Those who have moved on to category 'B' or state-level operations, too, are feeling the heat as they have to compete with the likes of Reliance, Bharti Airtel, BSNL, VSNL and Sify.
District-level operators had shifted to state-level operations in tier II and III cities with the aim of entering smaller markets still untapped by national operators.
However, with the big telecom players extending presence beyond the metros and tier I cities, smaller ISPs are facing up to squeezed margins, and are making plans to diversify into other businesses.
"With BSNL starting its broadband service at Rs 250, ISPs in tier II and III cities were hit hard since the larger companies had not targeted those areas much. With their national presence and scale of operations, bigger players can price more aggressively. It is also easier for them to set up infrastructure and manage costs effectively," said Jasjit Sawhney, CEO, Net4India.
A small district-level operator has to cough up an entry fee of Rs 10 lakh along with annual licence fee, which amounts to six per cent of the annual revenue to migrate to a state-level licence.
"Although we retain our goodwill with local clients, it might not help our business in the long run," said a B category ISP player in Ahmedabad who has decided to shift to computer hardware sales.
E-Comm Opportunities, one of the initial ISPs to set up shop in Ahmedabad, has moved to travel and tourism, while Icenet has been taken over by You Telecom and (n) Code solutions, a division of GNFC, has diversified to digital signatures and online tenders.
A large number of ISP players are against the Trai move to abolish the C category on the grounds that it favours the bigger players. They admit, however, that only a few small town ISPs could compete with big players due to local advantage.
Umesh Naik, Surat-based CEO of Anar Softcomm, is one such player. Naik claims to have a subscriber base of over 15,000 in the city because of his company's strategy to work exclusively with corporate houses.
"The big telecom players have already set up shop in Surat, but policies like offering more grace time for payments and interacting with clients on a personalised basis is working to our advantage." But he does admit of being unsure of the scenario a few years down the line.
The Trai move has some takers who feel the category system has, in fact, demarcated business into potential areas. However, Col Perhar, secretary, ISP Association of India, feels that market space for both categories of players is clearly demarcated.
"Larger players are still not ready to enter smaller cities, hence, they prefer that this segment is taken care by smaller ISPs. However, in tier II cities, larger players are providing Internet services by cross subsiding their voice-based business. Thus customers prefer them," explained Perhar.
With inputs from Shivani Shinde & Ishita Russell
