Broadband, Enterprise Services to Driver Long Distance Fiber in India

A series of new fiber network investments have resulted in India moving from being a bandwidth-scarce market two to three years ago to being a bandwidth surplus market today. On the national front, fiber rollouts from newer players have resulted in a market scenario where supply of more than 1 million route kilometers of long distance fiber far exceeds the demand. However, on the international front, there are still opportunities for further investments especially in east bound routes.

Pent-up demand for broadband internet services
Although the liberalization of the telecoms market fueled explosive growth of mobile telephony in India, its impact on the growth of broadband internet services hasn’t been as impressive. As of April 2010, the country had only 9 million broadband subscribers (a penetration rate of less than 1 percent). The country as a whole presents an attractive growth opportunity for broadband service providers. With such a low level of penetration, there are a large number of potential broadband customers in every region. Good economic growth and continued government support to increase broadband penetration with initiatives such as the establishment of State Wide Area Networks and the National Knowledge Network will assist in unlocking broadband potential in the country. We predict that the broadband subscribers in India will grow to 85.8 million in 2014.

We also believe that the arrival of mass-market, Internet-based broadband services, driven primarily by digital entertainment content and applications in urban areas and telemedicine, e-education & other related applications in rural areas will fuel the demand for service providers’ local access networks. IPTV, Internet video content, music downloads, telemedicine and online gaming applications are still in the formative stages of development and are certain to push consumer bandwidth demand even higher thereby further driving the demand for national and international bandwidth from ISPs.

Enterprise demand will drive the growth for international bandwidth
Although enterprise services are expected to fuel further demand for domestic intercity capacity and international capacity, we believe that services such as MPLS VPN’s, Ethernet and CDN’s will have a larger impact on demand for international bandwidth. The bulk of enterprise demand in the Indian market has traditionally been for basic services such as national and international private leased circuits and Internet leased lines, with most demand coming from the IT/ITES industry. However, with global demand for high definition (HD) video services and real-time social media applications on the rise, service providers are increasingly tailoring solutions specific to the needs of the enterprises in media and entertainment sectors. Service providers are now offering them CDN, MPLS and VPN services. A total of 16TB of capacity is expected to be added to India’s overall international capacity by 2013 and these services will be the key demand drivers for international bandwidth. However, further investments are expected primarily on the eastbound routes to the pacific, because of limited competition in submarine bandwidth capacity on these routes. We also expect that the increased usage of cloud and networked data hosting infrastructure by Indian enterprises will further stimulate the demand for international bandwidth.

The current revenue mix for long distance operators is bound to change
Traditional services such as domestic and international private line services, internet leased line services and wholesale voice services still form a significant bulk of service provider revenues. Although there is an annual volume growth of more than 50 percent on some of these services, operator margins are being significantly impacted by price declines of at least 10-15 percent per annum due to increased competition. In order to compensate for these falling margins, operators will increasingly shift their focus to offering managed services, which we believe will account for approximately 30 percent of revenues in the enterprise portfolios of most operators by 2012. Further, the efforts of service providers to move away from business models focusing on plain bandwidth services by offering more bundled services such as managed network and managed security solutions will significantly alter their revenue mix.

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