The Telecom Regulatory Authority of India (TRAI) has released a consultation paper on whether to allow internet service providers (ISPs) to offer unrestricted internet telephony. The aim is to find ways to address the regulatory challenges in the creation of a level playing field for internet telephony. tele.net speaks to various stakeholders, industry associations and analysts on the issue:
What is the current size of the voice over internet protocol (VoIP) service market in India? What is its future potential?
Aditya Ahluwalia: The international internet telephony market in India grew by 15 per cent in the quarter ended September 2007. The total minutes of usage in 2006-07 were 340.96 million minutes, a growth of more than 50 per cent year-on-year. The status as of September 2007 confirms the continuation of this growth trend. Internet telephony service is likely to become more popular in the near future as end-users are now allowed to make internet telephony calls without requiring a PC, with the help of standard adapters.
International long distance operators (ILDOs) carried 3,528 million and 10,757 million minutes of outgoing and incoming voice calls respectively in 2006-07.Outgoing voice call minutes till September 2007 were 2,324 million. In the same period, a total of 343.94 million internet telephony minutes were reported. This indicates that internet telephony minutes accounted for 10-15 per cent of the total outgoing ILDO voice call minutes in 200607, and this ratio is expected to further increase over the coming years. According to International Telecommunication Union estimates, internationally, on an average, 50 per cent of international voice call minutes will be carried on IP networks and many long distance carriers world over may have an all-IP network by 2008.
Going by the information provided by TRAI, the introduction of VoIP for local call termination could result in VoIP capturing up to 15 per cent of national long distance (NLD)/local voice minutes within two years of the launch of such services in the country.
S. Bhaskar: The current size of the IP telephony market in India is in the range of $60 to $70 million. According to IDC reports, India’s IP telephony market is expected to grow at a compounded annual growth rate (CAGR) of 119 per cent. According to the TRAI paper, the VoIP market grew by 300 per cent over 2006-07 with 800 million minutes. The total outgoing minutes grew by 40 per cent to 3,500 million minutes over the same period. India’s VoIP growth has been attributed to the growing IT and IT-enabled service sectors, followed by banking and financial services, logistics, manufacturing enterprises and IP telephony end-consumers. The Indian VoIP market could increase to 110 billion minutes if the sector were to be liberalised.
The worldwide VoIP market is growing at a CAGR of 278 per cent. According to a report by iLocus, a market research firm, an estimated 1,079 billion minutes of VoIP traffic were carried by service providers worldwide last year. Of these, local call volumes comprised 382.3 billion minutes, NLD call volumes comprised 614.4 billion minutes and ILD volumes were 82.6 billion minutes. The market is growing at a phenomenal rate globally and the Indian market will not be left far behind. The Indian VoIP market is expected to be the second largest market in the Asia-Pacific region after China.Around the world, the internet telephony market accounts for 4 to 5 per cent of the total voice traffic. In India, it currently stands at just about 2 per cent, leaving wide scope for future growth.
Rajesh Chharia: Currently, 20 to 25 per cent of international calling is accounted for by VoIP. But this is only for outgoing calls.
If ISPs are allowed to offer internet telephony, the growth in the market will be explosive as the rate difference between time division multiplexing (TDM)-based telephony and VoIP is enormous. And here, market size is not an issue, ruling is the issue. The Indian government has to allow ISPs to offer unrestricted internet telephony.
Sridhar Pai: The current internet telephony market size in India (domestic call volume) is about 500 million minutes a year (for 2007-08), which is growing at an annual rate of about 40 per cent. This is despite the fact that the overall coast-to-coast call charge is at an extremely low $0.02 per minute (over cellular phones).
Needless to say, should the domestic market for internet telephony open up, it would create a growth that is many times what we have now. This will further drive the need for extensive broadband connectivity, as a result of which voice will continue to remain the top revenue driver for all service providers.
What are the main challenges in allowing ISPs to offer unrestricted internet telephony?
