Advertisment

INTERNET TELEPHONY: A Mixed State of Affairs

author-image
VoicenData Bureau
New Update

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.

Advertisment

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.

Advertisment

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.

Advertisment

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."

Balaka Baruah Aggarwal



CNS

Advertisment