Vodafone India, Idea Cellular andTata Communications all failed to secure 2.3GHz frequencies. The provisional results need to beapproved by the government. The governmental approval was given shortly after the auction. Thewinning bidders were then required to pay their successful bid amounts.



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In total the DoT raised INR385 billion (US$8.23 billion) from the broadband wireless auction, thefigure including payments from the state-run operators BSNL and MTNL (which were required tomatch the winning bids for spectrum they were previously awarded). The windfall revenue from the

broadband and 3G auctions was likely to be used to part-fund government payouts toward food, fueland fertilizer subsidies and also help shrink the fiscal deficit.

Mumbai was the most sought-after service area, receiving two bids of INR22.73 billion each. Delhiwas second having received two bids of INR22.21 billion, while third-placed Tamil Nadu got two bidsof INR20.49 billion.

2.8.3.2 700MHz

In February 2011 the DoT initiated a process to auction spectrum in the 700MHz band, which itdeclared as frequency the most suited for delivering wireless broadband and, in particular, LTE andrural broadband. The department also noted that the roll-out of wireless broadband services using this

band will cost only a third of the cost in the 2.3GHz band. The ministry has set a target forDoordarshan and other government agencies to vacate these frequencies by end-2011, thereby allowingthe auctions to proceed in 2012. The TRAI will be charged with working out the base price and the

blocks that are to be put up for sale.

2.8.3.3 Qualcomm

Following the auction results in June 2010 Qualcomm said it was looking to partner with one or morelocal players to offer broadband wireless Internet services in India after it won licences in four serviceareas in the governments broadband spectrum auction. The company said it was keen on partneringonly with winners of the 3G spectrum auction. Qualcomm was also proposing to offer partners a stakeof about 26% in any venture, in line with Indias investment regulations.

In January 2011 Qualcomm received approval from the government for its proposals to invest in four

local joint ventures that had been formed to offer wireless broadband services. This should allowQualcomm to enter Indias lowly-penetrated wireless broadband segment, at a time when thegovernment has been pushing to increase broadband Internet usage. The Foreign Investment PromotionBoard (FIPB) has approved investment by the US company in Wireless Broadband Services (Haryana)Pvt Ltd, Wireless Broadband Services (Delhi) Pvt Ltd, Wireless Broadband Services (Kerala) Pvt Ltdand Wireless Business Services Pvt Ltd. Qualcomm owns 74% of each of these joint ventures, whileIndias Global Holding Corp. and Tulip Telecom Ltd hold the remaining stake with 13% each. Thefour companies are to offer wireless broadband internet services in different parts of India. Qualcommis to invest US$165 million across the four companies. The company said that it would set up theventure and then exit it after putting an LTE network in place.

Qualcomm acquired licenses in several regions, including the largest cities Delhi and Mumbai, as ameans to get TD-LTE into India rather than Wimax, which until that time had been expected to

dominate the BWA roll-outs. Qualcomm is working with two local partners but has said it would selloff its spectrum at an early stage.

2.8.3.4 Infotel

In the wake of the wireless broadband auction, Infotel emerged as the only bidder to win a nationwidelicence. Soon after the auction results were announced, Reliance Industries Ltd, Indias biggestcompany by market capitalisation, said it would buy a 95% stake in Infotel for around INR48.00 billion(US$1.02 billion). After the deal, Infotel was to be a unit of Reliance Industries. It remained to be seenwhat kind of network Infotel would use to deploy its wireless broadband services.



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the report said. At the time of the study India had only 5% Internet user penetration and only 0.4%broadband penetration and Internet access was almost non-existent in states such as Bihar andAssam. The country had 32 million wireless Internet subscribers and 11 million fixed-line Internetsubscribers at the time, according to the study.

There is no doubt that the countrys Internet sector has been growing strongly, although the numbers

remained small for a country with around 1.2 billion people. As well as an energetic and expandingInternet user population, the number of actual subscribers to Internet services was estimated to have

passed 19 million coming into 2011. Given that by the late 1990s, the Internet was hardly known inIndia, growth has been impressive in relative terms. The drivers of growth have been the increasingdemand for online services, positive government initiatives for expanding the industry and the highgrowth in sales of personal computers.

