Why Amazon, IBM investments in India are under threat

Any further delay in the BharatNet project poses a risk to returns on investment in new, large capacity data centres by global players such as Amazon Web Services (AWS) and IBM, says a report by BMI Research.

The BharatNet project aims to extend affordable high-capacity broadband connections into rural and economically challenged areas as well as deepen connectivity in cities and commercial centres.

BMI Research, a Fitch Group company, said that as per reports, construction of AWS' five new data centres in Mumbai has been completed ahead of schedule.

It added that the facilities will enter operations later in 2016 and enable Amazon to further its online retail presence in India as well as exploit demand for enterprise-class cloud computing services across the Indian sub-continent.

"However, AWS' plans depend on expansion of India's broadband infrastructure and further impediments to the creation of the government-sponsored BharatNet network will see the new facilities deprived of bandwidth and local accesses needed to realise a swift return on investment," the report said.

Services and connections would be retailed directly by Bharat Broadband Network Ltd (BBNL) but wholesale capacity and connectivity would also be offered to telecom carriers and data centre operators.

"As further delays to the BharatNet project arise, so risks to returns on investment in new large-capacity data centres will rise for global players such as AWS and IBM.

Meanwhile, the number of mobile internet users is surging ahead and a capacity crunch is anticipated," BMI Research said.

The report said construction of the network was to be completed by the end of 2016 and AWS - along with rivals IBM and Microsoft - accelerated their plans to build data centres in this underserved market.

"However, their confidence now seems misplaced," it said. BMI Research said that in late 2015, the government said that the network would now not be completed before the end of 2018 at the earliest, as a three-fold rise in costs to Rs 720 billion meant that the state was struggling to bankroll the initiative.

"In February 2016, it was reported that the issue of rights of way had not been settled to private sector operators' satisfaction," it said.

The report added that private sector players want greater clarity on key matters such as who bears end-to-end responsibility for connectivity for quality of service and service-level agreements.

"These are commitments on which mission-critical bandwidth users such as AWS will need assurances before utilising any player's networks. Several months of discussions are envisaged as players look to create a standard and transparent rights of way agreement; as this will require approval from federal, state and local governments, a quick resolution should not be expected," the report stated.

-With agency inputs