RealTime IT News

Indian ISPs Still Face Barriers Despite Market Opening

India's Internet policy has thrown open the doors to private Internet service providers (ISPs) and has given them the freedom to fix tariffs.

It allows a maximum 49 percent foreign equity stake and waives licenses for the first five years of the ten-year validity of the license.

But at a recent ISP conference in Bombay, some ISPs felt that there are still a few barriers to be cleared. With over 200 contenders, there's going to be quite a crowd leading to 1.5 million Internet connections after two years.

ISPs continue to face barriers when obtaining resources like leased line upgrades, VSAT connectivity, and pricing for E1/T1 lines from Mahanagar Telephone Nigam Ltd., Videsh Sanchar Nigam Ltd. (VSNL) and Department of Telecommunications.

"The DoT gets Rs 25 ($ 0.58) per hour from an ISP's customer plus the bandwidth cost from the ISP. An ISP gets just Rs 20 (US$ 0.46) per hour from the subscriber. How can this pay for the infrastructure and bandwidth cost?" questioned a participant. "It is unfair. Clearly, there is no level playing field."

As per the policy, the ISPs would be free to fix their tariff though the Telecom Regulatory Authority of India (TRAI) which may review and fix tariffs at any time during the validity of the license.

The policy states that while Internet access will have to be routed through VSNLs gateway, it permits direct inter-connectivity between two separately licensed ISPs. It has, however, not permitted voice calls over Internet.

The ISP policy also states that licenses will be available for three service areas of A, B and C categories.

Category A will be a single national license, the ISP could provide services throughout the country.

Category B will be a secondary switching area license, interested ISPs can provide service in one or more of the 300 notified areas in the country.

Category C will be a specific city license.

To cater to the huge anticipated traffic on account of the Internet, the DoT is planning a national infrastructure backbone, where all small players could hook up. Alternatively, the ISP can choose to set up its own backbone.

The policy also states that license will be valid for an initial period of 10 years which could be extended for five years or more at a time.

A licensee of a Category A territory will have to furnish a performance bank guarantee (PBG) of Rs 25 lakh (US$ 58,700) per license.

The Category B service area includes secondary switching areas (SSAs) of DoT. There are several SSAs in each telecom circle.

The SSAs of metro telephone districts have, however, been excluded from this category. A licensee of Category B territory will have to submit a PBG of Rs 10 lakh (US$ 23,500) per license.

The category C service area includes cities and localities covered by a local exchange system of DoT. An ISP operating in a Category C area will have to submit a PBG of Rs 5 lakh (US$ 11,700) per license.

The existing and potential VSAT service providers can obtain a single ISP license covering the entire country as they will provide internet service to big corporates.

The existing VSAT service providers are required to submit a PBG of Rs 2.5 crore (US$ 5.86 million) for obtaining an all India internet service license.

As an industry observer pointed out, with a mammoth bank guarantee (Rs 2 crore-US$469,200) and expertise in setting up infrastructure at the national level, Category-A licensees have a heavier load on their shoulders.

Rahul Thapan, national manager (Telecom & Internet solutions), Tata Infotech, agrees. "The Category-C ISPs do not really understand how to put together systems. They will provide basic services like e-mail and content development."

The real bucks will come from corporates, says an industry analyst. Business opportunities will come from organizations that are looking at interconnecting their branch networks or setting up intranets.