Much frenzy was noticeable in media coverage when Internet telephony got
legalized on 1 April 2002 and ISPs scrambled to offer the service. But six
months down the line, Internet telephony service providers (ITSPs) are finding
the going tough, with revenues not living up to the expectations and market not
maturing quickly enough. Reasons vary from lack of suitable end-user terminal,
poor voice quality, and above all, the menace faced by ITSPs from gray
operators.
So far, the Internet telephony service has brought in good yields to ITPSs
and has the potential to bring in more. Most of the ITSPs make around 20 percent
of their revenues from the service, Gujarat-based IceNet makes an estimated 50
percent. Service providers acknowledge that they have to exercise patience and
not expect magical returns. ITSPs have realized the pitfalls in the business,
revised their projections, and have taken corrective measures.
Many of the predictions made earlier on Internet telephony trends have stood
shattered. One, service providers expected businesses to adapt to the new
technology in a big way. However, most of them have rejected the services due to
the poor voice quality. Chirag Mehta, CEO, IceNet, says, "As it is,
businessmen have problems understanding the English spoken by foreigners. To top
it, poor voice quality makes business conversation almost impossible."
Besides, the steep downward revision of ILD tariffs has ensured that PSTN still
remains attractive for businesses. To improve quality, both HCL Infinet and
IceNet are now offering H.323 voice media gateways, which enable near
toll-quality voice. "Although it would entail a little additional
investment, we expect corporates to buy this service, as it would drastically
reduce voice communication costs," S Murali, CFO, HCL Infinet, says rather
optimistically.
Two, the home segment has emerged as a steady customer base, mostly
comprising people who have closed relatives abroad. Mehta terms them as ‘compulsive
users’ who need to talk at affordable rates everyday irrespective of the
quality of voice. This shatters the second myth about the addressable consumer
base. "In reality, the customer base for Internet telephony is very narrow.
Only those people who own a phone with an ISD connection and have close
relatives abroad are likely to use this service," MC Chaube, GM,
value-added services, MTNL, points out. For instance, of MTNL’s 2.5 million
customers, only 2 lakh have an ISD connection and only 20,000-30,000 people use
Internet telephony. Although a customer having an ISD connection has no bearing
on Internet telephony usage, it is nevertheless indicative of the need to
communicate overseas frequently.
Three, the industry had expected the policy guideline restricting calls
within the country to PCs only to be the major hurdle in the takeoff of the
service. But it was the cumbersome end-user terminals like headphones and
sound-boxes that deterred users. IceNet now vends locally developed headphones,
which can be fitted into the telephone to enable users to speak into the
existing phones without the extra headgear.
Lack of PC penetration also restricted growth. Murali says, "The
services have not taken off because we have mostly followed a device-driven
strategy. There is a need felt for alternate devices like the Yap Jack to make
the services pervasive." Yap Jack is a modem-like device fitted to the
phone, enabling users to make voice calls through the Internet.
Related issues like half-duplex sound cards, which allow only one-sided
conversations also created a blockade. "Upgrading existing sound cards
would involve an extra expenditure of Rs 3,500, which users looking at
affordable communication were reluctant to spend," a rational-sounding
Mehta elucidates.
Four, ITSPs thought that cheap Net telephony would stem the tide of the gray
market. But the gray market grew unabated, commanding as much as 70 percent of
the Rs 250-crore Internet telephony market. Gray cards of the US companies like
Net2Phone, Dial Pad, and Media Ring, enable calls to the US for as little as Rs
1-2 per minute as against an average of Rs 6 per minute offered by ITSPs.
Meanwhile, players like Sify, Data Access and HCL Infinet are insisting that
since customers utilize ISPs’ bandwidth, they should use their ITSP offerings
only. In case the ITSP happens to be somebody else, then there should be due
revenue sharing. ISPAI has been trying to broker peace, and ITSPs have now
agreed to a revenue-sharing formula. For this, call detail record is necessary,
which only an international service provider like Net2Phone can provide. The
association is currently in talks with Net2Phone, to work out an arrangement.
Amitabh Singhal, secretary, ISPAI, says, "The association has worked
towards the development of the sector by initiating the setting up of a
bandwidth exchange and by enabling an environment for sharing revenue."