However, the growth has continued to be lopsided. This lopsidedness had a number of aspects. Therestill needed to be more effort made to grow broadband Internet access in accordance with governmentgoals; at the same time, the development of the cybercaf market, while positive, signals that therewere other issues like affordability that needed to be addressed to get services into homes and offices.But as already noted the major social imbalance was between urban and rural development. At thesame time, the globalisation of Indian business has also been demanding more and more of an

involvement with the Internet. This has made it all the more surprising that broadband growth had notinitially matched the overall development of the Internet market.

One obstacle facing the growth of Internet usage in the early stage of development was the countryspoor telecommunications infrastructure. At less than 4 fixed lines per 100 people, basic telephonepenetration in India was extremely low and a large proportion of the lines were not of sufficient qualityto support the required connection speeds.

3.1.1 Internet statistics

Table 9 Internet users 1995 - 2012

Year Users (thousand)

1995 10

1996 25

1997 45

1998 70

1999 1,400

2000 5,500

2001 7,800

2002 15,000

2003 18,500

2004 22,000

2005 27,000

2006 32,2002007 46,000

2008 51,750

2009 61,300

2010 (e) 70,000

2011 (e) 80,000

2012 (e) 90,000(Source: BuddeComm based on TRAI and ITU data)Note: The ITU revised its figures for Internet users over recent years significantly downwards in 2009.

Note: Users are those accessing the Internet from their school, university, work account as well asfrom their individual household or business accounts. Subscribers are the number of individual paidInternet access accounts. For example, a work account is just one subscription but can have manyusers within that one subscription.



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Table 10 Internet subscribers 1995 - 2012

Year Subscribers (thousand)

1995 2

1996 5

1997 9

1998 141999 28

2000 1,800

2001 2,800

2002 3,600

2003 4,140

2004 5,450

2005 6,934

2006 8,500

2007 10,360

2008 12,850

2009 15,240

2010 18,690

2011 (e) 22,0002012 (e) 26,000

(Source: BuddeComm based on TRAI, ITU and industry data)

Chart 2 - Internet subscribers and growth 2001 - 2012

(Source: BuddeComm based on TRAI, ITU and industry data)

Table 11 Dial-up Internet subscribers 2007 - 2012

Year Subscribers

2007 7,230,000

2008 7,233,000

2009 5,700,200

2010 5,550,000

2011 (e) 5,250,000

2012 (e) 5,000,000(Source: BuddeComm based on TRAI and industry data)

Table 12 Internet (dial-up) ARPU 2005; 2007 - 2009

Year ARPU (rupees/month)2005 210



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Year ARPU (rupees/month)

2007 (Jun) 205

2007 210

2008 222

2009 231(Source: BuddeComm based on industry data)

Table 13 International Internet bandwidth 2000 - 2010

Year Bandwidth (Mb/s)

2000 840

2001 1,475

2002 1,870

2003 3,000

2004 12,300

2005 20,000

2006 27,000

2007 35,700

2008 (e) 120,00020091 275,000

20101 608,000(Source: BuddeComm based on ITU and TRAI data)Note: 1TRAI figure; all other figures are ITU.

3.1.2 Service disruption

A particular vulnerability of the IT industry in all-important is international Internet connectivity. Anexample of this is when a major submarine cable is cut or damaged. Internet access in India took weeksto return to normal in 2008 after two strategic undersea cables in the vicinity of the Mediterranean Seawere damaged. India was one of the worse hit markets as slowdowns and outages rippled to some US

and European companies that relied on its outsourcing industry to handle customer service calls andother operations. Access was initially improved by service providers rerouting traffic across the Pacific.Damage to the Flag Europe-Asia (FEA) and the SEA-ME-WE 4 cables left only the older SEA-ME-WE 3 system to provide service between Europe and the Middle East. The two cables, with 620Gb/s incapacity between them, were the prime direct links between Europe, the Middle East and South Asia.

A two-day strike by staff at MTNL disrupted Internet and telephone services for two days in May2009.

3.1.3 E-medicine

A by-product of the burgeoning IT industry in India is the growth of R&D activity in the country. Thisresearch is very trans-sectoral in nature. Researchers at a university in Tamil Nadu in India havedeveloped a real-time monitoring system for patients. According to a report published in May 2010, thenewly-developed system consists of vital sign sensors, a sensor network, electronic patient records andweb portal technology that calls on medical personnel when life-threatening events occur. The systemcircumvents some of the issues associated with current monitoring technology, such as unwieldyequipment and inconvenient wires between sensors and processing unit, a lack of integration ofdifferent sensors, the non-existent support for data collection and knowledge discovery that technologycould offer medical research. So-called ambulatory investigations are also providing important clues toresearchers about a range of health problems.



