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VSNL vs the rest
Surajeet Das Gupta |
December 06, 2003
It was a high-level meeting in the Department of Telecommunications.
On November 25 the department summoned top executives of a handful of top telecom companies for a closed-door session in Committee Room-2 at its headquarters in Sanchar Bhawan.
Among those present were top executives of Videsh Sanchar Nigam, Flag Telecom, British Telecom and Bharti.
The agenda of the meeting was straightforward. BT chairman Sir Christopher Island had complained to Ronen Sen, India's high commissioner in the United Kingdom that its plans in India were on hold because it was being blocked by VSNL.
Sir Christopher alleged that VSNL wasn't allowing BT's partner Bharti Telecom to connect to the Flag Telecom cable system on which BT has leased capacity. In India Flag is routed through VSNL, which controls the landing station.
At almost the same time as the meeting in the DoT, in another part of the city, senior executives from Flag were making a presentation to TRAI on the same subject.
In a scathing attack the cable carrier alleged that VSNL was preventing it from selling more bandwidth to customers. Also they alleged VSNL was imposing extremely high access and inter-connection charges to use its landing station.
As a result Flag is unable to sell its capacity into India. And it pleaded for TRAI or the Government to intervene and resolve the dispute with VSNL.
It is snowballing into a bitter battle. On one side is the Tata-controlled VSNL -- which still dominates the international fibre bandwidth market in India with over an 80 per cent market share (for the layman, that means most calls going in and out of India use VSNL lines).
On the other side are a motley but vocal group, including domestic international long-distance carriers, international cable operators, IT and ISP operators.
So what do all these companies have in common? Quite simply, they are furious with VSNL. Reliance and Data Access, which compete with VSNL in the ILD market, say the company is trying to kill competition by blocking access to its cables.
Cable carriers like Flag are angry because they have plenty of capacity but cannot sell it. And IT and ISP companies are looking for cheaper bandwidth.
They say the BPO boom could be threatened if bandwidth isn't available. Likewise, the ISPs claim that the Internet business will also be threatened.
Infotech companies and ISPs are being particularly vocal because they fear high bandwidth costs will kill the IT revolution.
Says Nasscom President Kiran Karnik: "In theory we have competition (the ILD sector is open to private sector competition) but in practice VSNL has a near monopoly on the landing station. Bandwidth prices are far too high in relation to markets like Malaysia and Philippines with whom we are competing in the BPO space."
Adds Amitabh Singhal secretary general, Internet Service Providers Association of India: "The prices we pay are atrocious. How can the Internet business becomes viable at these rates?"
Nasscom is in the thick of the fight. It shot off a letter last week to the TRAI saying that high bandwidth costs could imperil the Indian infotech industry. Karnik has pleaded that companies should be freely allowed to use landing stations.
He also suggested that an investigation should be conducted as to why costs are so high and ways found to bring them down.
But the protests are most vociferous from telecom companies with ILD operations.
Siddharth Ray, managing director, Data Access, which has been trying in vain to get access to VSNL's landing station, says: "They (VSNL) are trying to ensure that we cannot operate. That's why we have been forced to look at building our own fibre cable. And this despite the fact that large capacities are available on Flag still." The company has asked the regulator to intervene.
Even Reliance has moved TRAI with a request that VSNL should come out with a reference interconnect offer for approval to the regulator in order to avoid uncompetitive practices.
It also wants the regulator to intervene and persuade VSNL to provide access to its landing station -- for which permission has been pending since April.
So why does everyone hate VSNL? Or is this hate campaign part of a corporate battle between Reliance and the Tatas? Reliance has announced its intention to buy Flag Telecom and this move could present a serious challenge to VSNL.
Also, Reliance has a problem -- Flag has to use a VSNL landing station to bring its lines into India as part of a contract that will last for as long as the cable's life (another 7-8 years).
Says a senior executive of a cable company: "Reliance wants to drop international bandwidth prices, upgrade capacity on Flag and sell more bandwidth. But in both the cases VSNL can baulk them by not giving them landing station access."
There's an additional complication. Flag has a complicated structure and, if it wants to hike capacity, it must get permission from 13 landing station partners around the world -- including VSNL. Industry executives say VSNL could veto Reliance's plans.
If that happens Reliance could be under serious trouble on the $207 million investment that it's paying to acquire Flag.
Other observers say ILD operators like Reliance are trying to give the dispute a regulatory colour so TRAI can intervene.
That could be true. But how did the problem crop up in the first place? After a bitter battle in March 2002 the Government allowed Flag Telecom to sell part of its capacity on the India leg of the cable directly to customers (earlier, only VSNL had the monopoly to sell).
