India Opens Up To Private Internet Providers Sort Of

It's a long way from an Info Superhighway, but it's a start

As a stretch of the Information Superhighway, India is somewhere between a dirt path and a narrow paved road. It has one Internet service provider: the government. Videsh Sanchar Nigam Ltd. (VSNL), the state-owned international telephone company, offers direct Internet access in just over half of India's big cities. Prices are prohibitive: Where entry-level software engineers may earn $200 a month, Internet accounts go for $430 a year. India, in short, is a vast, unrealized market for Internet services. A country known for software production has just 40,000 paid Internet accounts--slightly more than there are in Mongolia.

New Delhi looks as if it's set to change that. On Sept. 16, the government announced that it intends to allow private Internet service providers to set up shop. Foreign companies, including AT&T, Global One, CompuServe, and IBM, along with a host of Indian players, have long wanted to get into the market. But they are greeting the policy change as a first step--with many more to come before India's cyberdreams are realized. "I'm bullish. This is definitely going to help in growing the Internet business," says Meena Ganesh, director of the Internet customer unit for Microsoft Corp. (India). "But it's a half-done job." Adds Alok Sinha, an Internet policy expert at IBM: "It's not time to celebrate yet."

Probably not. New Delhi may keep as tight a grip on this market reform as it has on many others. Telecom Secretary A.V. Gokak has already said that investors initially will be barred from building or operating competing networks. Instead, the government intends to spend $200 million over five years on a fiber-optic network that everyone in the industry will use. VSNL also will remain the Net's global gateway. Analysts say all this casts private operators as little more than retailers of a government service.

Yet given the right environment, Internet use could explode. Industry sources estimate that a fully deregulated market would grow to 250,000 subscribers in a year and to 800,000 by 2000. "It's a hefty pent-up demand," says Padma Chandrasekaran, a vice-president at Madras-based Satyam Infoway (Private) Ltd. That kind of growth, industry analysts say, requires a strong, rapidly expanding data-transmission infrastructure--and sooner than New Delhi is likely to build it. Says Dewang Mehta, director of the National Association of Software & Services Cos.: "If the backbone comes after five years, that's too late in the day."

A shortage of capacity is not the only potential problem. Industry sources and computer professionals also bemoan lost opportunities. Competing domestic networks would reduce consumer costs, attract front-edge technology, and help develop the infrastructure. Service providers say that having a choice of global gateways would enable them to offer greater efficiency at lower prices. "It's the freedom of choice that we are talking about," says Satyam's Chandrasekaran. "What happens if the entire VSNL gateway system collapses?" Such calamities are not unheard of in India. But the government, which has a monopoly in domestic long-distance as well as international phone service, fears that privately owned data links would eventually be used for voice traffic, eroding its revenues.

CONSTRAINTS. Most prospective investors are awaiting the policy's technical details, due in October, before deciding on their strategies. Multinationals with brand equity to protect are likely to think twice about investing heavily if the government's constraints are too stringent. New Delhi has already said that entrants will require licenses--and may be charged unspecified licensing fees after two years. Foreign companies also will have to operate with local partners, though equity caps have not yet been set.

Even as the policy stands, it will have its benefits. Independent domestic providers are likely to sprout in cities without local access to VSNL's network. And analysts believe that overwhelming demand will eventually force the government to broaden the private sector's role. "If traffic builds up, they'll have no options," says Tilak Sarkar, chief executive at Business India Information Technology, an E-mail service provider. That could take a while. On India's bit of the Information Superhighway, the potholes may be many.