Aditya Ahluwalia: We feel that TRAI’s initiative to release the consultation paper is a bold one and needs to be applauded. Despite a major boom in telecom penetration in the country over the past six years, the government has, year after year, failed in two key areas ?? penetration of rural telephony, and meeting the targets set for broadband internet penetration. TRAI’s initiative will increase broadband penetration as well as increase rural telephony.
Since a licence fee of 6 per cent of the adjusted gross revenue (AGR) already exists for internet telephony service providers (ITSPs), there will be no revenue loss to the government. Hence, regulatory implications need not be read in depth here; instead, the benefits to the end-user should be given priority.
S. Bhaskar: The main challenges in allowing ISPs to offer unrestricted IP telephony are:
Regulatory challenges ?? For instance, can ISPs who want to provide unrestricted internet telephony and other value-added services be permitted to migrate to a unified access service licence (UASL) without paying spectrum charges?
Another challenge would be to restrict grey market operators. Approximately 20 per cent of this market is run by grey market operators who do not pay service tax and other levies and cause huge revenue losses to the government.
UASL/CMTS licensees pay higher regulatory levies than ISPs for providing similar services, in addition to telecom services. However, VoIP is an internet service and, in spirit, should not be licensed or regulated. TRAI must therefore consider the issues involved, as well as take global best practices into consideration, before making any recommendation. There is no separate licence fee for ISPs at present and the amount of performance bank guarantee and financial bank guarantee submitted by ISPs is also low. This is because the government realised the importance of encouraging internet penetration for the growth of the economy, and threw it open for all participants. In the national good, future recommendations must maintain the original considerations.
As a service, VoIP is provided under the ITSP licence. Under this licence, calls can be made from one IP phone to another and to PSTN/mobile phones outside India only. In contrast, users can receive a call on their IP phone only from another IP phone but not from a PSTN/mobile phone. This means that a user cannot have an IP phone number similar to a PSTN/mobile number. Moreover, IP phones can be used to make calls only within their own networks in a closed loop. In India, VoIP thus remains restricted to closed user groups.The relatively high price of IP phones is another challenge.
Another issue that needs to be resolved is interoperability. All phones, softphones, gateways and call managers are not interoperable as they support some proprietary variant of a standard protocol. This limits enterprises from freely mixing and matching components. The usage of open standards can tackle this issue.
Sridhar Pai: In the short term, there could be some very important changes required at the regulatory level in terms of the access deficit charge (ADC) that ISPs need to pay in order to offer unrestricted internet telephony. For example, if a call from location A to location B (PSTN number) is cheaper to make over a cellular network, then unrestricted internet telephony will not take off. Call charges should at least become comparable, if not lower, for this service to make a difference.
How will the move to permit ISPs to offer unrestricted IP telephony services impact the industry?
Aditya Ahluwalia: The success of internet telephony companies like Vonage clearly indicates that internet telephony is the application that is driving the current demand for broadband. There are over 7 million internet telephony customers in the US, and other countries too have experienced rapid growth.
Internet telephony has the potential to spur broadband demand in India as well, and increase its penetration many times over. Moreover, the introduction of lowpriced calls will drive lower prices across all sectors, ultimately benefiting the customer.
Thanks to international internet telephony, international call rates have been lowered. Opening up internet telephony to ITSPs for local/NLD calls will have a similar effect on rates in this sector.World Phone will, on its part, do its best to lower the cost for customers by as much as 70 per cent, as it has done in international telephony.
S. Bhaskar: One major impact that unrestricted IP telephony will bring to the industry is a further reduction in call tariffs, which will benefit the consumer and increase usage. On the other hand, the market could see some low-cost operators merging, exiting or being bought out. With that, the telecom industry could witness another round of consolidation.
TRAI’s purpose in coming out with the consultation paper on internet telephony is to facilitate the introduction of the lowest possible cost of services for local, NLD or ILD services to Indian telephony users.
So far, the general public has been deprived of the benefits of this technology, in spite of the government allowing operators to do so from January 2006.
