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Bracing for the onslaught
2007-06-25
Telecom service
providers are gearing for competition as Voice over Internet Protocol
technology looks set to call the shots – and lower consumer costs.
When the country’s largest telecom operator Bharat Sanchar Nigam Ltd took the initiative and dropped International Long Distance (ILD) tariffs, there were few murmurs. In fact, other telecom service providers (TSPs) followed suit to cut rates. The ILD tariff is certainly not the last and more could follow in the coming days. But are TSPs unhappy with the situation?
“No! We are not worried at all,” says S.C. Khanna, Secretary General, Association of United Telecom Service Providers of India. “In fact, the usage could go up and revenues could actually increase.”
Yet, while TSPs exude confidence, the real scene is somewhat different. It would appear that the TSPs have lost control of tariffs. Tariffs are no longer driven by costs alone. So who calls the shots? The national Telecom Regulator? Government? Nope! It is technology.
Surprisingly, two service providers on the World Wide Web, search engine Google, with Google Talk, and Skype, with their Voice over Internet Protocol (VoIP) services, appear to be influencing domestic telecom economics. Google began offering the talk to dedicated users about a year ago. Skype has been offering this service a little longer, and its Web site screams,‘Free your conversations.’
So what is VoIP? It is the technology used to transmit voice conversations over a data network using the Internet Protocol. VoIP is inexpensive, as low as a local call as against an ILD or STD call. What is also a determining factor is voice quality. The VoIP voice quality on both Google Talk and Skype is claimed to be as good as or better than the telecom service providers’ offerings.
But there are hitches. Legally, VoIP is still not permitted in India. While PC-to-PC interface is not disallowed, PC-to-telephone/mobile handset is still not legal.
For a VoIP user, a personal computer is a necessity to take advantage of the benefits. True, PC density in India is as low as 2 per cent – meaning for every 100 users, only two own a computer. Besides PC ownership, broadband is a prerequisite for VoIP. Here too, broadband penetration is low in the country, confined mainly to cities, and covering barely 1 per cent of the population. Yet, despite these numbers, there are at least 5,000 users of VoIP, who are mainly individuals. Obviously the majority of the users are from segments that have access to broadband. But indications are that there is another class of users who are beyond the purview of statistical counting. This includes those from cyber cafes.
Users are finding ingenious technological solutions for communication or are even prepared to take risks. The reason — VoIP is inexpensive for communication over long distances.
With Google Talk, the communication may not necessarily be fully encrypted. Skype, though, is fully encrypted, offering users a certain degree of privacy with their conversations. Consequently, Skype is finding users across the spectrum, including a small number of corporates. The corporates are unwilling to admit usage of VoIP openly, since legal issues are yet to sorted out.
It would appear that the economics of communication are set to override encryption and legal issues. For instance, the average cost per user for surfing the Internet in a cyber cafe is about Rs 10 an hour. An ILD call to the US is currently about Rs 1.80 a minute. To the Gulf regions, the cost is about Rs 7 a minute. Given this economic advantage, VoIP usage could accelerate further in the near future.
Neha Gupta, research analyst at Gartner, says, “We think that users could cross 6.5 lakh over the next five years.”
Yet even this is a very conservative estimate in view of the rising computer literacy in the country. There are no precise numbers. But one unofficial estimate is that at least 30 per cent of the country’s population is familiar with e-mail. Illustrating this trend is the fact that post offices in the country are now beginning to offer e-mail services, or even have postmen carry printouts of e-mail replacing conventional post mailbags. This is particularly so in some regions, for example, Mallapuram in Kerala, where the breadwinners are living abroad or at a considerable distance from home.
Given all this, TSPs themselves have begun mulling offering VoIP. Says the Tata Teleservices President, Vikas Shah, “We have our VoIP kits ready and are ready to launch when the regulator permits us to do so.” But the industry itself is not very happy with the VoIP advances. Khanna says, “We have paid large licence fees and VoIP cannot be allowed on more favourable terms.”
This reservation notwithstanding, TSPs are bracing for competition. The buzzword is ‘When you can’t fight ’em, join ’em.’
“Tariffs will come down,” says Shah. In fact, the efforts within the TSPs are to squeeze more bytes through the optic fibre cable networks. “The more bytes we can push through, customers will also benefit,” he adds.
Simultaneously, TSPs are pushing broadband services across their subscriber base. India currently has about 2.43 million broadband subscribers, according to data from the Telecom Regulatory Authority of India (TRAI). By 2010, the target is to have at least 20 million broadband subscribers in the country.
Almost all the TSPs are in the race to get a slice of this pie. Companies such as Airtel Broadband & Telephone Services (B&TS) have tied up with PC vendor HCL Infosystems to offer PCs bundled with broadband at a special price. The broadband penetration is to ensure that despite migration to VoIP, TSP revenues will remain unaffected. “VoIP still has to use our carriers,” Shah adds.
This means that revenues are unlikely to be affected, as TSPs would receive fixed rentals from broadband users. What could be affected is the Average Revenue Per User (ARPU). This number gives out the earnings from each subscriber added to the country’s telecom network. Already ARPUs, at Rs 3,000 a year, are among the lowest in the world. Gupta says the ARPU will come down further in the long-term.
But few are worried. Khanna says, “This is a volume game and tariff falls will have no impact on revenues.”
Yet there could be a floor level to which tariffs could drop. Skype , for instance, does not charge within its own user network. But Skype Out — a Skype user reaching out to a mobile or even a landline subscriber anywhere across the globe and Skype In – the reverse, allowing mobile/landline users access to the Skype network — are charged.
The tariffs are low – at 2 euros a month or the equivalent of Rs 110 at current exchange rates.
The charges are on account of the local calls and the interconnect charges payable between the service providers. This could be a possible floor level. But that level is still some distance away. TSPs have not yet discovered that level for now.
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