Satyam to skip deals in quest for Net profit

Ramaraj expects three big Internet providers will control India, where customers are fickle and costs high

By CNN's Alex Frew McMillan

HONG KONG, China -- Satyam Infoway Ltd. will not expand by buying competitors, according to its chief executive.

That's despite a shakeout in India's Internet companies.

But India's second-largest Internet provider expects to turn a profit for the first time later this year, Rajasekhar Ramaraj told CNN.

When the dust settles, Ramaraj believes only two or three of India's seven nationwide Internet providers will be left standing.

"The shakeout is going to come from the reason that people may not have the stamina to stay in the business," he said.

India 'scratching the surface'

Around 2 million Indian households are hooked to the Internet now. The number of users approaches 5.5 million, counting people using public computers.

That's a fraction of India's billion-plus population. Internet providers are eyeing a middle class of 150 million to 250 million.

"I think we haven't even started to scratch the surface yet," said Ramaraj, who spoke Wednesday at an investment conference in Hong Kong.

Sify's CEO, in Hong Kong for an analyst conference, says the company will have 1,000 cybercafes in India by year-end

Chennai-based Satyam Infoway -- known as Sify -- is India's second-largest Internet service provider, after former state monopoly VSNL. It has more than 400,000 subscribers.

It expects to benefit as the number of Indians going online quadruples in the next three years, to at least 20 million.

It is also targeting corporate customers, who account for two-thirds of sales. It sells services like Web consulting and hosting to 650 companies.

Ramaraj said Sify will target India's 1,000 largest companies and expects to generate most of its profits there.

Retail market an expensive sell

Turning retail customers into cash is hard. They are quick to switch providers and won't pay much to log on. Two of India's main Internet players recently exited the business.

Analysts expect further consolidation among India's 100-plus Internet service providers. Many are keen to sell out.

But Ramaraj said they are too expensive.

"There isn't that much of an advantage to actually go out and acquire yet," he said. Sify will not do deals unless the price gets far more realistic.

Deals would have to be at "extraordinary value," Ramaraj said. "It's the price to eliminate competition, [that's why] you might look at it."

Satyam under pressure

There's good reason for Sify to tread carefully. It was the first Internet stock and third company from India to list on Nasdaq.

Investors aren't buying dot.com losses anymore. Its shares have plummeted from a peak of over $100 to under $4.

Parent Satyam Computer, which owns almost 55 percent of Sify, is under increasing pressure to trim losses at its subsidiaries.

Satyam Infoway reported a net loss of $53.5 million for the year ended in March. That was up a dramatic 560 percent over the previous year.

But the last quarter marked the first time that losses improved. It lost $18.2 million, slightly better than the previous quarter's $18.4 million.

Ramaraj said Sify expects to hit analysts' forecasts that it will move into the black sometime this year.

The company will continue to cut costs, partly by reducing the price to attract customers. That used to run around $20 but has come down as its brand gets known.

"We are hoping that will maybe come down to about $15," Ramaraj said.

Focus on cybercafes

Satyam spent close to $120 million to build its network and offices over the last three years. This year it will cut infrastructure spending to around $16 million.

It scrapped a broadband joint venture in Calcutta in May. Indian customers aren't ready to pay for premium Internet services, Ramaraj said.

Instead, Sify hopes to tap growing demand for Web surfing, particularly with young people, by rolling out more of its cybercafes.

Fewer than one percent of Indian households own computers, compared with around 40 percent in the United States.

Sify hopes to encourage computerless subscribers to its cybercafes. It has opened 400 under the name "i way," concentrated in Mumbai, New Delhi, Chennai, Bangalore and Hyderabad.

Like video stores, Sify gives members a card they can use at any of its stores. It expects to have 1,000 cafes by the end of 2001, Ramaraj said.