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Friday, Sep 13, 2002

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Calling New York cheaper than dialling Delhi?

Varadharajan Sridhar

THE recent announcement by the private International Long Distance Operators (ILDOs), Bharti Telesonic and Data Access, has sparked a price war in international call rates. A call to the US will soon cost Rs 24 per minute compared to the existing Rs 40 per minute. VSNL has followed suit and announced a similar reduction.

There are many reasons for the recent action in the ILD segment. First, international bandwidth has become very cheap and abundant today. Thanks to international bandwidth providers, such as FLAG and Global Crossing filing for bankruptcy and trying to sell their assets at cheap prices. There is more international bandwidth compared to domestic bandwidth.

Bharti, with its recently commissioned submarine cable-based international gateway at Chennai, has the necessary infrastructure to compete effectively with VSNL for the ILD subscriber segment. With VSNL's monopoly over the use of the international submarine cable operator, FLAG, over, Reliance has shown interest in acquiring assets of FLAG.

Second, the Internet Telephony Services guidelines made effective from this April 1, which legitimise the use of PC-to-PC calls and PC to phone international calls, is expected to provide competition to ILD services. The Internet phone calls, priced at Rs 7-8 per minute to the US, will offer much flexibility and alternatives to subscribers for making international calls. Recently, MTNL announced the launch of its Anmol Internet service which offers Internet Telephony calls to the US, the UK, Canada, Singapore and Australia at Rs 4.80 per minute.

One more reason for this competition is the low entry barrier for ILD licences. The ILD operators have to pay just Rs 25 crore as the entry fee with minimum roll-out obligations. The technology-independent approach adopted in the ILDO licence allows service providers to deploy either circuit switching or packet switching technologies. This allows for toll quality and near toll quality services, providing flexibility to ILDOs to package quality and price offerings accordingly.

There are other implications with respect to International Accounting Rate System (IARS) as well. PC to phone international calls, routed through the public Internet by the ITSPs from the originating country to the destination country, will bypass the IARS. The volume of Internet telephony international calls is expected to increase dramatically with service providers deploying networking devises that improve the quality of calls.

Especially for developing countries, such as India, which witness high international voice call tariffs, there is a huge incentive for customers to dial up from their PCs and pay 10 per cent of the normal circuit switched telephone call price. However, the guidelines also state that terminating connection to any public switched network in India and terminating voice communication to telephones do not come under Internet Telephony service. This prohibits ITSPs from setting up Internet to Public Switched Telephone Network (PSTN) gateways in India. This effectively means that all calls coming in to India must go through the ILDO networks and, hence, will be accounted in IARS. The result will be an increase in the difference between the incoming and outgoing calls, leading to increased "net settlement" for Indian ILDOs, which again can be passed on to the Indian subscribers in the form of reduced call rates.

However, ILDOs do not reach the end subscribers and have to depend on basic telecom service providers and cellular mobile service providers for originating and terminating the calls. Traditionally, ILD rates in India have been high, compared to the rest of the world. In the monopoly regime, the ILD and the national long distance (NLD) revenues are used to cross-subsidise basic telecom services.

BSNL, the erstwhile monopoly, used to get a large revenue share from VSNL for originating/terminating ILD calls. With competition in basic and NLD services, this trend is not likely to continue. BSNL, which owns more than 90 per cent of the basic telecom subscriber base, is likely to demand a large part of the revenue share for originating and terminating ILD calls from ILDOs, and has already indicated so. If the revenue share to the basic telecom service provider is high, this will eventually increase the cost of ILD calls and, hence, the prices for the end consumers.

Differences also exist between Internet Telephony Service Providers (ITSPs) and Internet Service Providers on the issue of revenue sharing for carrying Internet phone calls and this has delayed the benefits of Internet telephony.

So, it will not be surprising if calls from Chennai to New York get cheaper than calls to Delhi, thanks to technology independence, multiplicity of service providers, and low entry and licence fees.

(The author is Associate Professor, Information Technology and Systems Group, IIM-Lucknow.)

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