Evolving a competitive business model for ISP industry

Abstract

India as a nation has several advantages to be derived through a greater adoption of the Internet. Realizing the potential of the Internet and its impact on India, the Indian Government had announced the Broadband policy in 2004 to promote rapid adoption of Internet especially Broadband Services. However, the adoption rate of broadband services is not showing a healthy trend. The global trends in internet penetration are pointing towards significant increase in the number of users across the globe. India cannot afford to lag behind in this revolution which has far reaching effects on every aspect of the economy and society. The government is aggressively trying to promote Internet, but the private Internet Service Providers are not viewing this as a market opportunity. A healthy demand exists for Internet Services with BSNL / MTNL having a backlog of customers to be served. Still, the actual number of operational ISPs has been decreasing significantly over the past few years. The above situation of the Government trying to promote the Industry, demand for the service out-stripping supply and the private players who had been a part of this industry in the early stages of growth and profitability exiting the market poses a peculiar problem which needs to be analyzed. This is an important problem which needs to be understood and resolved as a lower Internet Penetration could adversely impact the economic growth of the country. The first step of our project was to understand the importance of the Internet for the country. This having been established, we constructed the Value Chain of the Internet through Secondary research and literature review. The value chain elements were analyzed to understand them in the Indian context. Upon having gained a reasonable understanding of the Industry we started our study on the growth of the Internet in India till date. Using the data from TRAI we were able to identify three major inflection points in the past decade which had provided the impetus to the growth of the Internet when the adoption rate was flattening out. These inflection points hold significant lessons for us. Based on these lessons and the industry issues which had been gathered through secondary research we have developed a reference framework for the role of the government in promoting the Internet which is as follows:_ Relevancy of Information_ Regulation to encourage free and fair competition_ Build awareness of benefits We then moved on to the next phase of the project to understand the reason for private ISPs exiting the Internet Services market while there seems to be tremendous opportunity. Based on our interactions with leaders of various ISPs and industry association we were able to do a Structural Analysis of the Industry based on the Porter s five forces model. The study brought out the fundamental weakness in the Industry such as Commodity product, Value loss to the customer while buying through the ISP and lack of last mile access for the ISP to deliver the services. The ISP market is segmented into the Enterprise segment and Retail segment. Using Porter s Strategic Position Framework we studied the strategic positions of the private ISPs with respect to the larger vertically integrated service providers. The analysis shows that the Retail segment is unviable due non-differentiated and cost-disadvantaged service from the ISPs while Enterprise segment is a highly profitable due to its product differentiation.