The Hindu Business Line : Broad-banding competition

IN THE INITIAL years of economic reform, facing up to competition was not a skill that came easily to public sector units. Long years of monopoly had blunted business instincts; customer service or acquisition was hardly a priority, and competitive strategies were not required altogether. So when the economic reforms process opened the doors to private players and the incumbent public sector units began feeling the heat in the marketplace, many of them ran to their parent Ministries for protective policy cover instead of donning combative gear themselves. But times are a changing.

The launch on Friday by Bharat Sanchar Nigam Limited of a new broadband service is a case of a public sector unit wresting the initiative with an audacious, new price benchmark. Where existing service providers were offering a minimalist 64 kilobits per second (kbps), always-on, Internet access for not much less than Rs 1,000 a month, BSNL has upped the standards: The minimum access speed is now 256 kbps while the rate has been halved to Rs 500 a month. Since BSNL/MTNL controls the lion's share of the fixed line market, the economies of scale allow it to price aggressively. Even in a sector such as telecom that has become quite used to price cuts, the range and depth of the BSNL initiative could well be the tsunami that will shake up the market, a beneficial one this time for consumers as the private sector competitors are expected to match these prices.

No doubt the move had political rather than purely business origins, for there was a ministerial prodding in this case. But, clearly, a price reduction was needed and a large one at that to cause an expansion in the Internet usage in the country. In the decade that the Internet has been in commercial use, the number of users has grown slower than in China though India joined the Internet in 1988, six years ahead of China. The higher cost of Internet access has been a deterrent, but a number of factors, including the smaller base of personal computers, the unreliable connectivity and the paucity of content in the regional languages, also conspired to keep potential users away.

Through this always-on, broadband initiative BSNL has attempted to address at least two of the deficiencies: The high price barrier and the unreliability of the dial-up connections. On price, the experience of the cellular companies is instructive: Only when tariffs dropped and the average monthly bill fell below Rs 500 did the subscriber base expand exponentially. It is not surprising, therefore, that BSNL has adopted this price benchmark given that the Government's target is to connect one million subscribers in the first year through broadband and six million in three years. Is the price cut alone enough to draw new customers in such large numbers? Does the Internet, given its current content, carry the same appeal or utility as the telephone? These are questions only the future can answer. For now a public sector unit can take credit for having set a competitive market alight.

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