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3.1.4 IPv4/IPv6

Action on internet policy implementation was proceeding on a number of fronts. The TRAI noted in2005 that it had finalised its recommendations on issues relating to Indias transition to IPv6 from IPv4.The TRAI had previously expressed the view that to achieve the targets of the National BroadbandPolicy 2004, internet and broadband connections would require a large supply of IP addresses, whichwould not be easily achieved through IPv4. According to the regulator, the primary motivation for the

deployment of IPv6 was to expand the available address space on the internet, thereby enablingmillions of new devices like PDAs, mobile phones and home appliances in addition to computers to bemade always connected to Internet. The government had constituted a group called IPv6Implementation Group to speed up and facilitate adoption of IPv6 in the country.

3.2 FORECASTS- INTERNET SERVICES2015;2020

The estimated number of Internet users in India was around 62 million by early 2010, a userpenetration of a little less than 6%. The countrys Internet sector is growing strongly, although thenumbers remained small for a country with around 1.2 billion people. In addition to an energetic andexpanding Internet user population, the number of actual subscribers to Internet services had reached

about 15 million by end-2009. In the meantime, there was growing interest in the countrys broadbandmarket. Following the governments major broadband policy launch in 2004, the 2005/06 period saw amassive tenfold surge in broadband numbers; however, market expansion had slowed somewhatthrough 2007 and 2008. Broadband penetration stood at a low 0.7% by end-2009 and broadbandsubscribers had finally reached 50% of the total Internet subscriber base. In the meantime, the Internetuser numbers were continuing to expand, no doubt lifted by a booming cybercaf market across thecountry.

One factor in the Indian economy, the globalisation of Indian business, has been demanding more andmore of an involvement with the Internet. It would seem that this IT sector is relatively concentrated

both corporately and geographically, and has not yet had the impact on the wider population that hadbeen anticipated. In any event it remained surprising that broadband growth had not initially matchedthe overall development of the Internet market. The TRAI has noted more than once that the country

remains well behind the governments target for broadband connections.

The forecast growth in Internet is presented in the table below:

Note: The forecasts below are expressed in terms of subscribers. We have chosen this indicator asInternet subscribers are more accurately measured than Internet users and as markets progresstowards broadband the measure becomes a more relevant measure of the degree of Internetpenetration in a country.

Table 14 Forecast Internet subscribers 2015; 2020

Lower growth scenario Higher growth scenarioYear


2009 15.2 15.22010 18.7 18.7

2015 35.0 55.0

2020 60.0 105.0(Source: BuddeComm, forecasts)

Whether Internet growth trends to the higher or lower forecast will depend on:

improved telecom infrastructure (especially national fixed line network);

the wider application of alternative technologies (eg broadband wireless Internet access);

the continued high growth in the sales of personal computers

the price and affordability of Internet services;

the level of support by government in promoting Internet.



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3.2.1 Growth issues

The National Association of Software and Service Companies (NASSCOM) has addressed the issue ofavailability of international Internet bandwidth in India. The concern was that usage was far belowsupply, as Internet penetration had not kept pace. And even though there was a surplus of bandwidth,Indian consumers had to make do with low access speeds, which, in turn, deterred them fromincreasing usage.

NASSCOM also reported that most ISPs were not profitable and many were undercapitalised andtherefore were loath to spend on improving infrastructure and prone to cutting corners by adding moresubscribers onto already overloaded facilities. Also, as noted in chapter Error! Reference source notfound., the five leading ISPs in India were holding around 90% of the market in 2010. This was out ofa total of 164 ISPs.

NASSCOM noted that increasing the rate of subscriber growth would be difficult unless PCpenetration improved, as around 80% of PC-owning households were subscribing to the internet.

A study conducted by the Internet and Mobile Association of India (IMAI) revealed that cybercafshad evolved into popular access points for e-commerce activities across the country. Cybercafes hadregistered a year-on-year growth rate of 45% over a five year period, according to the study.

