Plans to liberalize India's voice over Internet Protocol (VoIP) market are likely to unfold only after the government finalizes its auction for the country's 3G spectrum, which has also been postponed indefinitely.
In August 2008, the Telecom Regulatory Authority of India (TRAI)--the country's telecom regulator--submitted its recommendations to allow unrestricted VoIP services. However, the Department of Telecommunications (DoT), which is housed under the Ministry of Communications and Information Technology, has yet to give its approval for the proposal.
While other countries have embraced VoIP, the technology was banned in India until April 2002, when the DoT partially opened up this market. Rather than approve unrestricted VoIP services, the Department permitted the sale of calling cards within India and abroad.
"This [sale of calling cards] allows subscribers to choose any operator to route their long-distance calls," Manesh Patel, partner of telecom practice at Ernst & Young, told ZDNet Asia in an e-mail interview. "Though this increases the level of competition between operators, it does not provide an entry to ISPs (Internet service providers) in the long-distance calling market."
ISPs in India are currently allowed to offer Internet-based calls, subject to restrictions. For example, calls can be made between two PCs--one located in India and the other in a country outside India. Calls can also be made between a subscriber with a VoIP phone in India, and a subscriber with a similar device in any other country. Internet-based calls can also be made between a PC located in India, and a fixed or mobile number in another country.
If recommendations from the TRAI had been accepted, consumers would have been able to call through the Web directly to fixed-line and mobile numbers across India, and vice versa. They would also have been able to do so either through the PC, a VoIP phone, or from a landline fitted with a Web-enabled device.
Threat to revenues
Permitting the VoIP market to operate without restrictions would substantially bring down prices of domestic long-distance and international calls, analysts said. As it is, at 2 cents a minute, India has the world's lowest call rate.
"With the liberalization of VoIP, you will see the entry of new players and this will lead to drop in prices of international long-distance calls," Nupur Singh Andley, senior research analyst for connectivity at Springboard Research, said in a phone interview.
However, she noted, the VoIP market will likely only be fully deregulated when 3G and WiMax technologies gain wider acceptance in India.
"The government is not likely to clear unrestricted VoIP prior to the auction for 3G spectrum. 3G is a hotter topic, as of now," Andley said.
On Jan. 28, the Indian government referred a proposal to auction 3G spectrum to a group of ministers. According to industry sources, this committee of ministers has yet to be established. They noted that the 3G auction is unlikely to proceed before the new government is elected in mid-2009.
Patel added that another reason for the delay could be that "operators fear they will lose out on their sizable long-distance revenues once Internet telephony is allowed".
In fact, mobile operators last August described the TRAI's recommendations as unfair. T. V. Ramachandran, director general of the Cellular Operators Association of India (COAI), said then: "If ISPs want to provide telephony [services], they should pay US$339 million (INR 16.5 billion) for a universal access service license. Now, they have been given the right on a platter and it violates the level-playing field norms. The government is following the populist bandwagon."
Naresh Chandra Singh, principal research analyst at Gartner, agreed that issues over licensing and fees need to be resolved.
"However, most large telecom operators already have their own ISPs," he told ZDNet Asia in a phone interview.
Consumers hardest hit
A fully deregulated VoIP market would provide various benefits. IT-ITES (IT-enabled services) companies, for instance, can further reduce their telecommunication costs and India's PC penetration will be boosted.
Andley said: "It would also lead to growth of various other access devices, such as VoIP phones, and new innovations for the rural areas."
Patel added: "Allowing Internet telephony can also lead to a situation where operators offer a flat monthly rate to subscribers, for a fixed number of minutes of long-distance calls. At a later stage, they could also offer unlimited calls for a fixed rate. It would, in essence, replace the current practice of billing by-the-minute for subscribers."
Singh said: "PC penetration will certainly drive this technology and bring out new innovations like a community center, similar to a public call office (PCO)." He added that existing PCO operators would also be encouraged to start offering Internet calling services in addition to the regular long-distance calling services.
However, VoIP alone is unlikely to drive PC penetration.
"We need to understand that using a PC is a lot more complicated than talking on a mobile phone," Patel said. "For PC penetration to rise sharply, we require higher literacy rates and a drop in the prices of PCs."
In addition, Internet telephony requires higher broadband penetration. Singh said: "You can't have VoIP over narrowband connection."
"As of today, the regulator is trying to sell an omelet without an egg," he said. "The broadband industry should grow first. And post that, it would make more sense to liberalize the VoIP market."
Swati Prasad is a freelance IT writer based in India.