But VSNL continued to be the exclusive landing station for the entire life of the Flag cable. So anyone buying directly from Flag had to seek permission from VSNL for access into India through its landing station.
After over a year of discussions VSNL and Flag signed an agreement in January 2003 under which the Indian carrier agreed to provide access of up to 15 STM of capacity on its landing station.
Of course, operators using the landing station had to pay an access charge and a fee for interconnection with a domestic telco.
Reliance Infocomm and Data Access however now claim that this access is not being given despite the agreement -- because they bought fibre directly from Flag.
Reliance for instance bought 6 STM of fresh capacity from Flag directly in April but in its letter to TRAI alleges that the request has not been allowed under one pretext or the other.
It also claims that VSNL is denying it access because it wants Flag to sell this capacity (which it can sell directly) to their international carriers partners to further their business and choke competing carriers.
Worse, Flag Telecom say it is being forced to only use one-eighth of the capacity it has installed in India. This despite the fact that there's a growing demand for capacity.
Insiders also say that companies wanting to buy capacity on the Bharti's cable between Chennai -Singapore are being turned down by VSNL (they need to have alternative capacity in case the other cable develops a fault).
Top VSNL executives declined to comment on the ongoing battle. But sources close to VSNL say that Flag is at fault because it has sold more than 15 STM of capacity and it is now trying to create an artificial shortage.
VSNL says that under the agreement Flag was allowed to sell 9 STMs directly, for which access would be given (6 STMs would be sold by VSNL). But Flag has sold over 25 STMs -- including what it has sold to Reliance and British Telecom.
Sources say that by the time 8 STM-1 were activated the company wrote a letter asking Flag who the remaining 1 STM should be allotted to since there were plenty of potential users. But Flag did not reply.
Sources close to VSNL cast additional doubts on Flag's claims. They say it's doubtful whether Flag has any capacity left to sell at all.
"About 30 per cent to 50 per cent of capacity is left for restoration. There are 15 other landing stations with assigned capacity apart from India on the cable. So where is the surplus capacity in the 10gbps cable which Flag is talking about?"
Sources close to VSNL also say they have logical reasons for refusing some potential customers. "They have some surplus capacity but selling this for redundancy does not provide them with returns -- as the price is lower. So is it wrong to make fair return on our investment?" asks a source close to VSNL.
But is VSNL using its near monopoly position to overcharge? Ask users and the answer is a unanimous yes. Reliance has complained that access charges for using VSNL's landing station are 30 times the international average.
Worse IT companies say that bandwidth prices make business unremunerative.
For instance, they point out that a 45-MB to 155-MB link from India to US is nearly two to three times more expensive than a similar connection between Singapore-US. Worse, it is eight times more costly than a China-US link -- which is what India's competitors will be using.
More alarming is the fact that in the Philippines -- a destination where many companies are setting up BPO operations -- international bandwidth prices are only one-fourth of those in India.
Sources close to VSNL, however, counter that the pricing issue has been blown out of proportion. They point out that 80 per cent of the bandwidth demand in India is for 2 MB and lower capacity, and here their prices match those in the international market.
Two, demand for large bandwidth is very limited -- there are around three to four customers of STM-1 capacity and a 45 MB capacity was sold for the first time to a customer in India only last year.
But a source concedes: "We did not concentrate our pricing policy here as there was no demand. Now we are looking at reducing prices by 15 per cent to 20 per cent."
But counters Singhal: "It's a chicken and egg situation -- customers would buy large bandwidth if the prices were lower. Because they are higher, they have no option but to buy in small quantities."
Three, sources close to VSNL point out that VSNL access charges constitute only 10 per cent of the cost a customer pays for a leased cable. The biggest chunk of the payment is paid for using the cable -- so it cannot have a major impact on the final price.
"Why doesn't Flag reduce its prices and we will also proportionally reduce access charges. That will benefit the customers," says a source close to VSNL.
They counter that it is Flag, which is hawking bandwidth at high rates. For example: Reliance is a preferred Flag customer but it pays $2.5 million per STM per annum. And that is considered a special rate.
But VSNL has sold similar capacity at a much lower rate of $2.2 million. VSNL instead points out that they are merely re-sellers of bandwidth (after keeping a margin) -- it's companies like Flag, which have kept the initial prices high.
It's a high-stakes battle and both sides are ready for a fight to the finish. Will the TRAI and DoT need to intervene more aggressively to resolve what could become yet another bitter corporate war is the key question. Ask TRAI and their answer is diplomatic. Says a senior TRAI official: "We will intervene in this matter if the industry faces genuine problems of getting free access to bandwidth." If previous battles in the telecom industry are anything to go by this could be a fight with many twists and turns.