Cable Tech

FLAG Hits Out at VSNL Monopoly

India’s incumbent international operator, Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL), is no longer government owned, but it’s still acting in an anti-competitive manner, according to Patrick Gallagher, CEO of global submarine network operator FLAG Telecom Group Ltd.

Gallagher says VSNL has retained its monopoly control over the landing points for submarine cables and is abusing this privilege in its dealing with other international operators. One of those is Flag, which was recently acquired by emerging Indian telecom powerhouse Reliance Infocomm Ltd. (see Monster Metro Ethernet Project Unveiled and Reliance FLAGs Up Expansion Plan).

"Bandwidth demand is exceeding supply in and out of India, because the availability of bandwidth is being artificially restricted by VSNL," says the Flag chief. He says the Indian operator is deliberately restricting the capacity available at the landing station on the west coast of India at Mumbai (Bombay, as was) in an effort to keep prices high and restrict competition.

"There isn't proper and grownup business behavior going on," fumes Gallagher.

A Flag spokeswoman won't say what price it is having to pay VSNL for the capacity it is selling on to its carrier customers, only that "it is significantly higher than any other price we have to pay around the world."

To compound Flag's misery, its main competitor at that Mumbai landing point, the only one on India's west coast, is Sea-Me-We 3 (Southeast Asia-Middle East-Western Europe 3), a submarine cable owned by a consortium of nearly 100 carriers, including VSNL. Flag claims its capacity is being restricted in order to help drive customers to its rival.

Flag says it has had to turn down capacity requests from more than 20 carriers because of the imposed bottleneck, including some that also have capacity through the Sea-Me-We 3 cable but would like an alternative backup route into the country.

Flag does have some access to the Indian market, but says that of the 15 STM1 (155 Mbit/s) connections it has been allocated by VSNL, only eight have been activated by the Indian operator. Six of the seven unlit connections are to Reliance Infocomm, Flag’s new owner.

Now Gallagher hopes Reliance can help unplug that capacity bottleneck, noting that it’s part of India's biggest private company, Reliance Industries Ltd., which has annual revenues of nearly $17 billion and a market capitalization of about $24 billion. In other words, it’s got a lot of political clout and can argue strongly that VSNL’s behavior is hurting Indian business interests.

VSNL says only that it is "in talks" with Flag, but that any further questions regarding its business need to be submitted by email. (Light Reading has sent VSNL a link to this article and invited it to respond, preferably on the message board.)

But will Flag's reliance on Reliance be enough to pop India's capacity cork? It hasn't so far. Flag says it meets with the Indian regulator and government officials frequently but that nothing has yet happened.

And, of course, it's not only Flag and Reliance that are frustrated by the restricted access to India’s booming telecom market. Telecom industry associations Competitive Telecommunications Association (CompTel) and European Competitive Telecommunications Association (ECTA) are both lobbying on behalf of their members for VSNL's practices to be halted.

Last November, Comptel laid out the position of its 400 members in no uncertain terms in a letter sent to the Indian government and India's ambassador to the U.S. Comptel's chief legal officer Carol Ann Bischoff wrote:

    India’s competitiveness as a global power in IT and e-commerce has increased the demand for telecommunications services in and out of India. The future growth of India’s call center, back office processing and software development industries depends on the abundance of international and domestic bandwidth at internationally-competitive prices.

    Although there is much unused capacity in several of the cable systems landing in India, the commercial practices of VSNL have created an artificial shortage of capacity, which prevents competitive operators from meeting the full bandwidth demands of their customers and keeps bandwidth prices for the capacity that is available at much higher levels than the prices for the similar capacity on routes where the market is more competitive. For example, the cost of a 45 Mb/155 Mb link from India to the United States is nearly 2 or 3 times more expensive than the cost of an equal circuit from Singapore to the United States and 8 to 10 times more expensive than for a link between China and the United States.

    Such pricing disparities leads to higher prices for the customers of the Alliance’s Members, which has forced those customers to consider offshore locations other than India for their IT-related activities.
Bischoff also questioned whether VSNL's "restrictions on access" are consistent with India's international trade commitments under World Trade Organization agreements.

Flag's CEO believes India's economic growth will help rectify the situation. "I'm confident the situation will be resolved," says Gallagher. "If it doesn't, India's economy will be in a lot of trouble," he predicts.

— Ray Sea-Me-Le Maistre, International Editor, Boardwatch

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