Will Internet telephony be a threat to telecom operators?

New Delhi: Though the national telecom policy (NTP) 2012 approved by the cabinet last week allows Internet service providers (ISP) to offer telephony over Internet, or voice over Internet protocol (VoIP), to ensure adequate competition in India’s telecom sector, industry experts are interpreting the move as too little, too late.

The launch of VoIP will also depend on how quickly the government follows through with more policy support.

NTP is a framework document based on which future telecom policy decisions are to be made by the government. If what is proposed in the NTP is allowed, the calls should be able to be carried on the service provider’s data network rather than the voice network at a cost of just a few paise. Currently, the average rate on voice calls is 30 paise per minute.

VoIP has the potential, by its ability to lower costs dramatically, to drive the next phase of penetration of communication services in India and also spur smartphone sales. However, a 23 April report by HSBC Securities and Capital Markets (India) Pvt. Ltd has argued that VoIP is still some distance away from being a major threat to telecom operators in India.

“Markets like India are very sensitive to affordability, and the slow pick-up in 3G (third-generation, high-speed mobile communication) is a reflection of the challenges the operators face to drive data take-up in an environment with no handset subsidies,” it said.

The report added that with Indian companies having among the world’s lowest tariffs, they are in a relatively better position of having learnt how to make money with average revenue per user close to $2-3 (Rs 110-166), besides which VoIP has quality issues. “This, in our view, limits the scope for damage that VoIP might do.”

India is a latecomer to the VoIP revolution—the first free long-distance voice call over the Internet was made in 1995. Currently, Indian laws only allow VoIP calls to a telephone in India under strict conditions. Only calls between computers within the country’s borders and between a computer in India and a telephone outside India are allowed.

Subho Ray, president of the Internet and Mobile Association of India (IAMAI), said that even if the service is allowed, the cost arbitrage between voice calls and VoIP calls is not as much now as it was before.

“The cost of other modes of communication has been going down and it would have made a much bigger dent had the service been allowed even three years back,” he said. He added that VoIP has been a huge success in China, which has had similar issues of underpenetration as India, because the service was launched there almost a decade back when Internet was at a nascent stage.

Apart from the business case of VoIP being questioned, many operational challenges remain.

Rajesh Chharia, president of the Internet Service Providers Association of India (ISPAI), said ISPs will have to shell out ₹ 15 crore for a unified licence to offer VoIP, which only a few “large ISPs can afford”.

A senior official of a mid-sized ISP said that first critical issues need to be sorted out such as determining termination charges, or how much a service provider will charge for a VoIP call that ends in its network.

“The terms put up by telecom service providers need to be feasible for us,” he said. “If they quote really high prices, then there is no point of VoIP at all.” The official did not want to be identified.

There has been an ongoing debate globally on whether VoIP has the potential to cannibalize voice revenues of telecom service providers. Though the government had allowed telecom service providers to offer VoIP a few years ago, none of the service providers started the services. “It was never their business case as it may have hurt their traditional revenues,” Chharia said.

However, there are still some advocates of VoIP, especially among ISPs.

C.V.S. Suri, chief executive officer of Sify Enterprise Services, said that provided the conditions imposed on ISPs are favourable, VoIP could do to Internet penetration what cheap calls did to mobile phones, at least in the rural areas.

“Voice is the common thread between both,” said Suri. While there are around 920 million mobile connections in the country, only 120 million people access the Internet. Moreover, Internet penetration in rural India is only five million, according to IAMAI data.

Internet access isn’t yet a value proposition that would make it relevant for the masses, Suri said. “VoIP could be the tipping point for Internet in India.”

Cheap calls through VoIP could be the key to people in rural areas being introduced to the Internet, said the official cited above.

While there is a strong chance that VoIP will get traction in rural areas, he maintained that it can’t be a substitute for voice. “There will be a huge cost in simplifying the service to that extent that it becomes ubiquitous.”

The cannibalization of voice is unlikely, agreed Hemant Joshi, partner, Deloitte Haskins and Sells. “In the developed markets like the US where you have a flat fee and unlimited usage of data and voice, most people are still using regular voice to communicate.”

He adds that there is a huge challenge as far as quality is concerned. There are other issues involved such as availability of cheap smartphones capable of providing VoIP. “Even in the developed markets, these challenges still remain,” said Joshi.

Suri of Sify is more optimistic. Though he refused to comment on whether the ISP will enter this space, he said the company is interested.

“It’s a combination of technology, convenience and access which will drive VoIP in the country,” said Suri.

surabhi.a@livemint.com