ILD: Take It Easy

Remember how aggressive price drops seriously affected the ISP business?
Inadequately provided ISPs also contributed to loss of poor public perception
about their services. Absence of quality of performance standards made matters
worse. Now, with the government having permitted unlimited operators in the ILD
sector, ILD business also could move the same path. Hence it calls for a careful
and considered approach.

What the opening of the ILD sector holds for prospective operators and
customers, remains to be seen. Prima-facie, it is possible to establish ILD
business faster than any other telecom business in the operations sector. It is
presumed that the interconnect systems and capacities in them are available with
other basic and NLD operators.

Business Potential

India’s ILD business is about Rs 8,000 crore, based on VSNL’s annual
report. A new ILD operator will require about Rs 150 crore to begin with. (The
costing is indicative only. On actual tendering and negotiations, prices are
bound to become more competitive.) The operator should reasonably be able to
pick up at least 2 percent business, which is Rs 160 crore. After expenses, a
reasonable saving of Rs 50—60 crore should be a definite possibility. It is
presumed here that customer care set-up is either outsourced or combined with
existing customer-care facilities.

With international calling rates being far lower than what one pays in India,
domestic subscribers so far have looked for their friends and relatives to call
back. This means that global international carriers have to share a part of
their revenues with VSNL, which completes a call to any destination in India.
VSNL uses MTNL/BSNL landline network to complete the call and in the process
shares some revenue with MTNL and BSNL. So an ILD operator will be perforce
required to depend on some long distance and domestic operators to complete the
call. With 35 million basic subscribers with BSNL and MTNL, the prospective ILD
operator will be required to interconnect with BSNL and MTNL to complete
incoming calls and also to receive outgoing calls from local subscribers.
Similarly, interconnection with other operators will also be necessary and
perhaps mandatory. This is likely to add to the cost. Traffic dimensioning will
be an important parameter. Wide-spectrum telecom operators like BSNL/MTNL,
Bharti and Tatas will have an edge. BSNL/MTNL at this stage stands barred from
entering the service.

Of the Rs 8,000-crore ILD business, the US carriers pay an annual Rs 2,000
crore to VSNL.

The DLD Factor

The DLD business in India is worth Rs 15,000 crore. Intra-circle revenues
are accounted for Rs 8,000 crore. The balance Rs 7,000 crore is today’s
long-distance revenues for BSNL. This is for a subscriber base of 35 million
BSNL/MTNL lines and about 5.2 million cellular lines. (Most of the cellular
operators are carrying their intra-circle traffic themselves).

With the drop in STD rates by 62 percent, a revenue drop of about Rs 4,200
crore (7,000x0.62) is expected at the current calling pattern. If this amount is
to be bridged, the traffic has to go up by 2.5 times within the day working
hours. Will this happen? Will there will be capacities to accept this traffic
jump? There are no ready and convincing answers available. Low-tariff
long-distance traffic is anyway choked and does not have room to grow.

Additional capacities laid by private operators could possibly take the
traffic. However, these will depend on capacities created by private operators
in their long-distance systems in the required areas/routes and on the switching
and interconnect capacities.

A drop in overall DLD revenues is here to stay say at least for a year. With
the drop in ILD tariff, DLD traffic will also pick up. The ILD business is to be
seen in this context.

Outgoing and Incoming Traffic Revenues

Other ILDOs have announced 80 percent reduction in international leased line
charges and reportedly 50 percent reduction in ISD call tariffs. Final
destination-wise details are not available. For other ILDOs to carry ILD traffic
of MTNL and BSNL subscribers on the outward journey, interconnect agreements and
interconnect billing will have to be in place.

With the VSNL management changing, VSNL should already be offering tariff
concessions to BSNL and MTNL. BSNL and MTNL in turn will be offering tariff
concessions to their subscribers. However, if other ILDOs are to fill this
traffic themselves, much more will have to be done in terms of tariffs,
reliability and facilities. This refers to outgoing traffic.

