VPN: Crisis Time

Not a long ago ISPs in India were facing a crisis of existence. Except for a
few who had reinvented themselves as providers of value-added, enterprise
connectivity services, most ISPs could not stand up to competition from the more
resourceful telcos. It is these survivors who are now in the middle of a crisis.
Thanks to a recent Department of Telecommunications' (DoT) order that not only
imposes an annual license fee and a onetime entry fee on ISPs offering VPN
services but also says that the current ISP license condition do not allow them
to offer VPN services. The wording of the DoT order is interesting. It says that
it intends to, "extend the scope of the license conditions of Internet
service providers (ISP), thereby allowing them to provide managed virtual
private network services to corporates and individuals." What is more, it
says the new order will 'help' the ISPs by ultimately "adding to their
revenue stream from Internet access services."

Clearly, the DoT order concludes that the existing license conditions of the
ISPs do not allow them to offer VPN services to corporates and individuals. As
such, the ISPs now must get their license conditions changed by paying a
onetime, non-refundable entry fee (Rs 10, 2, and 1 crore for ISPs of categories
A, B, and C respectively) and annual license fees (eight percent of the gross
revenue generated). DoT has written to the Telecom Regulatory Authority of India
(TRAI), asking it to disallow ISPs from providing VPN services under the present
ISP license.

Obviously, all this has left the ISPs agitated. If implemented, the new
conditions have the potential to destabilize the entire business of the ISPs
because, for many, VPN has emerged as a key revenue earner. It is a fact that
all these years ISPs have been offering VPN services as they always thought that
scope of the current license enabled them to do so. And in all these years
neither DoT nor TRAI raised this issue.

Small player: Big burden

However, DoT suddenly thought otherwise. As the notice itself claimed, a
high-level DoT committee had examined the matter and had observed that such VPN
services were not under the scope of the present ISP licenses.

ISPs contend otherwise. They assert that their existing license conditions
always allowed them to offer VPN services. Hence there is no question of
extending the scope of their license conditions as has been said by the DoT. In
a representation to Dayanidhi Maran, minister of communications and IT, the ISPs
have contended that the existing license enables them to establish, maintain,
and operate all types of Internet access/contents service. They say that it is
relevant to state that the only exclusion initially was telephony on Internet.
However, subsequently the same has also been enlarged by allowing telephony on
Internet, thereby implying that there is no restriction of whatsoever nature
under the license upon the licensees to provide Internet access/contents
services.

The ISPs have alleged that the proposed license fee is the result of BSNL's
efforts to scuttle competition as it has lost out in couple of tenders to
the other ISP's for providing VPN services. However, BSNL officials deny this
charge and say the issue has been raised by DoT and they have nothing to do with
it.

It should be noted that the ISPs are currently providing VPN services to
several critical industries. ISPs fear that the current DoT notification would
seriously work to the detriment of such consumers, thus adversely impacting
crucial services like online railway reservations, online banking, supply-chain
management of manufacturing companies, and even the information
technology-enabled services-all of which may come to grinding halt.

ISP Association of India, the umbrella body of ISPs in the country, is
hopeful that things would end on a positive note for them and they will go for
legal action only as a last resort. However, in case things happen otherwise and
ISPs have to comply with the new order, they will have to rework their entire
business model. As the standalone ISPs buy bandwidth from the telcos like BSNL,
the new conditions would only be an additional burden on them and make them less
competitive.

Ravi Shekhar Pandey