At a time when Internet subscriber growth is almost flat and about 200 ISP licences have been surrendered, setting up local Internet exchanges will lead to reduction in costs and "propel" spread of the Net into rural and semi-urban areas, an ICRA report said.

"The number of Internet subscribers in the country is currently showing a low growth. For example, new Internet connections, which grew to 3 million by March 2001 from 0.28 million in March 1999, were just about 4 million in 2003," the report said.

The possible reason for that could be the fact that dial-up Internet access was losing users.

"This apart, Internet access through other means such as digital subscriber line and cable are yet to take off in a big way because of the high cost of access devices such as cable modems and lack of quality broadband content," it said.

Currently many ISPs have stopped providing new dial-up connections because they incur more losses as users surf more.

"Interestingly, severe competition among ISPs led to rates dropping to Rs 8-9 per hour, while the actual cost per hour for them is around Rs 16-17 per hour," ICRA noted.

Companies such as Wipro and BPL have stopped providing Internet services while ISPs such as Caltiger, which once had about 0.75 million subscribers, has folded up.

"About 200 ISP licences have been surrendered so far," it said, adding that with the setting up of local Internet exchanges, the costs are likely to come down, which would propel the spread of the medium into rural and semi urban areas.