The incoming traffic to be delivered to BSNL and MTNL subscribers by other
domestic ILDOs will reasonably call for TAX connectivity through other NLDOs’
switches. Enough information is not available as to the availability of other
NLDOs’ networks. Perhaps TRAI will be ensuring this and making information
available transparently. If VSNL also announces exciting cuts in ILD tariff then
how much of traffic of BSNL, MTNL subscribers will flow through other ILDOs’
network will remain to be seen. Subscriber education, their patience, new
billing formats, etc will be other issues, that will determine the shift of
traffic from the VSNL/BSNL/MTNL domain to other ILDOs/NLDOs.

With the advent of new ILD operators, call charges on the incoming leg could
become attractive for overseas caller. However, it is to be borne in mind that
such tariffs will include domestic leg charges within India. For example, BSNL
could price calls coming (for BSNL subscribers) through VSNL preferentially than
that being brought in by other ILDOs (this is already happening). Similarly,
BSNL could decide to charge additionally for the incoming leg for other ILDOs’
subscribers. BSNL and MTNL have a bigger fixed line subscriber base and will
reap the benefits of that. Perhaps other ILDOs will have mobile subscriber base
advantage. Time will tell.

Price War Looms Large

Increasing competition can trigger a price war and a possible ILD tariff
crash. Will call volumes offsets loss of revenue? Will the domestic long
distance support manage additional call volumes? Will TAX and NLD switches
survive massive call attempts? These are big questions. If the capacity is not
there, a drop in revenues is imminent. For some time there will be no winners.
And all said and done, it is difficult to overlook the commercial wisdom of
technocrats of BSNL, MTNL and VSNL.

Regulatory Issues: Technical

	A minimum of four international gateways, one in each region of the country (east, west, north and south), will need to be established. These international gateways should be of open network architecture (ONA). They should be based on internationally accepted standards to ensure seamless working with other carriers’ networks.
	These four international gateways should be able to deliver the traffic to all countries in the world. This shall be ensured through at least four direct routes, namely North America, Gulf, Europe and Southeast Asia, Far East and Oceania. (Wherever necessary, transiting facility will get deployed through agreements to reach destinations.)
	Other service providers (CMSP excluded) wanting to commence ILD services could use a portion of their prevailing switch to do the ILD functions subject to their meeting ONA functionalities. Separate TAX and gateway switch is not mandatory. However, separate accounts of both the operations has to be maintained and the switch cost has to be duly apportioned between the two services.
	ILD service providers are permitted to deploy circuit switched or managed packet switched networks to engineer their ILD networks. However, ILD service providers are also permitted to engineer lower than toll-quality network for the customers who do not mind some degradation in voice quality. The quality of service parameters shall be as prescribed by the licensor or TRAI from time to time. The toll quality will mean a mean opinion score (MOS) of four or above in a scale of 1-5. (When an ILD operator contracts for a lower quality service with overseas carriers for the purpose of economy, there could be issues in respect of their image for the basic operators who own the customers.)
	The subscriber should be made fully aware of lower than toll-quality network as well as lower tariff for the same. For outgoing purposes, a separate code as allotted by the licensor will have to be offered by the operator for such service. Low-quality overlay service will bring in its own complications and disagreements among ILD and interconnecting operators.
	ILD network should provide for an inter-carrier interconnect billing system based on the generation of call data records. (Billing will get complicated if an operator attempts to offer both IP based and circuit switched calls from same destinations.)
	ILD service provider may provide either himself or through access provider billing services to customers. For this purpose, suitable technical/commercial arrangements can be made with the access providers/national long-distance service providers. Reconciliation issues will be paramount.
	For interconnection with packet switched network of different service providers within India, relevant national standards are to be followed. For internetworking between circuit switched and VoIP based networks, the ILD service licensee shall install media gateway switches.
	The ILD service provider may enter into suitable arrangements with other service providers to negotiate Interconnection Agreements whereby the interconnected networks will provide the following : To connect, and keep connected, to their applicable systems To establish and maintain such one or more points of interconnect as are reasonably required and are of sufficient apacity  and in sufficient numbers to enable transmission and reception of the messages by means of the applicable systems, To meet all reasonable demand for the transmission and reception of messages between the interconnected systems.
	The ILD Licensee shall operate and maintain the licensed network conforming to quality of service standards to be mutually agreed between the service providers in respect of network to network interfaces. Particularly for IP-based networks, interface standards are yet to be announced by regulatory authority. Soon an independent testing body will also be required. Perhaps this will happen with time and as complications surface.

