ILD: Riders Are Many

In April, one might see the monopoly of VSNL coming to an end. Data Access
and Bharti Telesonic are planning to start ILD service by mid April and others
will follow soon. There has been an overwhelming response from service providers
to join VSNL in the ILD league as the entry barrier is low but the promises are
high in comparison to other telecom services.

At present, international traffic of India is estimated at 2.7 billion
minutes and the gray market is estimated at around one billion minutes. The
inbound traffic is around 2.1 billion minutes and outbound traffic is around
0.52 billion minutes. According to Telegeography 2002, ILD volumes are expected
to exceed 4 billion minutes in 2002, so the potential is very high. According to
Siddhartha Ray, managing director, Data Access, the Indian ILD market in 2002 is
estimated at around Rs 8,000 crore. Although ILD prices may fall drastically
with the launch of services by new service providers, the overall market is
going to increase as there will be a major shift from the gray market. Even due
to reduction in price, there will be a sudden increase in international traffic,
which will be proportional to percentage cut in international tariff.

To start an ILD service in the country, the government has fixed a one-time
entry fee of Rs 25 crore and an unconditional bank guarantee of Rs 25 crore,
which will be released as soon as rollout obligations are made. In addition to
the one-time entry fee, ILD service providers will be required to pay an annual
license fee including USO levy, which will be 15 percent of the adjusted gross
revenue (AGR).

Since the entry barrier is low, nobody wants to be left behind in the ILD
race. The capital expenditure is expected to be around Rs 100 crore, which
includes even the license fee and bank guarantee. Even the rollout obligations
are not stiff as one has to set up a minimum of four PoPs, one each in east,
west, north, and south, and the delivery of traffic to all countries in the
world has to be ensured through at least four direct routes.

Players in the Fray

Bharti Telesonic, Reliance, and Data Access have already got the license whereas
Aircel, Net4 India, Satyam Infoway, Spice Communications, Connecting Networks,
and others are still awaiting the LoI or still thinking when to convert the LoI
into a license agreement. It seems that Bharti Telesonic and Data Access will
get the first mover advantage as they are planning to start the service in
April. Aircel, the cellular service provider in Tamil Nadu has also applied for
the ILD license through partners Asia Tech Mauritius and Cellunet of India. Net
4 India is planning to fund the ILD operations through its promoters and
financial institutions. Estel Communications is planning to move along with
Fusion Telecommunications International, an international carrier in US. Spice
Communications is moving along with Singapore Technologies Telemedia
Communications, an ILD operator in Singapore. Satyam Infoway has listed Sterling
Commerce International and Government of Singapore Investment Corp as it
partners for the ILD project. Even MTNL and BSNL are firming up their ILD plans
so that they can be ready when the government gives them a go ahead to start ILD
service in the country.

Data Access, a JV of Spa and PCCW, where PCCW has 49 percent and SPA 51
percent stake, is planning to launch its operations in the third week of April,
according to Siddhartha Ray, managing director, Data Access. Even Bharti
Telesonic is planning to launch its service in April as the company has deployed
two international gateway switches from Siemens in Chennai and Mumbai.

The Network Plan

Companies coming from the traditional telecom background are planning to
start ILD service using the TDMA technology whereas the new service providers
will like to opt for the VoIP technology in order to roll out services at a
faster pace and even reduce infrastructure costs.

Although the incumbent’s network is based on TDMA, Data Access has opted
for a packed-based network. Industry insiders say that Reliance too is planning
for a VoIP network. On the other hand, Bharti Telesonic is planning for a TDMA-based
network to start with and later on deploy a VoIP-based network so as to have a
mix of both. Service providers coming from the ISP world will deploy VoIP
network as they already have an existing IP network which has to be voice
activated.

According to Vijay Yadav, country manager, CommWorks India, service providers
in ILD should start with IP and then move to a hybrid network as services
deployed on IP are less costly and there is a lower risk of failure. ILD
networks of future will be a mix of IP and TDM as only TDM or IP will not
survive in the long run, he adds.

Service providers have to be very careful while choosing the partner carrier
for different routes. According to Sharat Jain, regional director, BCE Teleglobe,
they have to choose the partner for a particular route by comparing the
different carriers settlement rates.

The Pricing

Recently, TRAI reduced ILD tariffs by around 20 percent. For example, a call
from India to the US is presently Rs 40.80 per minute (based on Rs 1.20 per
pulse) whereas earlier it used to cost Rs 49.20 per minute. But it seems that
Bharti is looking at a US tariff of around Rs 25 per minute. It seems that even
Data Access is working on a tariff plan ranging between Rs 12 and Rs 15 per
minute for calls originating from India to anywhere in the world.

Every service provider, with the launch of its service, will like to beat the
competition. So one can see a lot of downward movement on the ILD tariff front.
Companies that can keep their operation costs to the lowest and play in small
margins of less than 5 cents will be winners in the long run and will get the
maximum share of the pie. Service providers have to focus more on the quantity
front as the margins will be wafer-thin in future. Not only in voice but also in
data, one can see the prices coming down by around 50 percent.

