The Hindu Business Line : A call ill-conceived

THE DEPARTMENT OF Telecommunications directive to Internet Service Providers (ISP) to discontinue within 30 days their Virtual Private Network service — a secure and cost-effective solution used by companies mainly for data transmission — appears ill conceived and gives the impression that it has been undertaken with the primary objective of protecting the revenue stream of Bharat Sanchar Nigam. It is intriguing that though the private ISPs have been providing this service (based on the Internet protocol) since 1999, the DoT should suddenly rule that they are in contravention of the terms and conditions of the ISP licence agreement. To compound matters, about a month ago, the DoT amended the ISP licence, mandating that VPN services can be provided only on the payment of a non-refundable entry fee, ranging from Rs 1 crore to 10 crore, and 8 per cent of the revenues is shared with the government. The new terms want to limit the VPN services to a `Closed User Group', specifically restricting third party traffic that is carried on the network.

This decision is retrogade on several counts. It undermines the business model of the ISPs after letting them develop a service that the DoT now finds objectionable. It is significant to note that all the ISPs have been submitting their VPN service tariffs to the Telecom Regulatory Authority of India (TRAI) for the past five years. Clearly, there has been no ambiguity about whether or not the VPN services fall within the ISP licence agreement. Even assuming that the DoT has the powers to make the policy change, it goes against the spirit of free and fair competition and enhances the prices for the consumers. International best practices across the US, Europe and Asia suggest that IP-VPN have been subject to minimum licensing requirements, if at all, to ensure that there are no entry barriers and the latest technologies are available at an affordable cost.

Even the size of the overall VPN market is quite small, hardly justifying any need to raise the regulatory costs for the ISPs. According to the IT research outfit, IDC, the overall size of the IP-VPN market was about Rs 230 crore in 2003 and is set to grow to Rs 1,140 crore by 2008. BSNL's fears that the VPN service is eating into its long-distance leased line market are vastly exaggerated. Given the relative size of the market and with at least half a dozen players in the VPN space, the competitive forces are bound to get user the best deal. At the same time, the entry fee and the revenue share have the potential to raise regulatory costs, when such levies are being reduced across-the-board for all telecom services. Given that standalone ISPs are struggling to stay in business, with only the corporate networking market (which includes VPN) proving profitable, the DoT needs to reconsider seriously its latest decision. Ultimately, revoking this guideline will also mean greater technological choice and lower prices for the customer, something that the Government professes it is committed to encouraging at all costs.

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