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June 11, 1998


International private leased circuit business booms

Email this story to a friend. Criss-crossing the world, many miles above the Earth's surface and deep down in the oceans, thousands of international telephone circuits hum with activity all day and night.

Many of these lines enable people to communicate to friends and relatives living abroad, a very large number service the needs of global corporations who need dozens of them to meet their communication needs.

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Technology has enabled telecommunication companies to connect many circuits across several locations. This enables them to offer virtual private networks at a fraction of the cost of setting up a stand-alone network.

Although voice telephony continues to be the bread and butter business for most international carriers, the 'international private leased circuit' business has also assumed sufficient importance.

In India, the business is monopolised by state-owned carrier Videsh Sanchar Nigam Limited, which is likely to retain its international telecommunications monopoly at least until 2004.

Typically, VSNL provides the near-end circuit and the customer places the order for the distant-end half circuit with the carrier of choice. The media could be either satellite or undersea cable. Payments are made at either end to respective carriers or in the case of a one-stop service, the receipts are settled between the carriers according to a negotiated arrangement.

In India, banks, financial services companies, multinationals and software exporters dominate user groups.

VSNL's revenues from the leased circuits business have grown from Rs 345 million in 1994-95 to Rs 680 million in 1995-96 to Rs 1.18 billion in 1996-97, which works out to an annual growth of 85.3 per cent during this period.

The business accounts for 2.29 per cent of the company's total traffic revenues.

The number of circuits has also grown from 347 in 1994-95 to 533 in 1996-97. By March 31, 1998, VSNL had 603 64 KBPS circuits in place with another 67 circuits in the pipeline.

This does not include circuits managed by the Software Technology Parks of India, an agency under the Department of Electronics set up to provide infrastructure to software exporters.

It is the only other agency that is permitted to provide IPLCs to companies. STPI has 480 64 KBPS circuits going out of the country.

Carriers providing half circuits to India also say that business is good. According to AT&T, its customer base in India is growing at 100 per cent.

India's importance in the global networks business has been also pushed up by the increasing number of foreign companies setting up offices here as well as the emergence of a robust software exports sector.

The cost of these services has been going down, partly due to technology-related benefits as well as competition between VSNL and STPI.

A good pointer to this is the fact that VSNL tariffs are lower for software exporters, the category in which it faces competition from STPI.

VSNL's annual rate for a 64 KBPS half circuit to anywhere in the world for software exporters is Rs 1.2 million compared to Rs 1.5-1.7 million for general customers, depending on the destination (all rates for data only circuits).

The Indian customer incurs another Rs 200,000 for domestic access provided by the Department of Telecommunications.

VSNL rates, however, are more competitive for capacities exceeding 64 KBPS.

Indian tariffs are extremely competitive compared to rates charged by other international carriers. AT&T, for instance, charges $3,000-4,000 per month per half circuit (roughly Rs 1.44-1.92 million annually).

Rates from the UK and Europe are around Rs 2.5-3 million and Rs 2.1 million from Japan (all charges for 64 KBPS half circuits).

Companies wishing to lease international circuits have a choice of either negotiating independently with near-end (domestic) and far-end carriers or they could simply opt for a one-stop shop.

Multi-carrier alliances such as the 18-member World Partners Consortium (which VSNL has recently joined) or Acasia Communications, an alliance of six Southeast Asian carriers, offers the single-window service.

Members of these associations act as a single point of contact for customers for ordering, installing and maintaining the service.

Bills are payable in the currency of choice. Convenience could come at a price though; since guaranteed levels of service enable telecom carriers to earn margins in what is essentially a commodity business.

The issue of guaranteed service level is a thorny one as far as India is concerned. Since the local loop is provided by DoT, VSNL is not in a position to offer an end-to-end performance guarantee.

The equally large problem of getting a DoT allotment has been somewhat overcome with VSNL, which has inter- departmental relations with the DoT, offering to take care of that.

Service quality, however, continues to be an irritant, especially if the domestic access involves leasing capacity on the DoT's "notorious'' long-distance backbone.

The problem has been solved by VSNL in some instances by offering microwave local loop access, but the solution is limited.

In the case of time-critical applications, for instance, undersea cable media are preferred (satellite-based media suffer from minute time lags), but since the undersea cable lands only at Bombay and Madras (and soon in Kochi), domestic access has to be routed through DoT.

VSNL's own expansion plans have also eased the situation, but it remains a fact that this is driven by demand for voice telephony, VSNL's basic business. But testimony to the growing importance of the data business is VSNL's recent decision to fund the development of an earth station in Indore to provide data, voice and video conferencing services, primarily for software export units in the area.

STPI, which has six gateways in the country, gets around the local loop problem by going exclusively through microwave. "But this is limited by radio disturbances and problems in getting frequency allocations in large cities,'' said P S Narotra, Director, STPI, NOIDA.

It is, therefore, exploring the option of wireline links, especially as ISDN proliferates. STPI is also likely to look beyond software exporters to the entire exporting community, says Narotra.

STPI's chief grouse is that it is forced to go through VSNL for booking satellite segment since the State carrier is the sole signatory to Intelsat.

VSNL is, therefore, party to competitive information, it has been pointed out. Besides, STPI has also said that if it is allowed to book satellite segments directly, it could shave off the Rs 80,000 per 64 KBPS that it pays as commission to VSNL from its user tariff.

VSNL, however, maintains that STPI is not competition. "STPI does not pose competition to VSNL's leased line business. Their service provision is limited both in terms of range of customers (software exporters) they can service and the number of areas connected,'' the company said in a faxed response.

But all this could change when the Indian market is deregulated and international carriers as well as other Indian companies are in a position to offer end-to-end services.

VSNL's monopoly comes up for review in 2004, according to India's commitment to the World Trade Organisation.

An important factor in the marketing of the service is that customer decisions are mostly taken outside India at the regional headquarters of a multinational company.

When asked if it played a proactive role in marketing the service, VSNL replied that the service was marketed through its customers relations departments in several cities.

But industry representatives say that VSNL's business is driven by customer demand and the fact that it is a monopoly player. A concerted marketing effort is not made.

VSNL, however, maintains that it is customer driven. The company offers a host of solutions by pairing up with international carriers and consortiums such as British Telecom, Sprint, Global One and Telecom Italia.

It is able to function in this manner since it is a monopoly player. But, in deregulating markets, partners become competitors and VSNL may soon have to prove that it still provides the best and more importantly, the most cost-effective way, to connect to India.

- Compiled from the Indian media

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