The Issues

Most of the service providers are still in a dilemma whether to go for the
service at the earliest or to wait and watch till the policies are announced or
fine-tuned. The interconnect policy is not out yet and one has no clue about the
revenue sharing terms and conditions for termination and origination of tariff.
To start with, new service providers can only terminate the call outside India
but origination will be a problem which has to be sorted out. Connectivity to
FLAG is still not finalized as VSNL has not come out with the access charge plan
for service providers.

Commenting on the issues related to ILD, Umang Das, managing director
(corporate), Spice Communications, said, "Before the rollout of
infrastructure, one has to get the numbering plan whereby the customer can
choose his international long distance carrier and whether BSNL is ready for its
implementation. Second, TRAI has to come out with an interconnect agreement for
ILD which will specify the revenue sharing agreement between FSPs and CMSPs with
ILD operators in the country."

Both these issues will result in delaying the launch of ILD service in its
entirety. TRAI has come out with a draft of reference interconnect offer.
Service providers have to make specific suggestions and once the suggestions are
received they can be looked in entirety before finalizing the interconnect
agreements. One can expect the agreement to be ready only by last week of April
or in May.

When the government disinvested its stake in VSNL, it committed that VSNL
will remain the most preferred ILD operator for BSNL and MTNL for two years. The
government has also said that this will be under the condition that VSNL
competes with other ILD operators in terms of quality and price. In order to get
a good valuation for VSNL the government has provided a two-year lock-in period
to VSNL for routing ILD traffic of BSNL and MTNL. Das feels that this
arrangement is not good for operators as well as subscribers as all the outgoing
calls through the incumbent will be either through the customer choice or
through default traffic which can be passed to VSNL, provided it is
competitive."

To start with, the new service providers can only terminate traffic from
different countries to India. Data Access has signed interconnection agreement
with BSNL for termination of traffic to India but for call origination, the new
service providers are left with only private basic service providers and
cellular service providers. About routing of BSNL and MTNL traffic, there is
still no clarity on how new service providers can cater to that market. The only
option is carrier access code but BSNL exchanges are not carrier access-ready.
So the subscriber won’t have the option to choose a service provider for at
least a couple of months.

On the submarine cable front, VSNL has still not finalized the access charges
for connecting to VSNL as currently the landing station is located in VSNL
premises. One is still not sure when VSNL will come out with the charges and how
cost-effective the charges will be.

In fact, ILD providers are looking at the market very cautiously and are
planning not to implement ILD services unless and until interconnect agreements
are finalized.

Pravin Prashant

"VoIP of CD quality will be there soon"

Elon A Ganor, CEO and chairman of Board, VocalTec Communications Inc

How
do you find the VoIP market in India?

A. India is an interesting market in terms of size, tele-density, and
potential for growth. With the ILD market being deregulated in India, VocalTec
technology perfectly fits in this emerging market because of its cost
effectiveness. We are very much committed to this market and we are working very
closely with our local partner, the Nirvana Group.

How do you compare the Chinese and Indian markets?

A. The China case is closest to the India market and I fully appreciate the
uniqueness and differences between the two markets. I think over the next few
years there will be a tremendous growth in India and prices will continue to
drop for both ILD and NLD. By reducing the barrier for entry, more and more
carriers will come. This will result in an increase in tele-density.
Deregulation of the Indian market will help in the development of new
technologies.

What is the status of VoIP deployment worldwide and how will India be
benefited?

A. VoIP has nearly fulfilled its promise in 2001. Around 6 percent of the
world ILD business is transmitted over VoIP equipment in comparison to 3.8
percent in 2000. It is expected that it will reach 10 percent in 2002. VoIP is
important and is only second to mobile telephony and is also considered to be
among the two most important drivers in the last 50 years. But this is only the
beginning. TDMA is not growing but there is a serious growth in VoIP.

For phone services to villages, VoIP can do a great job and help in improving
infrastructure in uneconomic areas. VoIP can be deployed in both NLD and ILD
space. In the next few years, we will see VoIP deployment by basic service
providers leading to drop in prices.

What is the return on investment (RoI) for VoIP on the ILD front?

A. Using VoIP, a serious player can amortize the equipment quickly as
VoIP equipment is cheaper than TDMA. Using VoIP, one can quickly change the
dialing plan and the routing table as it is much easier in comparison to TDMA.

Any plans on setting up an India office?

A. We will not set up an India office immediately but we will have a local
presence through Nirvana Group. We will definitely look for collaborations with
system integrators based in India.

How do you look at the future of VoIP?

A. During 1995-96, there was a quality issue but now I can guarantee
that voice quality through VoIP is as good as toll quality and even better in
many cases. I predict that in not so distant future we can get VoIP of CD
quality, something which you can never do in TDMA as one is handcuffed with the
64-kbps paradigm.