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June 16-30, 2001 COUNTRY BUZZ |
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Master
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CHANNELS Politics
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COMPUTER BUSINESS ISP Market Heading for An Imminent Shakeout Intense competition and an incoherent revenue-sharing model between the ISP, MTNL and consumers have had a crippling effect on the business. It was touted as the big business of the 'new economy'. When the government decided to do away with the monopoly of Videsh Sanchar Nigam Ltd (VSNL) in the Internet services arena in 1998 and permitted private Internet service providers (ISPs) to enter the business, there was frantic activity as the latter trooped in to what they thought was a market waiting to be exploited. As many as 450-odd licences were issued to aspiring ISPs ranging from big players like Bharti and Wipro to virtually unknown regional and local players. Close to three years later and with a little more than 2 million Net subscribers, the gush is down to a trickle. Computers Today spoke to a cross-section of private ISPs who admitted that theirs is probably the most unprofitable business of the new economy. As a result, a shakeout is taking place, with the richest set to survive in the long haul. Even Wipro Corp. chairman Azim H. Premji had expressed concern over the loss making subsidiaries-Wipro Net and Net Kracker. However, given Wipro's strong fundamentals, and under Premji's management, Wipro is displaying more prudence in cost curtailment initiatives. Wipro Net, the ISP arm catering to corporate clients, has been merged with Wipro Ltd. "This enables us to synergise the customer offering under one management. In addition, it will allow us to offer the specialised telecom skills available within Wipro Net and Wipro Ltd to our customers in both domestic and Asia-Pacific markets," he said. After the reorganisation, Wipro Net will come under the infotech group and Suresh Vaswani, president, Wipro Infotech, will be responsible for it. Wipro Net evolved when the communications division of Wipro Ltd was spun off as a separate company. Alarm bells are also ringing in Bharti BT Internet (which owns Mantra Online) which has been brought under Bharti Broadband Networks. The company's chief executive officer Ashok Juneja says the ISP market has gone bust. Nobody is under the delusion that this business is a huge revenue opportunity anymore. So what went wrong? Firstly, there were so many players in the market. In Delhi alone, for instance, there are over 20 ISPs trying to grab the 250,000-subscriber base. Most of the players don't have the technical expertise, says Saurav Adhikari, president, HCL Infinet. Also, a loose and incoherent revenue-sharing model between the ISP, MTNL or BSNL and the consumer, regulatory issues and high marketing expenses have only added to the their problems. Also, the mindless price war, which led to a dramatic drop in access rates, cannot be passed off elsewhere. Then came free Net service providers like Caltiger, which wrecked havoc with the mindset of the consumer. Siddhartha Ray, managing director, Data Access, which offers Internet services under NOW brand name, feels that in the end, it will be the fittest who will survive the competition. Sun, HP
in Server Appliance Duel
This new trend in the marketplace comes in the wake of Sun emerging as the number one vendor in the Unix server market for both revenue and unit shipments in the ASEAN region and India during 2000. Based on IDC's fourth-quarter 2000 Server Tracker data, Sun was the number one server vendor in the Unix market, with 39 per cent revenue market share, beating rivals IBM and HP by a huge margin. Alok Sharma, general manager, channels, Sun Microsystems, said, "Server appliances will extend the reach of the Internet by setting new standards for value integration. They are ideal for small and medium-sized organisations, workgroups, branch offices and educational institutions." For HP, Intel actually designed most of the server appliances-the former adds only sales and services. But in the future, HP expects to be doing more of the design itself. Using Intel's hardware helped HP jump-start its server appliance business, a market pioneered by start-up companies. Sun, on its part, acquired Cobalt Networks in January 2001, with a view to enhance its position in the growing server appliance marketplace. Server appliances have higher profit margins than general-purpose servers because they come with software and services and are often sold directly to customers. Aberdeen Group analyst Gordon Haff agreed that profits are plumper with server appliances, but he criticised HP for making a clumsy entry into the market. IT Firms
Move in for the Kill The list of domestic infotech majors looking for mergers and acquisitions (M&As) reads like a virtual "who's who" of the infotech sector. Satyam Computers, Infosys, Pentamedia, Infotech Enterprises, NIIT and Aptech have either acquired a firm overseas recently or have stated that they are actively looking at acquisitions in the US and European markets. They are of the view that lower valuations in the wake of US downturn have made the option of buying out companies in the US and UK even more attractive.
Satyam Computer Services, which recently raised $162 million through an American Depository Shares (ADS) issue, will be using part of the proceeds to acquire companies in Europe and the US. B. Ramalinga Raju, chairman and managing director, Satyam Computer Services, said, "We will be looking at acquiring companies which have high levels of synergy with our existing business." ICICI Ltd, the country's leading development financial institution, too has acquired three US-based software development companies and one based in India for Rs 252.4 crore. These companies include Ivory International Inc., Objects Xperts Inc. and Command System Inc. and India-based Ajax Software Ltd. Out of the total investment of Rs 252.4 crore made for acquiring these companies, Rs 139.1 crore was paid towards good will of these firms, which will be amortised over the next five years. The acquisition was routed through its wholly-owned subsidiary ICICI Infotech Services Ltd (IISL). Hyderabad-based Infotech Enterprises has announced that its UK group company-Infotech Enterprises Europe-has acquired the London-based Mapcentric, Europe's leading independent GIS distributor. Infotech managing director B.V.R. Mohan Reddy said, "The acquisition will now enable us to tap directly into the European market space which shows an increasing appetite for GIS software services such as those offered by Infotech." Infosys has sharpened its acquisition plans with the sole objective of expansion of product portfolio and to enter new markets. Rediff.com, the leading Indian portal, has acquired two American firms: Value Communications Corp. and Abroad Publications. According to Rediff's officials, the acquisition of Illinois-based Value Communications Corp., which has a Web-centred business model focusing on the marketing of international phone services to Indians in the US, would add a new revenue stream, and strengthen its offerings in the consumer space. Value Communications has a user base of about 45,000 with revenues of over $13 million for the 12-month period ended December 2000. On the other hand, the New York-based India Abroad Publications-one of the oldest south Asian weekly newspaper-has the potential of diversifying Rediff's outlook as a source of catering to both the print and electronic information urges of the people. However, warns Aptech chairman Atul Nishar Nishar, "Indian firms should also see whether the US firms have the ability to withstand the slowdown and perform as before."
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Server
appliances are computers designed to handle chores on a network faster or
with less fuss than general-purpose servers. They are also the new
frontier where an interesting competition is taking place between
computing majors like Hewlett-Packard Co., Sun Microsystems, IBM, Dell
Computer and Compaq, among others. Recently, HP released 21 new models
that do everything from sending streams of video to encrypting secret
transactions between computers on the Internet. Sun Microsystems closely
followed by introducing the Cobalt product line of server appliances.
Sun's server appliances were launched at a glitzy event in Delhi last
fortnight by former Miss India Manpreet Brar and attended by the leaders
of the IT industry and small and medium enterprises.
