The Telecom Regulatory Authority of India (TRAI)’s recent recommendations on internet services have elicited a mixed response from the industry. While some of the initiatives have been welcomed, others are actually being seen as a step backwards. Analysts and internet service providers (ISPs) discuss the subject at length…


What are the implications of TRAI’s recommendations for ISPs? Are they likely to adversely impact their future growth?

Arpita Pal Agrawal: The authority’s recommendations for removing the restrictive provisions of the earlier licence, if accepted by the Department of Telecommunications (DoT), would provide some operational flexibility to the ISPs. However, other commercial-related recommendations such as levy of an entry fee, licence fee and introduction of an FDI cap could be viewed as a step backwards in policy deregulation. Overall, it would not have any significant impact on future growth except in the case of businesses that are still on the drawing board, which may have to redo their plans.

Naresh Ajwani: Any strategic move to restructure a market has both positive and negative impacts, and the recent recommendations are no exception. All ISPs would surely reap the benefit of the expanded reach of the ISP licence ?? no separate licence is needed for internet telephony as the service will now come under the ISP licence. Further, TRAI envisages that all Category C licensees step up to a state-level licence after bearing the cost of increased bank guarantees. TRAI has removed restrictions on the use of devise/protocol used to make internet telephony calls. Till now, such calls were permissible only from devises running on SIP or H.323 protocols. This is a major step towards a technologically neutral regime.

There is definitely a paradox over the levy of entry fee and DoT’s submission to the Telecom Disputes Settlement and Appellate Tribunal over the sanctity of ISPs to pay Re 1 as licence fee. TRAI must elaborate or clarify the same and also what services should be included under the 6 per cent revenue share.

Rajesh Charria: The recent TRAI recommendations on internet services are shocking to say the least. They are against the interests of the internet industry and the consumer. The industry expected TRAI to come up with recommendations that could fulfil the following government objectives:

  • High growth of internet and removal of the digital divide
  • Affordable internet services and bringing in competition for user-friendly services like IP-TV
  • Innovative services on the internet platform.

    However, TRAI has not done so. In fact, the essence of the government’s motive in declaring 2007 as the year of broadband has been negated by the TRAI recommendation of levying a licence fee of 6 per cent of the AGR. This will have a cumulative effect by putting multipoint taxes on the same item (up to 18 to 24 per cent increase in price). The main impact of this recommendation will be felt in the rural areas, where the payingcapacity of users is low.

    TRAI’s recommendation on the revenue share for spectrum is also a damaging recommendation as it affects the entire business of the ISP. TRAI has also recommended compulsory migration to statewide operations by Category C ISPs. Is this correct? This additional financial burden may actually kill the ISP with consequent loss to the consumer dependent on that service provider.

    TRAI’s mandate is to regulate the telecom industry in order to provide affordable, state-of-the-art technology to consumers at large. These recommendations do not reflect TRAI’s resolve to accomplish its mandate. The interests of the consumer and the service providers will take a hit.

    Nareshchandra Singh: These recommendations will set off a new phase of consolidation in the industry. However, future growth is unlikely to be impacted as the ISPs affected are small players without significant market shares.

    Will TRAI’s recommendation to continue keeping various IP-based services like VPNs and IP-TV out of the scope of the ISP licence affect standalone ISPs?

    Arpita Pal Agrawal: Standalone ISPs have not been doing well even in the current policy regime. This is evident from the fact that seven players dominate 90 per cent of the Indian ISP market. Of these, five are integrated players with a presence across all telecom service segments. These recommendations will further restrict standalone ISPs to being only connectivity providers, a model which will be increasingly difficult to sustain at the rate at which plain vanilla connectivity tariffs are plummeting.

    Naresh Ajwani: The inclusion of VPN in the ISP licence has been a subject of long-standing debate. We accept DoT’s decision that it is a separate service, not in the ambit of the ISP licence. Further, the same service has now been included in the national long distance (NLD) and international long distance (ILD) licences. Many new players have since acquired or migrated to NLD/ILD licences to continue with their VPN services. We consider this issue to be well settled and inclusion of VPN service in the ISP licence at this point could create some unevenness.

    Rajesh Charria: TRAI has recommended continued restrictions on various IP-based services like VPN, IP-TV and unrestricted internet telephony. This appears to have been done to protect business interests of integrated players even though ISPs are providing these at a far cheaper rate. Is this the level playing field that the consumer deserves?

    Nareshchandra Singh: Pure-play ISPs will be the worst affected if the recommendations to impose licence fees are adopted by DoT. Already, ISPs are not allowed to provide corporate services such as IP-VPN services and hosted business IP telephony services. On the other hand, they also have difficulty accessing the pool of local telephone lines needed to expand in the consumer/residential dial-up/broadband segment. Therefore, if TRAI’s recommendations come into force, pure-play ISPs will be left with fewer service avenues and greater operating costs on account of the licence fees imposed.

    Are TRAI’s recommended measures for curbing grey market operations adequate?

