November was a particularly happening month for the Indian
telecom industry from a policy-regulations perspective. On the one hand, the
government finally succeeded in raising the official ceiling on foreign direct
investments (FDI) in telecom services to 74% from the existing 49%; and on the
other hand it significantly lowered the entry barrier for new entrants in the
long distance (national and international) calling market.
 |
| Will the new NLD/ILD
regulations really help more players in the field? |
While there is no doubt that in the long run both these moves
would surely make the Indian telecom market more competitive, by bringing in new
players, the new NLD/ILD norms leave much to be desired.
Even though the government has been saying that the lowering
of entry fee in the ILD and NLD sector would raise competition, that's very
unlikely, at least in the near future. That's largely because India still does
not have Carrier Access Code (CAC). As such, Indian consumers still don't have
the choice of selecting their long distance carrier. So, even if new players get
in the NLD or ILD business, they are unlikely to get customers as only mobile
and fixed service operators can serve them. As such, the lowered license fee can
only have a significant impact after the CAC is implemented and the new players
are given access to consumers.
Similarly, the new norms don't mean much for ISPs and they
have not been really happy with them. And that's not surprising, as the new
norms have ended up making their business even more vulnerable. While on the one
hand, ISPs have been kept out of the domestic Internet telephony market, on the
other hand they are being made to pay an annual license fee on their Internet
telephony revenue. Now every ISP offering Internet telephony service will have
to pay an annual license fee of 6% of his AGR. This is something they were not
doing earlier. This would really erode the bottom lines of ISPs who are already
facing a decline in revenue from Internet telephony. It is estimated that since
the last quarter of 2005, there has been a significant decline in the number of
Internet telephony calls going out of India. While the first three quarters of
2004-05 saw an upward trend in the number of outgoing minutes, it's been going
down since the last quarter of that year. It was 43 mn minutes in OND quarter
but only 41 mn in JFM and 39 mn in AMJ 2005. Given such a scenario, ISPs would
find the new annual license fee norms really hard to digest.
Besides that, ISPs are also unhappy that they will have to go
for NLD/ILD license if they want to offer VPN services. ISPs were earlier
offering this service without any license fee as these services were considered
part of their Internet service license.
Another sore point for ISPs is that they have now been
debarred from offering exclusive content services to their subscribers. This
essentially means that they cannot offer a service like Video on Demand. It is
difficult to understand the logic behind such a provision. And this will surely
restrict the ISPs' move to get into new businesses.
However, the new NLD/ILD norms would have a significant
impact on the bottom lines of existing NLD/ILD operators as the annual license
fee in both the cases has been brought down from 15 to 6% of Aggregate Gross
Revenue (AGR). The lowered entry fee would also mean that pure play mobile
operators like Hutch and Idea can have their own NLD/ILD service without putting
in much investment. All this can create more competition among the existing
players and, therefore, bring down the tariffs significantly. While the national
long distance tariff has already hit rock bottom, there might be a slight
decrease in that as well. There would be much more impact on international
calling rates.
Ravi Shekhar Pandey
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