Sridhar Pai: If the required changes are made and unrestricted domestic internet telephony rates become comparable to or lower than cellular tariffs, this service will take off in an unprecedented way. The result will be a huge surge in domestic IP voice minutes.Over a six-month time-frame, the average revenue per user in cellular voice will start seeing a noticeable drop. Broadband infrastructure will receive a boost at two levels: existing broadband infrastructure will get enhanced in terms of capacity and ISPs will be under pressure to enhance their broadband footprint. International gateway capacities will require to be enhanced as overall international bandwidth requirements will grow.
What revenue models are ISPs likely to adopt, if they are permitted to offer IP telephony services?
Aditya Ahluwalia: It will be premature for World Phone or other ITSPs to disclose their revenue models at this stage. However, it may be similar to what is being offered for international telephony calls, with up to 70 per cent savings on NLD and local telephone bills.
S. Bhaskar: Bundled/Managed VoIP offerings with internet/data services will be the main revenue model for ISPs. They have advantages in local, long distance and data services through strategic alliances, bulk purchasing of long distance minutes, VoIP deployments, convergent billing, and the latest in switching equipment (class 4/5 switches), without the expense of legacy equipment unable to deliver high speed digital services.
India is a fairly mature market when it comes to PBX systems but the IP-PBX market is in its infancy. IP-PBX service offerings will be a good revenue source for ISPs as well. Other revenue opportunities could be conference calling (outsourced or “Meet Me” circuits), fax over IP, voice virtual private networks, etc.
Rajesh Chharia: ISPs pay 6 per cent of AGR as licence fee for the service and are ready to pay more.Other than this, if any additional financial burden or condition is imposed, the whole objective of allowing unrestricted net telephony will be defeated.
Sridhar Pai: The revenue model will be defined by the service provider and be determined by the nature of licences it owns. Integrated service providers such as Bharti and Reliance will quickly move in to introduce a branded P2P client into their cellular subscriber bases and one can expect a Skype-like client on GSM phones to make IP calls from cellphones. Nokia and other device vendors may launch WiFi/GSM dual-band phones, perhaps in association with managed Wi-Fi service providers, to ensure consumer retention and push content.
Revenue models may quickly move to unlimited domestic calling at Rs 249 per month over operator-owned networks for example, and should be available as calling cards which may be recharged over the operator’s voice portal.
What will be the key drivers for IP telephony through the ISP platform?
Aditya Ahluwalia: Low tariffs will be the biggest driver and World Phone will do its best to reduce costs for customers.
The quality of service (QoS) is also important. In terms of regulation, QoS could be prescribed to a limited level of mean opinion score, answer seizure ratio and average call duration. At the same time, it should not mandatorily be made the same as other TDM services as VoIP services can be affected by many factors ?? quality of broadband connection, power supply, etc.
S. Bhaskar: The key drivers for IP telephony in India would be lower cost voice services as compared to the present PSTN costs for both the retail and enterprise markets. VoIP enables the integration of advanced applications, which add value to the business process, and will be a key factor for adoption by enterprises. Communication costs will reduce with the fall in bandwidth prices as will the total cost of ownership due to the unification of voice, video and data networks. This will give an impetus to the growth of the VoIP market.
Rajesh Chharia: By allowing ISPs to offer internet telephony, local and NLD call rates will come down 40 to 50 per cent and ILD rates will fall by 200 to 300 per cent.
A reduction in rates, however, does not imply any loss, since usage will also increase. This is similar to what has been witnessed in the case of mobile telephony.
Sridhar Pai: An open standards-based IP infrastructure with transparent regulation which is fair and not protection based, with clear interconnect laws, will introduce healthy competition in a market that still has a teledensity of sub-25 per cent. Regulation needs to move away from technology issues such as H323/SIP and become neutral, focusing on ease of use and universal access to basic telephony services for the masses.
Unrestricted internet telephony can indirectly trigger rural broadband growth as well and allow the entry of the first phase of converged services, broadband, value-added services as well as other enhanced services.
