The Internet telephony alternative

With the government deregulating Internet telephony, cheaper international calls are in prospect.

CHANDRASEKHAR RAO says that he is no longer going to dread receiving his telephone bills. Ever since the government deregulated Internet telephony on April 1, 2002, he has been excited about being able to use the Internet to call his son in California for as little as Rs.3 a minute. Although the service has not yet been launched and consumers are not entirely sure how to go about it, the fact is that the days of expensive international phone calls have ended, says Chandrasekhar Rao.

In the matter of quality and clarity, the Internet call is a lot like the international trunk call - where a slight time delay between responses was not uncommon and the line crackled with static. However, Chandrasekhar Rao, a retired bank officer, says he is willing to tolerate the lack of quality as he would be paying only a fraction of what it would have cost him otherwise. "Besides, I no longer have to wait for my son to call. I can call him whenever I want, without having to think about it a dozen times."

Internet telephony is being described as "telecom for the common man" or "telecom for all". It is an application of Voice Over Internet Protocol (VoIP) technology, which allows long-distance transmission of voice digitally. Internet telephony is expected to grow the way the cellular phone industry has. But while industry observers hail its advent as a "second communications revolution", the guidelines announced by the Telecom Regulation Authority of India (TRAI) may hinder its accelerated growth. In fact, it remains unclear whether the common man will have access to it.

Admittedly, international calls will be much cheaper, but to use the technology in India the user requires a computer. In other parts of the world, Internet telephony using a regular telephone instrument is permitted. However, in India, authority insists that only an Internet-linked device be used. In its set of guidelines, the TRAI states that Internet telephony services will be limited to calls from one Personal Computer (PC) to another or from a PC in India to a telephone overseas. The TRAI has specifically disallowed the origination and termination of voice communication from a telephone in India. Furthermore, the Central government has stated that in order to protect national long-distance telephone operators, only international communication will be allowed for now.

Given the low level of PC penetration in India (3.7 million PCs), the need for a computer to use the technology will effectively prevent a significant number of telephone users from using it. The fact that only international calls can be made means that it will be used by an extremely small segment of the population. "We could not allow, domestic long distance calls so soon. We need to see first how the industry does. Besides, a lot more needs to be done on the infrastructure front before national long-distance services can be allowed," a senior official in the Department of Telecommunications told Frontline.

"If TRAI allowed domestic long-distance calls through the Internet, it would have been a dream set of guidelines," says Uday Sodhi, chief operating officer at Net4india, an Internet service provider (ISP). The average phone user will have access to cheap calls and the industry will have the potential to grow exponentially, he told Frontline. "This is so typical of the way our country operates. Either we are completely protected or we are not protected at all. Actually we are past the protection stage so these half measures serve no purpose."

Nevertheless, the deregulation has given ISPs, who were immediately eligible for the new trade, a fresh lease of life. The TRAI says there is no licence fee applicable on ISPs offering the service. When ISPs entered the market two years ago, they had expected the Internet revolution to take off the way it did in the West. Unfortunately, low telephone and PC penetration, a weak infrastructure, bandwidth problems and shaky business models led to the collapse of many of them. Those who managed to sustain themselves looked forward to the government opening up telephony - which they believed had to happen eventually. "Internet telephony is working all over the world. Technology cannot be stopped," says Sodhi. "As much as the Indian government may want to keep it out, it cannot. It had to give in eventually," he added.

If the government feels that Internet telephony will have an adverse impact on the telecom industry, it should not be worried, says Kiran Karnik, president of the National Association of Software Service Companies (NASSCOM). "The impact will be marginal. Perhaps 10 to 15 per cent of the revenue will be diverted to this sector. The quality and time lag will come in the way of the technology achieving immediate success," he told Frontline. He added that the technology also required telephones and PCs and that it was likely to serve only a small percentage of the population until there was a deeper penetration of these. However, he said that the technology will eventually find its feet with the rapidly increasing Internet subscriber base.

