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

“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

Rahul Thapan, national manager (Telecom & Internet solutions), Tata
, 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.

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