Rethinking telecom

Last fortnight, this column dealt with the regulatory problems faced by the Tatas' telecom business. There is, however, another major change taking place globally, and that will affect not just the Tatas but everyone who derives large revenues from long-distance telephony.

Till some time back Voice over Internet Protocol (VOIP) was done only on your PC/laptop and so, though it did slash costs, it was always cumbersome.

Now, you can now do internet telephony through your normal phone, by using an adaptor that companies such as Vonage offer free with their services, which cost as little as $14.99 a month, including 500 minutes (www.vonage.com) of free international calls anywhere in the world, and then a very low fee for additional calls (5 cents to Singapore, for instance).

Indeed, companies like Vonage allow you to plug in your adaptor into any broadband network, and once you connect your phone to it, you can receive a call in New Delhi even if a call is being made to your number registered in New York-- Vonage has around a million subscribers already.

According to Harvard Business Review, around 10 per cent of all international phone traffic now travel on VOIP and, according to the IDC, which has been quoted in a recent issue of The Economist, the number of residential VOIP users in the US will grow from 3 million now to 27 million by the end of 2009; another firm (iSuppli) estimates that the global VOIP base will rise to 197 million by 2010.

These numbers, by the way, do not include the number of people who use VOIP without subscribing to a service like Vonage but just download free software from companies like Google or Skype and make PC-to-PC calls-- Skype (developed by the founders of KaZaA, which allowed you to download free music) itself has 54 million users.

Which is why eBay has bought Skype for $2.6 billion and has promised another $1.5 billion if it is able to grow to certain levels by 2009. And it's not just eBay, Microsoft has bought Teleo, which offers similar services and Yahoo! has already bought Dialpad.

This is also why long-distance telecom firm AT&T's own VOIP service CallVantage advertises savings of 50 per cent for its $29.99 per month plan. Indeed, AT&T has a case study of how it has saved $180 million a year by using VOIP, which increased productivity by 12.5 per cent.

Ironically, while mobile phone firms are betting heavily on 3G technology, which allows high-speed internet browsing, this will further kill the market for long-distance calls because users will be able to use Skype/Vonage on their mobiles without even a broadband-adaptor.

All this is not to say that the market for telecom is dying, merely that it is changing dramatically. What's interesting, however, is that much of this revolution will just pass us by, going by current policy.

While you and I can download Vonage, for instance, we can do it only for making PC-to-PC calls within the country-- we can also dial phone numbers in the US using our PC, but we cannot use our phones to make internet calls, nor can anyone in the US use VOIP to call on your phone line.

There are, of course, various reasons why you and I cannot be allowed to use VOIP in the manner it is meant to be used. For one, the government levies an access deficit charge (ADC) on all long-distance calls, ranging from 30 paise to around Rs 3.50 per minute, so if VOIP is allowed, this will get hit.

The other reason is that telecom firms here that have long-distance licences will see their turf disappearing, which is why, for instance, the incumbents have opposed a new proposal by the government to dramatically lower entry fees and other obligations.

In January this year, Trai calculated that the residual value of the entry fee paid for the national long-distance (NLD) licence was Rs 85 crore (Rs 850 million) and that of the international one was Rs 22 crore (Rs 220 million)-- so, Trai calculated that Rs 107 crore (Rs 1.07 billion) would be the entry fee for anyone who wanted a unified licence to offer NLD/ILD services.

This would also allow genuine VOIP of the Vonage/AT&T/Skype type, but has never been acted upon. Interestingly, the country's three NLD firms have asked for a compensation of Rs 2,805 crore (Rs 28.05 billion) in case entry barriers are to be lowered as per the new proposal.

Another move being opposed is "number portability", which would allow a Hutch subscriber, for instance, to move to a Reliance network while retaining the Hutch number, and vice versa.

While the mobile players want it to be done on fixed lines first, where BSNL and MTNL control well over 90 per cent of all phones, in keeping with its policy of protecting government players, Trai wants this to begin in the mobile space! In other words, if the customer here is looking for increased competition in areas where there is none, it isn't going to happen in a hurry. At least, not legally.