TRAI has not come up with security-related guidelines yet, pronouncing of
which may call for introduction of additional contrivances and with that added
cost.

Regulatory Issues: Commercial

	The licence for ILD service shall be issued initially for a period of 20 years, with automatic extension of the license by a period of five years, subject to satisfactory performance in accordance with the terms and conditions of the license particularly in regard to the quality-of-service (QoS) parameters.
	Gateways cannot be installed in security sensitive areas. As on date, the security sensitive areas are Punjab, J&K, northeastern states, border areas of Rajasthan, Andaman & Nicobar Islands, and coastal areas of Gujarat and Tamil Nadu (excluding Chennai).
	Foreign direct Investment (FDI) should not exceed 49 percent of the paid-up equity.
	License fee Rs 25 crore, unconditional bank guarantee of Rs 25 crore.
	The applicant company itself shall have a networth of Rs 25 crore. The networth shall mean as the sum total, in Indian rupees, of paid-up equity capital and free reserves.
	The networth of promoters shall not be counted for determining the networth of the company for this purpose.
	l In addition to the entry fee described above, the annual licence fee including USO, shall be 15 percent of the adjusted gross revenue (AGR). The licence fee shall be payable quarterly in advance.
	l The applicant company shall submit financial bank guarantee (FBG) of Rs 20 crore one year after the date of signing the license agreement or before the commencement of service, whichever is earlier, in the prescribed proforma given in the license agreement. The FBG shall be valid for a period of six months and shall be renewed from time to time for such amount as may be directed by the licensor. The amount of FBG shall be equivalent to the estimated sum payable for two quarters toward the license fee.

International Gateways: Space and Sea

For international traffic transmission, two media are available–satellite
and undersea fiber cable. Satellites are available in the Indian Ocean Region (IOR)
at locations of 57, 60, 62, 64 and 66 degrees east, in Atlantic Ocean Region (AOR)
at the location of 359 degrees east. AOR satellite carries American continent
traffic.

Undersea cables are South East Asia- Middle East-West Europe (SEA-ME-WE 2
& 3) and Fiber Link Around the Globe (FLAG).

If the ILD operator chooses satellite media for international gateway, the
best organization available is Intelsat. However, for the purpose of reliability
and economy, a fair mix of both the media will be desirable. The percentage of
traffic on these media will depend on traffic volumes for various
destinations/regions. It will be a complex matrix of tariff, call volumes, time
of the day, revenue share and returns. With fiber having enormous bandwidth and
with its reliability increasing as a result of agreements between various
undersea cable operators, tariffs are falling. Sooner or later, cable as a
medium could become reliable and cheap compared to satellite-based media.
However, the selection will depend on traffic studies.

Some Business Case Deciders NLD and basic operators interconnect tariffs Port charges Port capacities at load centers and their timely availability Alternate routing capacities and reliability and call quality Basic service operator’s ability to accept IP traffic and then extend its avaialbility across destinations Frequency charges

Random price drops without assessing investment requirements for interconnect
billing, currency fluctuation, intra-operator revenue sharing systems are some
of the possibilities that can adversely affect an ILD business. A technically
well-considered ILD set-up may significantly contribute toward making the
business a success.

P Hari Har Kumar (ITS)

former general manager, (specialist group), MTNL