An eMarketers survey in 2006 reported that India continued to lag behind other markets in its onlineusage. The report suggested that with a huge population and a burgeoning middle class, India was

becoming one of the worlds largest consumers of goods and services. However, it was noted thatalthough the country has grown into a major centre of IT development, from the standpoint of theInternet, India looks neither as large as it is nor as modern as it would wish to be perceived.

3.3 R EGULATORY ISSUES

3.3.1 Internet policy: background

The government issued an ISP policy in 1998. Its primary aim was to promote the use of Internetthroughout the country. Under the policy, private operators were to be permitted to use excess capacityfor transmission available from the Railways and the Power Grid Corporation, in addition to facilitiesfrom VSNL. The ISPs also had access to multiple gateways for international connectivity, if necessary.

Learning from the mistakes of the basic service licensing, the government set up an inter-ministerialimplementation committee, responsible for sorting out operational problems and ensuring theexpeditious implementation of the Internet policy.

Important points of the policy included:

ISPs had to submit a performance bank guarantee that amounted to 20 million rupees for themetros, 2 million rupees for other major cities and 0.3 million rupees for smaller towns.

ISPs were free to fix their own tariff. The tariff was to be left open to be decided by market forces.However, the TRAI could review and fix a tariff at any time during the validity of the licencewhich would then be binding on the licensee.

No limit on the number of ISPs. Port charges and charges for leased lines were fixed atpromotional rates. ISPs could decide the amount to charge customers.

Access charges paid by ISPs to main carriers were fixed on a promotional basis. The Ministry ofRailways, the Power Grid Corporation of India and the State Electricity Boards could lease outsurplus capacity to ISPs.

ISPs to use international gateways of VSNL only. (This policy was subsequently changed to allowISPs to establish their own international gateways. The DoT gave 17 ISPs clearances in 2000 to setup international gateways. Final licences were awarded to these companies after they obtainedfrequency clearances from the Wireless Planning Cell (WPC). By 2002, a total of 45 ISPs hadreceived approval to operate international gateways.)

ISPs could create their own transmission network if authorised. ISPs were required to start providing service within 12 months of obtaining a licence.



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Voice over Internet Protocol (VoIP) was not permitted and the duopoly for voice services in circlesand monopoly of DoT/VSNL for national and international services was not affected. (The VoIP

policy was subsequently reversed in 2002).

Also accepted were many of the recommendations laid down by the government on Internet

privatisation. While most of the recommendations concerned privatisation of the Internet, the few notcovered above included:

VSNL to continue to provide Internet services.

Interconnectivity between the ISPs was permitted.

Internet data traffic over Very Small Aperture Terminals (VSATs) was permitted.

Internet service could be provided by any Indian company with foreign equity participation limitedto 49%.

The DoT was to build a 2.5Gb/s backbone for the National Information Infrastructure.

3.3.2 Internet policy: development

The TRAI received a series of strong representations from ISPs regarding the problems faced inobtaining last mile linkage from Basic Service Operators (BSOs) for providing Internet access usingDigital Subscriber Line (DSL) technology. The regulator noted in 2004 that the ISP LicenceAgreement allowed ISPs to establish their own last mile on copper cable with the permission of DoT inthe event that such facilities were not available from BSOs. Getting this permission involved a difficultand time-consuming process, which delayed the provision of service by the ISPs to their customers.Another section in the Licence Agreement allowed ISPs to freely use optic fibre and radio in the lastmile but did not mention copper cable explicitly. This limitation restricted the technology optionsavailable to ISPs. The TRAI argued that ISPs should be allowed to use any media (including opticfibre, wireless and copper cable), for establishing their own last mile connection to their customers andthat the ISP Licence be amended accordingly.

The DoT claimed in 2004 that the licence agreements restricted ISPs to providing Internet access and

content services. The government department sent a communication to the TRAI in which it barredISPs from using their networks to offer end-to-end leased line services or VoIP services. ISPs were not

permitted to provide Internet protocol based Virtual Private Network (VPN) services and other end-to-end services under their ISP licences. The DoT pointed out that technological progress was making it

possible for ISPs to offer such services even though they were not licensed to. DoT had met withleading ISPs including Satyam, Dishnet and HCL Infonet following a complaint from state-ownedBharat Sanchar Nigam Limited (BSNL) which claimed the ISPs were offering Internet telephony andend-to-end services. The ISPs were continuing to offer these services despite DoTs directive and itwas anticipated that this could lead to a major legal tussle between BSNL and other long distance

players on the one hand and ISPs on the other.