NASSCOM has predicted that there will be 18 million Internet subscribers by 2004. They expect the number of Internet connections to go up from the present figure of 2.3 million to 10 million by 2003. The Department of Telecommunications is also optimistic. It hopes to increase the abysmally low telephone penetration of two fixed lines per 100 people to seven fixed lines by 2004. "This kind of growth is a positive sign for Internet telephony," said Joe Silva, the Chairman of Caltiger, another ISP.

According to a report prepared by a private consulting company, the market size for Internet telephony in India by March 2003 is estimated to be at 2.2 billion per annum, following an annual growth of 50 per cent. The market size for the year April 2002 to March 2003 is valued at $54 million. Corporate houses and businesses are expected to form the largest user segment for the technology. In addition, the Internet telephony device market is expected to expand. Approximately two lakh Internet telephony devices are expected to be sold annually. The price of the devices range from Rs.10,000 to Rs.25,000. Though many people like Chandrasekhar Rao says that they do not mind the expenditure as it is a one-time investment, but for many its a hefty amount. However, Silva said that just the way PC and modem prices fell, these prices too would fall.

"The immediate revenues for ISPs are in the sale of these devices," said Silva. "Once bandwidth becomes less expensive and easily available, Internet telephony will have a larger share of the telecom market." India has been adding large capacities of submarine bandwidth. Submarine bandwidth has a latency of less than 200 milliseconds as compared to 600 milliseconds in satellite transmission. "So, not only will we have excessive bandwidth, but the quality will be three times better. Bandwidth is the only infrastructure item critical to Internet telephony," Silva told Frontline.

The projected numbers appear to be promising enough for ISPs. During most of April, almost all the 120 existing ISPs in the country, including the recently privatised Videsh Sanchar Nigam Limited (VSNL) and the government-owned Mahanagar Telecom Nigam Limited (MTNL), announced their entry into the Internet telephone market. These companies promise to launch the special Internet telephone devices and phone cards by mid-May, which will allow consumers to make international calls at low rates.

There is a whole range of devices. For instance, if the device is to be used at home, the user can purchase a head-set device or even a special Internet phone, connect it to a computer which, in turn is connected to an Internet line. Various companies that sell these devices also offer Internet telephone software, which is available free on the Internet. Once the software is downloaded, a user can dial a land number in another country either on the computer or on the device. If an Internet call is to be received, it can be done only when the computer is connected to the Internet, and not directly on the phone.

"Here is where TRAI's restrictions are quite incomprehensible," says Karnik. "They are going to find it very difficult to control the calls now that they have opened up." The land line is in any case being used by the user for the Internet. It will, therefore, be difficult to tell whether the receiver took the call on a land phone or on the Internet phone. In fact, until April 1, 2002, the government had enforced controls on using the Internet to make international phone calls, a method which had become increasingly popular among PC users. About four years ago, the government arbitrarily blocked websites that were offering the service. This was the only way to control it. They cannot do that now because these sites have to be allowed to offer the software.

The world over, VoIP is emerging as an alternative to the existing Public Switched Telephone Network (PSTN). VoIP is mainly used in three applications: international long-distance services; national long-distance services and enterprise voice traffic.

Compared to the traditional circuit-switched networks, VoIP networks are easy to deploy and manage. Moreover, they require less investment. This network needs fewer ports and reduced cabling and does not require Private Branch Exchanges (PBXs). "The technology is completely cost-efficient and that is why it can be offered at such low prices," said P.K. Prakash, business development manager at Cisco Systems. Although a PC is a must, because of low phone charges people will use the technology from cyber cafes and other access points. This is one of the ways it will catch on, he added.

Not everyone agrees that Internet telephony will be as cheap as it is generally expected to be. There will be the hidden costs of local phone billing. It may at best be slightly cheaper than that of the traditional voice carrier. But its advantage over the PSTN is that it can offer value added services. These could be unified messaging, fax over Internet Protocol, web-based call centres and Internet call waiting. However, its biggest draw for now is low-cost phone calls.