Change The World; Bit By Bit, Byte By ByteT   

REGIONAL / The Far Eastern Economic Review Sep. 26, 1996 Page 36.


Pakistan-born imran Anwar is a Columbia MBA, a consultant and entrepreneur. He's on the World Wide Web at and on e-mail at imran©

Internet Is Rough for Small Players

By Imran Anwar

Should I go into the Internet business and offer access as a service provider?" It's not for nothing that people often ask me that question: I was the first service provider in my native Pakistan, pioneering Internet e mail, and I operate an Internet-related service in the United States.

I might be expected to answer readily in the affirmative.

Far from it. I have decided not to enter the service-provider business in the U.S., and I will not remain a service provider in Pakistan. The reasons range from the economics of the Internet to the cultural barriers of Pakistan itself-barriers that will be familiar to other business people in Asia, I'm sure. Whatever the reasons, they add up to a cautionary tale for those considering becoming service providers anywhere, especially in developing countries.

To be sure, there's a case to be made for becoming a service provider, one I had to weigh last year, when deciding whether to make my existing e-mail service, IMRAN.PK, "live" on the Internet. The service was started using a store-and-forward mechanism; going live would make e-mail delivery almost instantaneous.

Given my e-mail experience, I was well-positioned to grow in this expanding market, and the advent of satellite links made live services technically and economically feasible. A Karachi competitor was already offering Internet access at reasonable rates, about $3 an hour. The market was new and capacity was limited-a ground-floor opportunity if ever there was one. There seemed to be enough demand to support several providers.

And yet, I decided against it. It was a difficult emotional decision but an easy analytical one: I saw lots of risks and no financial upside. The first deterrent was the severe price competition I knew would be in store. The only way to survive would be in partnership with a larger company, which means sacrificing control. It also means the burden of profit guarantees, something difficult to commit to in new, untested technology businesses. The alternative, a partnership with a smaller firm, would reduce the financial risks but require bandwidth sharing, slowing service. Such a venture could buy more bandwidth, of course, but the additional investment would delay profitability.

Technological innovation was also a factor. By making it cheaper and easier for competitors to enter, quickly evolving technology makes Internet service a far less predictable market than other industries with longer lead times. Information technology-and business models offering ways to profit from the Internet-are obsolete as soon as one learns about them. That's why few service providers are profitable even in America, where there are millions of users and lower costs. It seemed reasonable to conclude that Pakistani service providers would be even less successful.

Internet service is a far less predictable market than other industries

Then there were cultural considerations. Pakistan, like most developing nations, has a low literacy rate. Personal computer penetration is low. There are few telephones. Society is conservative, lacking freedom of expression and tolerance of unpopular ideas. Religious extremists who despise the MTV music channel constantly threaten the destruction of satellite antennas. The Internet's strength, discussion news groups, opens a host of legal and security problems- distribution of "blasphemy" is punishable by death under Pakistani law.

On top of all that, Internet providers everywhere are ultimately hostage to telephone companies. Entrepreneurs forget that Internet access is merely a new use of telephony. Phone companies can offer Internet access themselves, or simply buy
out service providers. While buyouts as such are rare in Pakistan, the Pakistan Telephone Corp. is present everywhere. As a government controlled monopoly whose divisions are largely free of profit considerations, it could enter the market any time offering rates that would put private services out of business.

Fortunately for the growth of Internet in Pakistan, but unfortunately for people who spent thousands of dollars to enter the Internet business, PTC did just that, offering a rate of about $1 an hour. This is similar to what is happening in the U.S., where AT? offers free Internet access to its customers.

The predictable result, in both Pakistan and America: Long-time users are leaving smaller service providers. Small services cannot compete against the great numbers of phone lines, 100% uptime guarantees and faster machines, while charging as little as a month for unlimited access.

And things will only get worse. Soon, cheaper satellite links and Integrated Services Digital Networks-by which a single phone line will carry voice, fax and data calls at costs only marginally higher than basic phone services-will enable an AT? or another large phone company such as MCI to service clients in other countries. Internet access will become a commodity dominated everywhere by big phone companies.

Given all that, I decided that my resources would be better spent on other Internet-related services such as smart cards and financial services.
Indeed there are many other opportunities in Internet related industries. These include everything from managing corporate e-mail to Web-site design. Integrated with a knowledge of programming in computer languages such as C++ and Java, all of these open opportunities for Asian entrepreneurs.

Profits aren't the only reason to pursue a dream. I may not remain a service provider, but I consider my own initiatives a tremendous success. After all, basic Internet access is cheaper in Pakistan than in many parts of America.

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