Getting Started Blues?

There was much frenzy both in media coverage and amongst ISPs scrambling to

offer Internet telephony when the sector was legalized on April 1,2002. But six

months down the line, ITSPs (Internet Telephone Service Providers) are finding

the going tough with revenues not living up to expectations and the market not

maturing quickly enough.

Yet it is a service which has brought in good yields to ITSPs and has the

potential to bring in more. While most ITSPs make around 20 % of their revenue

from Internet telephony services, Gujarat-based IceNet makes much more with

estimated revenues at 50 % from this service. Meanwhile, ITSPs have realized the

pitfalls in the business, revised their projections, and taken corrective

measures.

Speaking to a cross section of service providers, several myths about the

expected trends in the Internet telephony industry stand shattered. The first

relates to the adoption rate amongst corporates, which has not made any

significant inroads. When the service was launched, service providers expected

businesses to latch onto the new technology in a big way. Even SMBs have

rejected the services after experiencing poor voice quality. Says Chirag Mehta,

CEO of IceNet, "Mostly, businessmen have problems understanding the English

spoken by foreigners. To top it poor voice quality makes business conversation

almost impossible." Besides, one must also keep in mind the steep downward

revision of ILD tariffs, which still makes PSTN attractive for businesses. But

ITSPs have launched strategies to woo the business segment by offering the

service based on superior technology.

ITSPs have found the home segment form a steady customer base. These are

people which Mehta terms as "compulsive users" who have close

relatives abroad and have to talk irrespective of the quality of voice at

affordable rates everyday. This shatters the second myth held by the industry

about the addressable consumer base for this kind of service. "In reality

the customer base for Internet telephony is very narrow. Only those people who

own a phone with an ISD connection and having close relatives abroad are likely

to use this service," says MC Chaube, GM, Value Added Services, MTNL.

Third, the industry had expected the policy guideline restricting calls within

the country to PCs to be the only major hurdle for the take-off of services. But

it was the cumbersome end-user terminals like headphones and sound boxes that

deterred users.

Fourth, ITSPs thought that cheap net telephony would stem the tide of the

grey market. But the grey market grew unabated commanding as much as 70-80% of

the Internet Telephony market. Grey cards of US companies like Net2Phone, Dial

Pad, and Media Ring enable calls to the US for as little as Rs 1-2 per minute as

against an average of Rs 6 per minute offered by ITSPs. And the market has

lapped up the cheap offerings, so that revenues from the grey market are

expected to reach Rs 180-200 crore of the total market size of Rs 250 crore.

ITSPs are up in arms against this menace and have reacted by blocking access

to Internet telephony sites other than their own. The move has hurt the business

interests of smaller ITSPs like Net4India and Caltiger who have been

aggressively vending their services. The contention of bigger players like Sify,

Data Access, HCL Infinet has been that customers utilize the ISPs bandwidth in

accessing the Internet and hence should only use their ITSP offering. In case

the ITSP happens to be somebody else, then there should be revenue sharing

between the two service providers as the customer gains access through the ISP’s

infrastructure. ISPAI has been trying to broker peace between the warring ITSPs

who have now agreed to a revenue sharing formula. So what started with a lot of

gusto is moving ahead without much steam. And the going is not expected to rev

up in the immediate future!

Balaka Baruah Aggarwal/CNS In New Delhi