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You Telecom - Small steps in the right direction

November 15, 2008
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Stand-alone internet service providers (ISPs) have always had it tough. Not only do they have to face stiff competition from the public sector operators –­ Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) –­ which own over 90 per cent of the last mile copper loop, they also have to bear hefty fees and levies which are often beyond the means of their not-so-deep pockets.

Stand-alone ISPs with limited reach such as Mumbai-based You Telecom have to face still bigger challenges. Being smaller companies, such ISPs cannot avail of the economies of scale enjoyed by pan-Indian players such as Sify.

However, despite these issues, You Telecom has managed to hold its own. The company, which uses cable modem technology, is the sixth largest broadband service provider in India with a market share of 3.34 per cent (as of June 2008). While the market share may seem small, it is comparable to that of companies like Tata Communications (4.42 per cent) and Hathway Cable and Datacom (4.67 per cent), which are not only much older companies but also have a wider presence.

You Telecom's subscriber base and market share are slated to receive a significant boost in the coming months as the company is investing in expanding networks and rolling out new services. In the beginning of 2008-09, the service provider announced plans to invest Rs 6-7 billion to expand its presence from the current 12 cities to 26 cities. It is aiming for a 5 per cent market share in the broadband segment.

The company also plans to invest around Rs 1 billion (likely to be financed through the private equity route) in phases to introduce internet telephony services. This follows the Telecom Regulatory Authority of India's (TRAI) recommendation to permit all ISPs to provide unrestricted internet telephony. You Telecom expects to launch internet telephony services within six months of the government approving TRAI's recommendation.

You Telecom was earlier known as Iqara Telecom India Limited and owned by British Gas. In September 2006, the UKbased utility sold its stake to Citigroup Ventures, leaving the ISP with a new name and a new owner.

The company has come a long way in the past two years. It has added new products to its portfolio and entered into several strategically beneficial joint ventures (JVs). In terms of infrastructure, the company has over 1,155 km of optical fibre network and over 4,000 km of last mile coaxial cable grid.

In mid-2007, the service provider acquired Gujarat-based ISP IceNet. The move, which came directly after the Department of Telecommunications announced its decision to do away with the Category C licence, benefited both companies. It gave IceNet a new lease of life while strengthening You Telecom's operations especially voice over internet protocol (VOIP) (Icenet has strong VOIP solutions). Though the former had only 3,500 subscribers at the time, the acquisition was a small step in the right direction.

There are a number of issues that the service provider has to contend with. With 0.15 million broadband subscribers, You Telecom is far behind competitors such as BSNL, MTNL and Bharti Airtel, which have 2.3 million, 0.6 million and 0.58 million subscribers respectively (as of June 2008). With tariffs falling and average revenue per user (ARPU) plummeting, retaining margins might be a difficult task for the ISP. According to E.V.S. Chakravarthy, CEO, You Telecom, "The company's main weaknesses are that it is only present in 12 cities and it doesn't benefit from the halo effect of brand awareness that the incumbent players and telecom operators enjoy." Also, according to Chakravarthy, "In India, last mile connectivity is a challenge for ISPs. In addition to bureaucratic problems, the failure to unbundle the copper loops of BSNL/ MTNL has compelled private operators like us to pursue the fibre/wireless route."

Growth strategy
You Telecom has charted out an aggressive growth strategy. To improve the effectiveness of cable modem broadband technology, the company recently set up a training centre for cable broadband and cable TV operators and technicians. The Rs 5 million institute is reportedly the first of its kind and will focus on increasing technological proficiency and service efficiency.

At the same time, not to miss the wireless broadband bus, the company has established a 50:50 JV with Malaysian wireless technology provider Red Snapper to provide last mile Wi-Fi connectivity. The JV will invest $15 million over the next two years to add more cities to its network.

The company is also looking to invest in its cable TV operations. Says Chakravarthy, "From being a single-service operator providing only high speed data services, we are aiming to become a multiple-service provider offering data, voice and video through the same cable."

Earlier this year, it floated a subsidiary, Digital Outsourcing, to provide digital cable services. You Telecom has 51 per cent stake in the subsidiary. Through Digital Outsourcing, You Telecom bought 50 per cent stake in Digital Infotainment, a Bangalore-based cable operator and, more recently, a majority stake in Scod 18 Networking, an association of cable TV distributors in Mumbai. The acquisitions will enable You Telecom to become a multi-service operator and take on players such as Hathway.

All in all, though You Telecom is still a small entity, it is definitely an ambitious one with a strong growth potential.

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