ISP MARKET - Free Fall In Margins

The contemporary Internet scenario and the user environment is changing so fast in Bangalore that it has left many ISPs gasping for breath. The Internet growth has also heralded the emergence of more number of channel partners. If sometime ago, channel partners enjoyed healthy margins, today with stiff competition, the margins have seen a decline.

Speed and innovation are critical factors that determine success or failure in the ISP business. Only true specialists with extensive experience in ISP segment can succeed in this business.

According to the latest IDC report, Internet subscribers are expected to grow to 7.59 million by the year 2003; and the home segment is expected to grow by 163 percent. Few ISPs have already announced unlimited Internet access packages and IDC feels that a majority of ISPs would adopt this access model very soon.

Looking at the growing popularity of private ISPs, VSNL has rushed in to strengthen its service and support. It has set up technical teams to meet the needs of users. It is also making efforts to meet the growing demand for bandwidth.

With the imminent opening of private gateways, the bandwidth problem is expected to be resolved to a certain point. This should ensure faster access to the Net. This should be music to the ears of users who have to rely on dial-up packages that take forever to connect to the gateways and then to the web servers. And with the introduction of unlimited hours, it looks like users are going to enjoy their surfing to the maximum.

Kaushal Desai, Account Manager — South of Bharti BT agrees. He says, "Though there is still a tremendous market for ISPs, dial-up packages are seeing a premature sunset. With more unlimited packages coming into the market, the day would not be far off when ISPs would providing free Internet access."

Channel margins for Net deals could be anywhere between 10 — 12 percent. And commissions for corporate accounts are marginally higher depending upon the volume of business. However, following the introduction of unlimited packages by Bharti BT and SatyamOnline, there has been a drop in the channel margin.

"Unlimited packages and free surfing has affected our business tremendously. Our margins, which was 10 percent earlier has further dropped down to as low as six to seven percent due to these packages, and the ISPs are doing nothing about it," says Syed Ismail of Cyber Point.

There are also the free ISPs, like Caltiger, to contend with. While this has many channel partners worried, V Suresh, Manager-Sales, Dishnet DSL, assures that free ISPs have not been able to compete with the paid ones. "Caltiger has been successful in attracting users to a certain extent, but the attraction of free accounts would be lost when surfers face low speeds, disconnected lines and barrage of online advertisements," says he.

Rahamatullah Khan, Executive Marketing, DishnetDSL empathizes with channel partners saying that they have been affected largely by falling prices and special packages. Besides margins are also declining with customers buying Internet packages directly. He says, "There is nothing that we can do about it, the trend is such that it demands us to move along. We come up with attractive prices and packages and a dealer gets about 10 percent commission on every deal."

The success of an ISP is measured by the efficiency of its support team. Unfortunately customer support - the backbone of any service-oriented industry - is often neglected. And undoubtedly, this is where most user complaints arise.

"Throughput and connections would be comfortable at the start-up but as and when the customer base increases we can see a sure decline in the connectivity and speed," says Sunit, General Manager — Marketing, Computer Factory. "The highest number of complaints received by us are regarding the disconnection or faulty handshake. Often we contact the ISP with the feedback only to receive an answer asking us to check our phone lines or informing us about malfunctioning at the DoT, which is often not true."

According to Sunit, the fault is basically at the ISP’s end. The port ratio which is generally maintained at 1:10 (10 connections per port) is hiked up to higher ratios with the increase in the customer base and it is even higher in the case of free ISPs. This results in uneven handshakes and disconnections.

Leading Market players

Net Cracker and Pacific Internet have carefully cultivated the confidence of users as well as resellers. In an overcrowded ISP market, the duo is marching forward as popular ISPs among channels in Bangalore. And they have managed to do this by advertising technical support.

Net Cracker has expanded its operations to Chennai, Pune, Ahmedabad as well as Mumbai and is planning to offer its services in Delhi and Calcutta. That the ISP is an extension of a very channel-friendly organization, Wipro, has its own advantages.

Meanwhile, SatyamOnline, a market leader a few years ago, lost its leading position due to unsatisfactory after-sales support, poor connectivity and speed. Now it is back with a bang. Says one of its channel partner, Majeed, of Internet World, "Earlier, SatyamOnline was not very focused and we faced a lot of problems. It was up to the dealer to handle the servicing of the product and we were hardly getting paid for it. Now things have changed a lot. SatyamOnline is more focused on customer satisfaction and often comes forward to help us sort out support queries."