Vodafone to brave India's 'Internet graveyard'?

Thanks to Indian digital and media business watchers Medianama, I learned today that Vodafone Essar has gained the approval of India’s Foreign Investment Promotion Board (FIPB) for setting up as an ISP. The intention to do this, and to gain a National Long Distance Licence was reported by the Press Trust of India last month.

Medianama believe that while wanting an NLD license is understandable, the interest in an ISP licence is "intriguing." Their article wonders about the logic of this "when the last mile is still not open" and with "other telcos like Airtel and Reliance struggling to add wireline and broadband subscribers." The Medianama writer goes as far as describing India as an "ISP graveyard" with just 6.28 million Internet users in the country as of April 2009.

These figures are in line with the ones quoted by Australian telecoms industry research house BuddeComm, the synopsis of whose India Broadband Market report notes that by early 2009, "there were around 6 million broadband subscribers – a lowly penetration (by population) of less than 0.6%."

The Medianama article suggests possible reasons for Vodafone being optimistic about its prospective entry into the ISP market. One could be the cellco possibly planning to bid for a Broadband Wireless Access licence.

BuddeComm analysts, however, do not seem terribly excited by the country's BWA scene either, noting that "by early 2009, the number of WiMAX subscribers remained modest." On the other hand, some are more bullish regarding WiMAX. The organisers of a WiMAX-themed conference taking place next month in New Delhi, for example, believe that India is slated to become the largest WiMAX market in the Asia-Pacific region by 2013, citing an (unnamed) recent study which predicts India's WiMAX subscriber base hitting 14 million four years from now. The conference blurb says that "WiMAX will find relatively greater utility and less competition from competing technologies in smaller towns and villages" and that all of this "means that in the next four years about 20 per cent of the global WiMAX users will be in India", making it a USD 13 billion market.

Another reason suggested by Medianama for Vodafone being keen on an ISP play is some expectation that India's last mile will be opened up soon. The article notes that public sector telcos BSNL and MTNL are the country's largest ISPs due to their legacy ownership of copper to the home. I am not clear on when this status quo is set to be challenged. Without having watched the issue very closely, I recall that past calls for local loop unbundling in India have gone unheeded by the Government. The regulatory-best-practice-fanboy in me feels that this is misguided and that the better way forward is to enable anyone with the will to do so to set up an ISP. Not all of them would succeed, but the winners would offer lower priced services to a broadband-hungry population.

Perhaps, though, by not forcing the telcos it owns (BSNL, MTNL) to offer cost-based access to its infrastructure, the Indian Government feels it is protecting the interests of these two valuable state holdings. Another way of looking at it is to suggest that failing to unbundle the local loop has simply cut off a revenue stream in the form of the access fees.

Vodafone, then, seems to be heading into a potentially challenging space if it intends to make a serious go as an ISP in India. Let's keep watching.

Vodafone to brave India's 'Internet graveyard'?