Q: How would you describe your business?
A: We are the second-largest internet service provider in India. VSNL is the largest, but we are the largest non-state-owned internet service provider. Today we have 320,000 internet subscribers.
We have three businesses. The first is the ISP business, which accounts for about 30% of our top-line revenue. The second is our portal, which accounts for about 10%, and third is our B2B enterprise and infrastructure services business, which accounts for 60%.
Q: How fast do you expect each segment to grow?
A: Well, there's good news about India and bad news about India. The bad news is that the starting point in the internet business is very low. In a nation of one billion people we have one million to 1.5 million computers sitting at home; about 1.5 million internet subscribers and probably about 4 million to 5 million internet users. The good news is the growth rates are very high. According to a Goldman Sachs' study, China will grow at 65% year on year, while India will grow at 130% year-on-year.
Q: How many people are you signing up each month?
A: The average growth is roughly 80,000 per month, but the average revenue per user (ARPU) is falling. ARPUs started at $10, a very high rate in relation to Indian purchasing power, and fell very quickly to $4 a month because of competition. In a sense this is a good thing because it's the reason the internet is reaching a wider population.
Q: Presumably your falling ARPUs are offset by rising volume?
A: Yes. Our revenue hasn't fallen. We have grown in some quarters, we have been static in some quarters, but we haven't lost revenue. We are currently making about $12 million in revenue per quarter. That compares to $15 million in the whole of last year and $3 million the year before that.
Q: When do you expect to be profitable?
A: We don't make predictions on the profitability of the company but several analysts have made predictions we don't necessarily endorse any one of them and most predict that we will be EBITDA positive by June 2001. At the end of our fiscal year, March 31, we had negative EBITDA of $4 million, and a net loss of $8 million.
Q: How are you planning to finance future growth?
A: The cash that we have $70 million at the end of September is more than sufficient to sustain our operations at the current level. Analysts estimate our total demand for cash will be $13 million for the whole of 2000, which is very low for the internet industry. That's because of the predominant role that B2B [business-to-business] plays in our business, which is a very attractive sector to be in right now. However, so far we have invested $40 million into our network, which is not big enough to service the needs of India. If and when the market explodes from its current level to a radically new level, then we will go to the markets to raise money for additional investment.
Q: Would you issue more ADRs or issue stock in India?
A: We have not even decided that. We would first go to the shareholders and let them decide on that.
Q: What is your growth rate right now?
A: We are growing pretty close to 130% year on year. Our growth and the growth of the market are pretty close right now.
Q: What is the total dollar value of the Indian ISP market right now?
A: It's in the region of $36 million to $40 million a quarter, which gives us about a 35% market share.
Q: What about this plan of yours to spend $20 million to establish your own international gateway? What will this mean for you?
A: Well, we've changed our model. We are not investing in the gateways any more. We are leasing them from the suppliers, which is a lower cost model.
Q: How much cheaper will it be to lease than buy?
A: The $20 million figure was a ballpark figure and there's a lot more competition in the market since then. As a result international suppliers are now willing to lease the gateways at very economic prices. The bandwidth price out of these satellite gateways is highly cost-advantageous compared with the bandwidth supplied by VSNL, the current state monopoly. We have leased 17 international gateways. Two are already operational and the other 15 will be rolled out by the end of the year.
Q: What effect will this arrangement have on your company?
A: We won't be shifting completely to satellite. It will become a mixture of both fiber and satellite. From the consumer's point of view there's really no difference at all. If anything the quality of the service will go up because the VSNL service is provided on a best-efforts basis, so if there is a shortfall in supply I don't have contractual rights to demand and get that quality. With the satellite bandwidth, it is 99.5% assured supply, so if they fail, I don't need to pay, and I can contractually force them to supply. As a result I have much greater control over the supply of the supply chain and a lower cost of bandwidth, and in that sense the consumer will enjoy the benefits.
Once these 17 satellite gateways are operational its likely that 60% of our international bandwidth will come from fiber, and 40% from the satellite gateways. There are going to be exciting times ahead because once the VSNL monopoly is broken and made open to competition, VSNL will also begin to offer a first-class supply of bandwidth. And we are in a very good position and will be very much in demand as a buyer of bandwidth. People are wooing us to take bandwidth from them.
Q: A lot of ISPs recognize, given the falling cost of bandwidth, that revenue can't rise indefinitely and are adding additional functions to their businesses. It seems your choice will be to rely on B2B and web-hosting?
A: Yes, but we're not involved in B2B as a response to the changing corporate landscape for ISPs. We started as a B2B. We started out offering data services to corporates at least 12 months ahead of becoming an ISP. We were the earliest mover into the B2B infrastructure services in India and almost had that as a monopoly for two to three years. Even today we are the largest IP network in India with 48 points of presence. Until two weeks ago we were the only world-class web hosting company in India, with 220 square feet in Mumbai. We provide end-to-end service for corporates. That's where we started and that business is still very very attractive financially.
Q: So as a proportion of revenue, do you expect your B2B business to increase or decrease?
A: It will probably stay at the current level. The ISP business is growing fast and its revenues are likely to be better. Our portal is the leading portal in India for advertising, reporting about $1 million a quarter. Contrast that to $1 million a year one year back. The numbers are small compared to international figures, but in India that's the largest revenue you have in terms of online advertising revenue.
Q: What are your priorities going forward?
A: Under our business plan each business has three different levels of maturity. The B2B business will have strong growth in the near term and will continue to post strong growth into the medium term. The ISP business will probably have demands on cash during the near term but will turn out to be reasonably attractive in the medium term. The portal will be a long term prospect. We don't believe the portal will be attractive financially in the near term. In a composite business model such as ours, we are able to use the different components to ride out the different terms. To an extent our faith and belief in the model is born out by what's happening in India right now. Pure play ISPs are finding it quite difficult. Pure play portals are finding it quite difficult. But we are successfully able to coast along.