    Arpita Pal Agrawal: TRAI has recommended that the present restrictions on provision of internet telephony regarding device or adopter specifications be removed. This will thus provide operational flexibility to ISPs and users, and move them from the realm of illegal services. However, to curb grey market operations, these recommendations are still banking on general consumer awareness and self-regulation.

    Naresh Ajwani: Grey market operations take place only when there is an arbitrage between rates. TRAI has referred to this in its ADC review. So, raising the issue in this case and connecting ISPs with the same is not fair at all.

    Rajesh Charria: The regulator has shown its complete inability to come up with solutions to counter the grey market in internet telephony. It has come up with a lame advisory to the government to engage illegal foreign operators in a dialogue to set up base in India. It has further hurt the sentiments of legitimate service providers who, despite all odds, are providing customers with economical and legalised services.

    Nareshchandra Singh: The measures are unlikely to have a major impact unless backed by effective monitoring and control, which have been lacking in the past. One can make new laws but if there is no effective enforcement, all the effort goes in vain.

    What measures should the government take to help the country reach its target of 9 million broadband consumers by 2007?

    Arpita Pal Agrawal: To reach the target level of broadband penetration, besides uninterrupted and easy broadband connectivity, the other essentials are affordable and easily maintainable PC/internet access devices and relevant content. Interface and content availability in vernacular languages could lead to faster uptake. Besides these essen    tials, there has to be an overall increase in requirements for broadband usage in schools and government-related interactions for sustainable demand to get created. Increased user confidence in credit card-based e-commerce transactions accompanied by a robust doorstep delivery mechanism would also spur demand for broadband services. Government intervention at the policy and administrative level to address some of the above issues could help achieve the required targets.

    Naresh Ajwani: We need to widen our horizon from 42 million fixed line subscribers to 120 million TV homes. Today, TV has been able to penetrate to such an extent that there is no market regulation and the same is required for the broadband business.

    Hybrid technology is the need of the hour. Government subsidy to hybrid players would help in taking the internet to the masses. The government spends thousands to provide a broadband connection. If the same amount is invested in hybrid technologies, such as cable and wireless, the penetration will be better.

    The investment shall be towards:

  • PC-sharing models for villages
  • Thin client concepts for co-operative societies
  • Switches for ensuring quality over cable last mile.

    Spectrum is a scarce resource and should be allocated to technologies that enable broadband penetration beyond the 42 million telecom homes.

    Rajesh Charria: Against the present number of 2.3 million by the end of March 2007, achieving 9 million by end-2007 appears impossible till the time the government, integrated players and the ISPs start working broadmindedly. What we request of the government is to stop putting hurdles in the growth of ISPs. Even in developed countries like the US, the regulator supports ISPs against the big integrated players.

    Some measures undertaken to protect the ISPs are:

  • Internet telephony is the most economical, value-added service in broadband.

    To promote the same, ISPs should be allowed to offer unrestrictive internet telephony. At present, we can originate overseas calls but cannot terminate calls on the PSTN network within the country. If allowed, we will be able to provide internet telephony across India.

  • IP-TV is another value-added application that runs on the internet browser, but it is being barred to the ISPs. If allowed, it can reach rural India along with broadband.
  • Unbundling of the local copper loop by the incumbent players will allow it to be offered to all other players on commercial terms. When the broadband policy was announced, the incumbents claimed they had 7 million pairs of copper lines ready for broadband. To date, however, they have been able to use only 4 per cent of it; the balance is lying idle. We want to request them to achieve the given broadband target. Focused ISPs should be allowed to use those idle pairs of copper lines for penetrating deep into the rural areas. In lieu of using the same, we can pay money to them, which can be calculated when the incumbent provides broadband to its own customer. In this way they will be able to earn a lot of money by using their idle infrastructure.
  • In the Wi-Max spectrum policy, channels should be reserved to allow focused ISPs to offer broadband connectivity in the rural and semi-urban areas.
  • Service tax on broadband should be waived.
  • It would be appropriate to extend income tax benefits under Section 80(I)(A) to ISPs and other licensees who are authorised to provide internet and broadband access.
  • Internet telephony in rural/remote areas can easily be bundled with a broadband connection. The rural masses can benefit immensely by the bundling of services instead of just telephony. These services can be used for talking to their relatives in towns/cities at much lower rates. If a person in Delhi or Mumbai can connect to his contacts in New York or Los Angeles for less than Re 1 a minute, why can’t we offer such a facility to our own people within India? It will be helpful in bridging the digital divide.

    Nareshchandra Singh: Unbundling of the local loop can be the big trigger required for putting the country’s broadband growth on the right course. Even if half of India’s approximatly 45 million copper telephone lines are broadband-worthy, this itself is a great base to work on. Last mile unbundling is a road that has been taken by many developed countries and there is no reason why India should not follow in their footsteps if we are serious about building an internet economy.

    Obviously, there are going to be those who resist such a move. But that is not unusual. Many countries have had to face such resistance and it was in the overall interest of the country that hard decisions were finally taken.