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Internet telephony is here - Views on News from Equitymaster
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  • Mar 22, 2002

    Internet telephony is here

    In yet another move to liberalise the Indian telecom sector, the government has announced norms for providing Internet telephony service (ITS). As per the new norms, only Internet service providers would be allowed to provide such services. Though there is no license fee for providing ITS, the Department of Telecommunications has reserved its right to impose license fee including a universal service obligation (USO) levy in the future, if necessary.

    Internet telephony is basically an application by which voice transmission is possible by using public Internet as a medium of exchange instead of the conventional means like a basic or a cellular telephone. Internet telephony is possible from PC-to-PC as well as from a PC-to-telephone, which is currently not allowed in India.

    Apparently, the cost of Internet telephony is significantly lower when compared with conventional methods of communication. To put things in perspective, a call to US from India costs approximately around Rs 52 per minute. Through Internet telephony, this would be just a local call charge for the same period. However, the regulator has laid out certain modes of communication for international and domestic calls.

    As per the norms, PC-to-PC calls are allowed if the call is made both domestically i.e. say Mumbai to Delhi as well as to an international destination. However, PC-to-telephone is not allowed for subscribers if the call is made within the domestic markets. At the same time, interconnectivity between ISPs would be allowed only if both the ISPs have an ITS license. If VSNL has an ITS license and Sify does not have one, then a Internet subscriber of VSNL cannot speak with a Sify subscriber through a PC.

    With Internet telephony being allowed, the industry would be able to achieve one of the key objectives of the National Telecom Policy-1999, which is affordable communication for consumers. While consumers would be the biggest gainers on account of deregulation, basic and cellular service providers stand to lose out on revenues. Both domestic as well as international long distance providers (ILD/DLD) like Bharti, VSNL, Reliance and BATATA would be affected as there is every possibility that consumers could use internet telephony to speak to their dearest and nearest (aboard and in India). This could also affect the network roll out plans of majority of ILD/DLD majors.

    But at the same time, players like VSNL with more than 600,000 Internet subscribers might gain on higher Internet usage. However, the loss in revenues in the form of international long distance calls would have a larger impact on its growth prospects. Besides, ILD tariffs are expected to fall significantly in the coming fiscal on account of two reasons. From a monopolistic scenario, competition is set to increase in the ILD segment where most of the top rung telecom majors have already received letter of intent. Secondly, with the advent of Internet telephony, there is a chance that the regulator would try and narrow the gap between existing ILD tariffs and Internet telephony calls so as to reduce the attractiveness of the later. But with PC penetration of just 4 in 1,000 people currently, there is a long way to go. However, the cream of the population, which makes international calls, might own a PC currently. So, to that extent, Internet telephony is an effective competitor.



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