Too Little, Too Late

The opening up of Internet telephony is not likely to have any significant
impact on the revenue streamsof ISPs or bring much value to enterprises or
retail customers. The only ones to benefit could be the small and medium
enterprises. Looking at the situation more closely, ISPs can only position the
service viably for international long distance customers since the guidelines
say that PC to phone usage is banned within the country. Since PC penetration
within the country is low, PC-PC usage within the country is expected to be low,
despite it being a freely available service.

However, even the international long distance rates are southward bound with
TRAI fixing new ceilings for overseas calls– about 14%-17% lower–in view of
the ending of VSNL’s monopoly in the sector. The rates are expected to tumble
further with the beginning of services by private players. Bharti Telesonic may
well be the first to kick off another price war with a 50%-60% cut in tariffs by
mid-April. Says N Arjun, CEO of Bharti Telesonic, "We have submitted our
new tariffs for ILD to TRAI and are awaiting clearance."

Despite the tariff cuts, making an international call through Internet
telephony can still be cheaper. A PSTN call to the US costs Rs 40 per minute as
against the Rs 10 offered by ISPs on Internet telephony. ISP rates are expected
to tumble further as demand increases to Rs 3-5 per minute. However, sources
point out that it would become un-viable if the rates fall below Rs 3. There is
another rider in making Internet Telephony calls. The quality of voice in this
service is still suspect due to bandwidth limitations. Businesses may reject the
service since packet loss would lead to gaps. This is why Net telephony has a
marketshare of only 3-4% in the global voice market.

The new service however presents SMEs with a good opportunity to cut down on
communication costs particularly during these trying times. Although the service
is expected to be useful for residential customers, the impact is again doubtful
since PC penetration is low. With increased PC penetration, this is a potential
segment for ISPs since it is price-sensitive. Nonetheless, ISPs are excited
about the new business proposition. For one, it has given a fillip to the
industry, which has been stagnant in recent times. Starved for capital, Internet
telephony presents an avenue for generating additional revenue with minimal
investment. ISPs like Net4India are eyeing acquisitions for rapid expansion in
size and geographical spread to capitalize on synergies of scale. The only
benefit ISPs can expect is the increased time spent by users on their network
besides a marginal increase in user base as the service attracts new
subscribers. The real benefit to the sector would however be symbolic in helping
to bring back excitement to the sector.

R Ramaraj, MD and CEO of Satyam Infoway, says that the Internet needs to be
ubiquitous to realize its true potential and Internet telephony would be a
strong reason for many consumers to turn to it. And the sector is buzzing with
activity. Many ISPs have announced their plans to offer Internet telephony
services. Sify and DataAccess are the only two ISPs to get their ISP licenses
amended by DoT as of now. A few others expect the amended license soon. But this
has not stopped ISPs from announcing packages to lure customers. Packages are
either in the form of pre-paid calling cards in denominations of Rs 100 going up
to Rs 5,000 or through post-paid subscription fee driven packages in cyber
cafes. Both DSL Dishnet and Sify plan to push their new business. Sify is said
to be making its branded cafes, I-way, sound proof in order to give privacy to
users.

Net4India has launched a site called phonewala.com to offer its pre-paid
cards. It also plans to sell its pre-paid cards through 10,000 retail outlets in
200 cities and 300 distributors. The company has already sold 5,000 pre-paid
cards. Meanwhile many ISPs have also firmed up technical and marketing alliances
with international veterans in the field. Caltiger has tied up with US-based
Net2Phone, Net4India has tied up with Delta 3, and Gujarat-based IceNet has tied
up with MediaRing.

Buoyed by the unfolding scenario, vendors like Nortel, Cisco, and CommWorks
are eyeing the market with glee. IDC expects the IP telephony market to grow at
a CAGR of 119% to touch Rs 13,000 crore by 2005. According to IDC estimates,
CommWorks has a 53% marketshare as against 40% held by Cisco and Nortel in the
service providers’space in the country.

Balaka Baruah Aggarwal, CNS in New Delhi