Internet is moving towards the next generation of IP addresses as the current IP standard, IPv4 will be unable to support additional users in next 500 days. (source) Prima Facie it appears that there is a huge scope for the Internet Service Providers and so for the players who are trying to get spectrum rights for BWA (Broadband Wireless Access) spectrum based on Wimax technology. The auction began on Monday. So is it the real big opportunity for the ISPs.
Let’s have a look at the positive side first. As per latest IDC report , sales of personal computers touched 2.2 million in the first quarter of 2010. This includes desktops (1.44 million units) and notebooks (803,000 units). This is a Y-o-Y growth of close to 33 percent. Now if the computer penetration is growing at a fast pace then there is a huge potential for the internet penetration.
Another thing which works in favor of wireless ISPs is the poor penetration of fiber/wire line networks in rural India. The ease of reaching an end user without a wire offers a distinct advantage to the wireless ISPs.
Now let’s have a look on the flipside. The government has set up the base price for BWA spectrum to 1,750 crores. The base price for 3G spectrum was set to 3500 crores and the price went upto 16820 crores per pan India license i.e. close to 5 times the base price. If the same happens to the BWA spectrum, it will reach in the range of 8500 crores. The real game begins after this.
The cost of setting up a Wimax BTS is close to 5,40,000 INR (12000 USD) and capital expenditure is close to 450 INR (10 USD) per 1000 subscribers. Now after spending so much of money what is the revenue expected? The revenue per user in rural area is 90 to 135 INR (2 -3 USD) per subscriber and in urban area it’s going to be close to 450 to 675 INR (10-15 USD) per subscriber. (Source)
So if the operator is expected to get such a small share of revenue from rural area, are they really going to push their services in rural India. Though the government is offering help to ISPs from USO (Universal Service Obligation) fund, Is that enough of incentive for ISPs? The ISPs have to work on wafer thin margins and try to achieve economies of scale to become profitable.
The wireless ISPs have to come up with innovative solutions to cover up costs and offer broadband at affordable rates. Moreover rather than simply providing bandwidth the ISPs should tie-up with content providers to provide localized and suitable content via their service. More suggestions and comments please
Also read: Future of Wireless in India – UMTS or LTE?
[Guest article by Mahesh Bendre.]