Free Market In ISPs

The wait is finally over. The Department of
Telecommunications (DoT) has announced the much-awaited guidelines for private ISPs on
January 15. It was done quietly through a press release, perhaps due to the fear of
Election Commission putting a spoke in its wheel.

Years of DoT-bashing in the media seems to
have had its effect. For, the ISP guidelines is a refreshing change from the
we-know-what-is-best-for-everyone edicts that usually emanate from Sanchar Bhavan, the DoT
headquarters. The DoT has turned totally market-friendly with ISPs. There are virtually no
restrictions put on prospective ISPs on operational or business parameters. What stands
out is the DoT's attempt to allow market forces to determine the way in which the ISP
industry will emerge.

Here is how it has ensured free play to
market forces. DoT guidelines, worked out on the basis of the Bimal Jalan (currently
Governor, Reserve Bank of India) committee report has stipulated that there will be no
license fees for ISPs for five years or till 2003. Further, the licenses will be granted
in three categories. Category A licensees, who will have to submit a bank guarantee of Rs
2 crore, can provide Internet services all over India. Category B licensees (bank
guarantee of Rs 20 lakh) will be able to provide their services in any one of the 20
telecom circles and the metros and some selected top cities such as Bangalore, Hyderabad,
Ahmedabad, and Pune. Category C (Rs 3 lakh guarantee) is limited to secondary switching
areas of telecom circles, excluding the big cities. However, there will be no restrictions
on the number of licenses an operator can acquire. Also, it will be free for all and DoT
will not restrict the number of ISPs in any area. This is a major change in the DoT's
policy because in the case of value- added services such as cellular and paging, DoT had
attempted to manage competition by limiting the number of players to two in each telecom
circle.

Most importantly, there will be no limit on
tariffs. DoT has left it to the ISPs and the market to determine the tariff levels. In
fact, it has not even tried to impose VSNL's Internet tariffs as the benchmark for private
ISPs. So the consumer will at last be the King in the case of Internet services. And
various ISPs will be able to interconnect among themselves. DoT's changed, market-friendly
mindset is at work here because it had not allowed similar interconnectivity among VSAT
operators so far. Realizing the capacity constraints of its own backbone telecom network,
DoT has permitted ISPs to utilize the surplus capacities of public sector networks of the
Railways and Power Grid Corporation. Where such capacities are not available, ISPs will be
free to set up their own networks.

The only sore point is the continuing
monopoly of VSNL as the only international gateway provider. This will be a major irritant
for new players because there is still no clarity on whether VSNL's ISP operations will be
hived off as a separate subsidiary or privatized soon. As long as this status continues,
private ISPs will be wary of VSNL's potential to stymie its competitors through its
monopoly over overseas telecom services and gateways. Over all, the guidelines are very
good for the growth of this emerging industry. And the market-friendly tone of the
guidelines is certainly a feather in DoT's cap.