The Indian long distance telephony sector, it seems, is bracing itself for a big overhaul this year. With the country’s mobile sector experiencing runaway growth, there is no reason why long distance should be left behind. Especially with the government having taken initiatives to open the sector to competition.
The initiatives have translated into 20-odd licence applications with the Department of Telecommunications (DoT) to operate long distance services in the country. The applicants include national operators like Spice Telecom, Hutchison Essar, Idea Cellular and Mahanagar Telephone Nigam Limited (MTNL); utilities such as Oil India, Power Grid Corporation, RailTel and GAIL; and global majors such as AT&T and British Telecommunications. Recently, US-based telecom giant Verizon also indicated its interest in grabbing a slice of this market.
Currently, there are only four players offering long distance services: Bharat Sanchar Nigam Limited (BSNL), Bharti Airtel, Reliance Communications and Tata Teleservices. Till end 2005, while the national long distance (NLD) sector was more than 60 per cent controlled by the state-owned BSNL, the international long distance (ILD) sector was dominated by Videsh Sanchar Nigam Limited.
In 2005, the communications ministry relaxed the entry barriers, bringing down the entry fee for both NLD and ILD players to a uniform Rs 250 million. The revenue share was also reduced to 6 per cent from 15 per cent of adjusted gross revenue, effective from January 2006.
This year, giving the sector a further nudge, the government has simplified NLD and ILD licence norms. According to the new initiative, entrants will be given three years’ time to set up their infrastructure. This will allow faster rollouts as new licensees can ride on the infrastructure of the existing players. At present, all NLD and ILD operators have to necessarily install four gateways as a precondition to launching services in the sector. However, the new amendment requires installation of only one gateway within three years of receiving the licence. In other words, “for the first 36 months, operators who do not have their own infrastructure can provide services based on bandwidth leased from other ILDOs and NLDOs. This is indeed a big relaxation as the government is keen to open up this sector,” says Rajesh Chharia, president, Internet Service Providers Association of India (ISPAI).
Moreover, the new amendments state that ILDOs and NLDOs who lease bandwidth from existing players need not set up monitoring facilities. The bandwidth will be monitored at the gateways of the players from which it is leased. Similarly, for service providers who provide Layer 2 and Layer 3 categories of virtual private network (VPN) services based on leased bandwidth, the monitoring will be done at the gateways of the players from whom the bandwidth is leased. This will ensure that no traffic leaves or enters the country unmonitored. At the same time, it will do away with the practice of monitoring the traffic twice on the same bandwidth.
The immediate beneficiaries of this move will undoubtedly be the new players whose applications are currently being processed, and are expected to launch NLD and ILD operations in the country over the next 12 months. It will also help the seven new players ?? AT&T, BT, Sify, Tulip IT Services, RailTel, Oil India and Power Grid ?? who have recently been granted ILD and NLD licences.
What explains the sudden rush of operators wanting a stake in the sector? One, it is strategic to future growth and second, this emerging segment presents a huge opportunity, especially for international operators who face extremely competitive and saturated markets at home.
Notes a senior DoT official: “With teledensity at around 17 per cent, India offers huge untapped market potential for telecom companies. Also, with telephony becoming cheaper and more accessible, the number of people calling long distance within the country and overseas is rising each year.”
The annual ILD outgoing minutes from India in 2005-06 were pegged at 2,500 million and are expected to increase to 3,500 million minutes by end-March 2007. Therefore, while earlier several multinational telecom firms, including Verizon, were offering services in India through cooperation agreements with local licensed service providers, in the new scenario, it makes more sense to obtain a licence to offer long distance services.
British Telecom India, an Indian joint venture of UK-based BT Group Plc, for instance, applied for licences to provide NLD and ILD services in November 2006. It did so because it fitted in well with the company’s expansion plans for the country. Until then, BT was offering data services to more than 100 companies in India through a partnership with Bharti. The licences, which it has recently received, will enable the UK-based company to offer services directly to its customers in the Indian market.
By April 2007, company officials claim, they should be ready to roll out services. The focus will be on foreign multinationals, software and BPO firms, banks and the financial services sector with multi-site operations. The thrust will also be on Indian companies that have global operations and can be managed through BT’s global network across Asia-Pacific, Europe and North America.
To provide such corporate customers with VPN-based services using technologies like internet protocol-based multiprotocol label switching and ATMs, BT plans to add additional resources to support its already substantial capabilities in outsourcing and systems integration. To this end, BT in February 2007, also acquired i2i Enterprises, a Mumbai-based enterprise services company specialising in IP communication services for Indian and multinational companies and with licences to provide NLD and ILD services, and internet and internet telephony services.
Likewise, AT&T’s majority-owned Indian joint venture, AT&T Global Network Services India, which was awarded licences last year, plans to offer ILD and NLD services to a similar profile of customers. Having provided managed network services to almost 150 companies in India through a partnership with VSNL, AT&T grabbed the opportunity to cater directly to the Indian market. Also, since none of the new players seem keen to foray into retail voice telephony, according to DoT, it makes more sense for them to leverage their substantial global networks to provide managed data and voice services directly to the enterprise segment like BPOs, ITeS and multinational companies.
According to Minister of Communications and IT Dayanidhi Maran, “To further promote investment into India and enhance business opportunities for Indian companies operating overseas, India must have the best and latest infrastructure. The licences to BT, for instance, will allow the company to bring its 21 CN services to India’s IT and ITeS sector, and increase their competitiveness through connectivity, availability, quality and responsiveness on a global scale.”
The latest in the list of applicants is the $88 billion Verizon, which has tied up with consumer electronics company Videocon to offer ILD services in India. The company is keen to tap the lucrative market for ILD calls from India, which, according to the Telecom Regulatory Authority of India (TRAI), is growing at 4 per cent per month, and thus offers tremendous growth potential.
The company currently offers services to multinational customers in India through partnerships with licensed Indian carriers. Having its own licence will allow Verizon to collect more revenue and meet the increasing demand from multinational corporations for data and internet transmission.
Verizon, again, is planning to tap multinational companies that are expanding in India, as well as Indian companies expanding abroad with its advanced IP communications portfolio through its joint venture, Verizon Communications India. Verizon holds a 74 per cent stake in the company while Leo Communications (a part of the Videocon Group) has the balance 26 per cent.
Among the Indian operators, as of end2006, both Spice Telecom and Idea Cellular had applied for NLD and ILD licences and are awaiting approval from DoT. They are both looking at a mix of leasing infrastructure and building their own network for offering long distance services.
Other than these, it is mainly internet service providers that are looking to enter this segment. Of the 21 new applications for NLD licences, seven are from internet companies. These are Sify Communications, HCL Infinet, Hughes Network, Dishnet Wireless, Aksh Broadband, Apaksh Broadband and Tulip IT services. And of the nine new applications for ILD licences, four are from ISPs which have been in the business for over a decade.
They have jumped onto the bandwagon following the government’s initiative of doing away with IP-II and IP VPN licences. The government has ruled that ISPs offering domestic and international VPN services must obtain an NLD and ILD licence respectively. Moreover, these companies have the necessary infrastructure and see this as an opportunity to make good the losses they have incurred as standalone ISPs.
For the user, of course, all this is good news. With competition, they can expect tariffs to come down and services to improve hugely.