The TRAI directed VSNL in 2005 to release international bandwidth to all ISPs without discrimination.The regulator said that VSNL must provide international leased line to even those ISPs that have not

co-located their routers within VSNLs premises.

3.3.3 National Internet Exchange of India (NIXI)

The TRAI recommended early on that a series of Internet Exchange Points (IXPs) be set up so as toincrease the overall data access speed. The proposed National Internet Exchange of India (NIXI) wouldthen route domestic Internet traffic to avoid it being routed overseas. Four IXP nodes were proposed atDelhi, Mumbai, Kolkatta and Chennai. In making the announcement, TRAI claimed that the cost ofInternet connections and bandwidth would be reduced and the quality of service improved by setting upthe NIXI. There would also be a saving in foreign exchange on international bandwidth.

The NIXI was subsequently established thereby facilitating the handling of domestic Internet trafficbetween the peering ISP members. NIXI initially had over 45 ISPs connected at Noida, Mumbai,Chennai and Kolkatta.



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The ISPAI reviewed the performance of the NIXI in 2005. The poor response from ISPs at Kolkattawas noted as a matter of concern and the relocation of the NIXI Network Operations Centre (NOC) tosome other centre like Bangalore or Hyderabad was being considered.

In a bid to promote the NIXI, in 2006 the TRAI asked all ISPs to route domestic traffic within the

country through the NIXI. The regulator said the move could result in better quality and quick serviceand growth of Internet service in the country. The TRAI said it was making the recommendation afterobserving that despite having a domestic Internet exchange, most of the domestic traffic was not routedthrough NIXI. This was allegedly eating up most of the international bandwidth of India.

3.3.4 Censorship and security

The internet has presented the Indian government with some particular ongoing challenges associatedwith national security and criminal activity. The issue is not only a national one, more often than not

problems arising at state level. Back in 2006, the southern Indian state of Kerala was set to join twoother states in requiring cybercafs to record the names and addresses of their customers in an effort tocombat online fraud, virus attacks and terrorism. The new rules required cybercafs to verify theidentities of Internet surfers and record their home addresses and visiting times. Prior to this, two otherIndian states, Karnataka and Gujarat, imposed similar rules, hoping such records would help tracethreatening emails or unauthorised credit-card transactions. Two other states, Tamil Nadu andMaharashtra, were conducting some monitoring of cybercafs without having specific laws. In 2005,an unidentified Internet user had sent a hoax email to a US diplomatic mission claiming a bomb wouldgo off in Indias Parliament. The email was later traced to a cybercaf in the town of Palayamkottai inthe southern state of Tamil Nadu, but the sender had not been caught.

In 2006, the government approved a proposal to amend the Information Technology Act to increasedata protection and reduce cyber crime. According to reports, the amendments were designed to bringIndias Information Technology Act 2000 into line with international standards and counter fraud.Later that year local security company F-Secure and the ISP unit of VSNL set up a cooperativearrangement to offer security solutions for the SME segment. The two companies were set to jointlyoffer comprehensive managed security services like F-Secures antivirus solution as well as firewalland spam filtering solutions. In addition, there was also a management platform that small and mediumsized company administrators could use to manage and get relevant reports related to their internalenvironment. The management platform was expected to enable VSNL to provide desktop securityservices to business users. The solution was to be available for subscription through VSNLs online

platform.

Indian authorities have come down heavily on what might be described as rogue Internet sites in thepast. In the aftermath of the commuter-train bombings in Mumbai in 2006, which killed 207 people, theDoT ordered whole sites (including blogger.com) blocked to stop access to a handful of blogs thatcould have incited communal tensions.

In April 2010 it was reported that a China-based gang of hackers broke into Indian governmentsnetworks and stole classified data. A University of Toronto research team said that the intrudersallegedly used Twitter, Google, Yahoo and other platforms to steal confidential documents on Indiasmissile systems, internal security issues and its relationships with foreign countries. Indias DefenceMinistry said it was looking into the report, but made no official statement. The Chinese governmentsaid that the accusations were groundless.

