Net telephony now legal in India

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New rules that came into effect Monday have legalized Internet telephony in India, albeit with restrictions that may complicate multinational corporations' use of the technology to save on their telecommunication costs.

The regulations allow only ISPs (Internet service providers) to offer VOIP (voice-over-Internet Protocol) services. VOIP within the country is also restricted to communication between PCs and specialized IP-based terminals, except in the case of international calls where communication from a PC to a telephone abroad is allowed. The VOIP networks also have to operate independently of the domestic PSTN (Public Switched Telephone Networks), and VOIP calls cannot originate or terminate on a PSTN network within the country.

The corporate sector is likely to move to VOIP quickly. "We see this as a possible cost-reduction opportunity," said Sanjay Handu, senior manager-commercial and head of information systems at Bangalore, India, Tyco Electronics Corp. India Ltd., a subsidiary of Harrisburg, Pennsylvania, Tyco Electronics Corp. "At this moment studies are being done to see where we can apply this solution, and what comes to mind first is to access our national locations which are connected by WAN (wide area network) data links," added Handu. "The next step would be to consider deployment across international data links to access our international locations."

Although Tyco India has evaluated the technical feasibility of VOIP on its network, it is still working on the financials, because of the upfront costs involved in voice-enabling its data network. "We are looking specifically at the payback periods as it involves a fair amount of upfront investments that need to be justified against the potential savings on conventional long-distance telephony," Handu said. The government may be adding to costs by insisting that the PSTN network should be independent of VOIP services. "What that means is that I am going to have to keep two phones at each person's desk, one for PSTN calls, and the other for VOIP," Handu said.

Despite these restrictions, the legalization of VOIP in India is likely to offer a profitable revenue stream to India's flagging ISPs, according to Srinivas Rao, vice president for equity research at investment firm Rooshnil Securities Pvt Ltd. in Mumbai, a subsidiary of investment bank Edelweiss Capital Ltd., also in Mumbai.

"Of the total 490 ISP licenses issued, only 150 are currently operational in the country," Rao said. "Most business models of ISP operators had factored in e-commerce revenues, advertisement revenues, etcetera., but all that has almost vanished now." There are currently about 3.8 million Internet subscribers in India, and around 30 percent of these customers are expected to use VOIP in the next year, according to Rao.

Most ISPs in India believe that VOIP may be the next killer application after e-mail, that will attract more Internet users.

"After the 200 percent growth over two to three years, the Internet saw fairly flat growth over the last year," said Rajasekhar Ramaraj, chief executive officer of Satyam Infoway Ltd., in Chennai, India. "PC sales also saw an attendant slump. Internet telephony is likely to add a fillip to the growth rate in the coming year as many more new users come on to it, initially for telephony, and then graduate to other uses."

However, there are issues to be resolved before users start using VOIP in large numbers. "The primary limitation would be the operators' ability to offer reasonable voice quality on VOIP," said Rao. "Most of the ISPs have been running their services on a meager bandwidth." The government's decision to limit the availability of VOIP within the country to PC-to-PC communication only, and to PC-to-phone when communicating outside the country, is also likely to hinder the growth of VOIP because of the small installed base of PCs in India, according to Ramaraj.

"As PC-to-PC is just another application, this will result in increased use of bandwidth, and will not be charged for separately," Ramaraj added. " PC-to-phone calls abroad will be charged for, based on the agreements with international telcos and the costs involved. So growth in revenues will be incremental rather than substantial with the opening up of Internet telephony." The larger opportunity for ISPs like Satyam Infoway is through increased revenues from their cybercaf

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