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Internet telephony came
19 August 2003

Ahmedabad: It has been more than a year since Internet telephony was legalised but the expected growth is missing. Instead, the sector has been beset with problems like infighting, a thriving grey market, illegal cyber cafe operators, technical issues, high cost of bandwidth and unrealistic expectations.

The Indian government decided to permit Internet telephony in the country on 1 April 2002. Soon, a host of Internet service providers (ISPs) like Net4India, Icenet, Satyam Infoway, Wilnet, Data Access, HCL Infinet, Caltiger and iServ India Solutions came out with services at rates as low as Rs 5 per minute for a call to the US.

"Everybody jumped on to the bandwagon because there was no licence fee for ISPs to start providing Internet telephony. As a result, some non-serious players also got into the act. The result was an intense competition which turned nasty," says Chirag Mehta, managing director, Icenet.net Ltd, which, along with Net4India, was the first to start providing Internet telephony services in the country under the brand name IceTel. In fact, bigger players pitted themselves against smaller players, much to the detriment of the sector. Already, some players like Caltiger have quit the business.

"Pre-launch expectations were very high; it was assumed businesses will adopt Internet telephony in a big way since the country has opened up to WTO," says Mehta. "ISPs drew plans on the presumption that enterprises will buy voice boxes and connect to their branch offices in a big way. In the non-corporate sector, it was presumed that new relationships will be established and old ones will be rejuvenated with talk becoming cheap. In fact, Internet telephony was seen as a revenue stream that would bail out ISPs. Nothing of that sort has happened."

Lacking focus
Shrikant Joshi, president, Access Media, the Internet services division of Satyam Infoway, which provides Internet telephony services under the brandname Way2Call, adds: "Internet telephony had a very shaky start, with lack of clarity and poor regulation of the providers of these services. Many vested interests operated outside of the approved service providers, resulting in services of poor quality. This has affected the growth of this service, with confusion as to who is licensed to offer services, exiting of players who had jumped into it without long-term commitment, and a thriving grey market. Consumers, in the process, have been deprived of standardised services of high quality at affordable rates."

Government regulations and policy frameworks have also not helped. "The government has not allowed PC-to-phone calls and this automatically restricts the scope of Internet telephony," says Amitabh Singhal, secretary, Internet Service Providers' Association (ISPAI). "Moreover, conferencing facility has not been permitted. Since domestic PC penetration is still fairly low, conferencing makes even more sense. As of now, non-PC users have no option but to go to cyber cafes if they wish to avail of the Internet telephony facility. Moreover, old PCs have only half-duplex cards installed whereas for Internet telephony, a full duplex card is needed."

Besides, bigger ISPs with an established network and infrastructure have been blocking usage of prepaid cards of other Internet telephony service providers (ITSPs) on their network. Smaller ITSPs accuse bigger companies of trying to barricade the Net and throttle smaller players.

"Barricading the Net is an obstruction of the freedom of speech and a distortion of the Internet telephony policy of the government," says an official of a small ISP. Bigger players counter this argument by saying that the licence for Net telephony allows an ISP to provide services only to its own subscribers. According to some cyber law experts, there is no provision in the IT Act which bars an ISP from blocking a call of a card-issuing ISP. The matter stands unresolved and until a solution to this is found out fast, it will impede the growth of the sector.

Competition galore
Curiously, international long-distance (ILD) policy was opened at about the same time as legalised Internet telephony. And ILD rates dropped by half - from Rs 48 per minute to Rs 24 per minute for a call to the US. Thus, the low ILD rates also came in the way of Internet telephony's growth.

Then there are technical issues to contend with. During busy hours, voice quality is not guaranteed. "The quality of calls just does not match PSTN [public switch telecom network] calls," is a frequent complaint of users. The quality of headsets available in the market is also very poor. "Non-corporate usage has been restricted mainly to compulsive users," Mehta says.

Furthermore, the grey market has eaten into the profits. "As much as 70 per cent of the market is illegal," says Mehta. Adds Singhal: "The grey market [Internet telephony services provided through prepaid cards sold without authorisation and illegally] is estimated to be anywhere between 70 and 80 per cent of the legal services. This stems from the fact that the current Internet policy allows only licensed ISPs to provide Internet telephony."

Thankfully, there is now a greater awareness of the negative impact of the grey market and several ISPs have involved the police in an attempt to curb the menace. In fact, to quash the grey market Icenet slashed its rates to Rs 2.50 per minute for a call to the US and is contemplating to reduce the rates further to Rs 1.70 per minute for a call.

"We want to make the grey market irrelevant," says Mehta. "If we offer services at such cheap rates, the grey market will not be able to sustain itself. We had expected others to follow suit and reduce their rates, but this has not happened. As for us, we have managed to increase our volumes significantly as a result of the drop in prices. Currently, we are clocking 5 lakh minutes per month and we expect it to go up to 6 lakh minutes in a month or so. Our margins are, no doubt, thin, but we have managed to expand the market considerably."

Grey market threat
If the grey market shrinks considerably, serious players will get a chance to establish themselves. Says Jasjit Sawhney, CEO, Net4India Ltd: "Today the hype is over and it is only the strong players who are present in the industry. For instance, our Internet telephony service, which we provide under the brandname Phonewala, has expanded to the extent that it contributes about 25 per cent to our overall revenues. We see a huge potential with large corporates and BPO [business process outsourcing] units who would like to adopt Internet telephony services to reduce the cost of making international calls."

According to Singhal, Net telephony calls out of India are estimated to be around 20 lakh minutes a day, excluding the managed IP network-based calls. According to iLocus, a research group focussed on the telecom and software industry, the Indian market is estimated to grow to 211 million minutes by the year 2007. However, apart from outbound calls, it is domestic calls that will drive volumes, feel observers.

Says Singhal: "Removing policy bottlenecks such as the bar on making domestic long-distance calls via Internet telephony is the need of the hour. Very clearly, if there is one reason that has resulted in Internet telephony not taking off the way it could have, this is it."

Additionally, allowing PC to phone calls within India as well will give a shot in the arm to the sector. Says Joshi: "Currently, calls may only be made from a PC to a telephone number abroad, which severely limits the number of people who could make such calls given the extremely low level of PC penetration in India. Opening this up to calls originating from telephones will add a tremendous fillip to the growth of this service."

Says Kushal Banerjee, CEO, iServ India Solutions, which provides its services under the brandname Zybertalk: "We have to keep one thing in mind: Internet telephony can, at best, be a niche service. Nowhere in the world is the Internet telephony market more than 4 to 5 per cent of the total voice traffic. In India, it is currently about 2 per cent. To increase the percentage share of this market even marginally will take time as India is more price-sensitive."

Pricing apart, experts feel that if corporates buy minutes in bulk and there are assured bookings of minutes, prices may fall and that should drive the traffic further. And ITSPs hope things will get better.


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