3.3.5 International connectivity

While ISPs had been allowed to freely up-link to foreign satellites for international connectivity, theuse of submarine trans-continental cables remained an issue. Differences occurred at the time betweenVSNL and the Fibre Link Around the Globe (FLAG) international submarine cable system, the latter

stating it could market its services directly to ISPs while VSNL claimed exclusive rights for FLAGservices in India. Actively marketing its services to private ISPs, FLAG claimed that VSNL was only



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the landing party (which implements the connection between the cable at its landing point in Mumbaito the rest of the countrys telecom network), but that the company could sell the bandwidth to anyother service provider. FLAG argued that VSNL did not have exclusive rights to market the service. Asa landing party, it had the right to charge an access fee to implement the interconnection between theISP and the FLAG network. For its part, VSNL was prepared to re-sell FLAG capacity to ISPs on itsown terms. However, FLAG wanted to directly negotiate tariffs and tailor packages for ISPs. Despite

the dispute, VSNL commissioned 45Mb/s of Internet capacity on the FLAG cable system. Thiscapacity had been commissioned with Teleglobe terminating in the US. The commissioning of thisadditional capacity in 2001 brought the total Internet bandwidth for India to 310Mb/s at the time.

4. VOICE OVER INTERNET PROTOCOL (VOIP)

VoIP services were initially banned in India because the DoT felt that allowing it could pose a seriousthreat to VSNLs revenues. However, IP telephony, which has the ability to significantly reduce thecost of long-distance telephony, was finally permitted from 2002 onwards after the TRAIrecommended that the government permit the introduction of Internet telephone services. Internationalcall tariffs in India, among the highest in the world, were to fall sharply following the end of VSNLsmonopoly, also in 2002. With the government having accepted the regulators recommendation on theintroduction of internet telephony, further downward pressure on tariffs for overseas calls wasexpected. Despite the newly legal status of Internet telephony, there remained a massive grey marketin India, with an estimated 70% of traffic being handled in this way.

BSNL started an Internet telephone service in 2002 under the Webfone brand. This followed its launchof a VoIP gateway earlier on between Bangalore and Calcutta.

By 2003 TRAI had licensed just over 100 operators to offer Internet telephone services in India.However, only one International Long-Distance (ILD) operator, Data Access, had built an IP network.The other long-distance players, BSNL, Bharti, Reliance Infocomm and VSNL-Tata, still relied heavilyon traditional TDM networks. Of the licensed ISPs some 20 had started internet telephony services.The number quickly increased to 40.

In 2006 Vistula Communications, a global supplier of VoIP services to telcos, cable operators andISPs, partnered with Indias HFCL Infotel to launch what was reportedly the first consumer VoIPservice in India. HFCL launched the Vistula-enabled VoIP service in 2006.

The number of ISPs offering VoIP services had dropped to 32 by 2006. In the meantime the TRAIreported that call minutes of internet telephony continued to increase.

By 2006 I-Basis, a global VoIP company, had expanded its operations in India. The company wasadding sales capabilities and operational support to respond to the demand for rapid and cost-effectiveglobal interconnects. The company increased its effort to grow its wholesale international voice

business, including ILD services for incumbent carriers, emerging providers of consumer VoIPservices and the call centre market in India.

In 2007 Singapore-based ISP Pacific Internet launched a VoIP services for enterprise customers basedin India. Named PacNet Vocal, the enterprise grade IP-based service came with a suite of value addedservices. The company hoped to roll out the new service through direct marketing channels anddistribution partners in major cities across the country.

By 2010 31 ISPs in India were reported as active in the VoIP services market. They carried a total of160 million minutes of traffic in the December 2010 quarter. This was up by 33% on the previous year.

5. RELATED REPORTS

For more information on telecommunications in India, see separate reports:India.

on the Internet in India, see separate report:India - Internet Market.

http://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/Research/India-Internet-Market.htmlhttp://www.budde.com.au/reports/findreports.aspx?typeid=13&locid=199http://www.budde.com.au/reports/findreports.aspx?typeid=13&locid=199http://www.budde.com.au/reports/findreports.aspx?typeid=13&locid=199


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For more information on convergent services in India, see separate report:India - Broadcasting.

For information relating to:

Technical information relating to the telecommunications industry, see: TelecommunicationsTechnologies Library;

Technology - Terminology - Glossary of Abbreviations (free report);

Worldwide activities in the telecommunications industry see: Global Overviews.

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