In 2005, bandwidth prices fell by 65 per cent and competition has forced prices down by over 40 per cent in 2006. But IT companies and associations like Nasscom have been clamouring for further cuts, to bring them in line with international prices.
After all, they say, bandwidth prices are still three to five times higher than what is on offer on routes like US to Europe or even Asia to US from the east coast.
Yet, there is another aspect to the issue. A study by Telegeography, a reputed international firm which tracks bandwidth pricing, points out that prices should not fall by more than 10 per cent per annum if Indian companies are looking at reasonable profits from their business.
Put simply, this means the expectation of big cuts or internationally competitive prices in India is out of place.
Telegeography lists numerous reasons why this is so. First, most cable systems in the Pacific, Atlantic or Asia came out of bankruptcy, with the debt and cost of cable construction already written off by the investors to the new buyers.
This allows them to sell bandwidth cheap, as they have to only recover operational and upgrade costs. On the other hand, Indian cable systems have just seen huge investments, and this has to be kept in mind while pricing products.
Second, the volume of lit capacity on transoceanic systems and the demand for this capacity (fibre optic linkage is added to the cable according to demand) far outweighs the capacity available and the demand on Indian cables.
For instance, the lit capacity on Trans Atlantic cables is 5.5 terabits, whereas the lit capacity of all Indian cable owners on the India-Singapore route is only 0.7 terabits.
However, the cost of maintenance and operations is the same for both, at around $15-25 million annually. Simply stated, the cost per unit (gbps) forked out for maintenance in a transoceanic system is only $12,000, compared with over $93,000 in an Indian cable.
This is because the costs are spread over a lesser amount of bandwidth. Telegeography predicts it will take more than a decade for demand in India to reach international levels.
So, does this mean that Indian companies will continue to pay more for bandwidth? Experts say IT companies' dependence on bandwidth has been exaggerated.
They argue that bandwidth cost as a percentage of the total revenue of top IT companies is a mere 0.5 per cent, and, with revenue growth of 30 to 40 per cent per annum, this share will only go down. What matters to these companies is the quality of bandwidth rather than its price.
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