The Hindu Business Line : Making VPN services cost-effective for users

A VIRTUAL Private Network (VPN) is the interconnection of geographically dispersed sites across public networks such as the Internet. It provides secure transmission of information and guaranteed quality of service levels, and is a cost-effective alternative to private leased line networks offered by National Long Distance Operators (NLDOs), Basic Service Operators and Infrastructure Providers (IPs). Though various protocols in the computer communication hierarchy can be used to provide VPN services, the Internet Protocol (IP) is the most widely used.

The VPN service offered by Internet Service Providers (ISPs) recently became a contentious issue, and Department on Telecommunications has decided that this should be treated as a new service, requiring amendments to the ISP licence.

It must be noted that the DoT issued guidelines on December 16, 2004 that allowed provision of VPN services by ISPs with an annual licence fee at 8 per cent of the adjusted gross revenue generated under the license and one-time entry fee of Rs 10 crore, Rs 2 crore and Rs 1 crore for category A, B and C respectively. However, subsequently, the Internet Service Providers Association of India (ISPAI) filed a petition against this before the Telecom Dispute Settlement Appellate Tribunal (TDSAT), which referred the matter to TRAI.

In in its recommendations released on August 16, TRAI has proposed nil entry fee and nil annual licence fee for IP-based VPN services. The argument is that IP-based VPN service is an integral part of ISP services and, hence, there should be no separate licensing conditions.

VPN can be thought of as an application (similar to Internet telephony or Voice Over IP) that provides secure and quality transmission of information over the public Internet. The intelligence of security and quality of services are normally deployed in devices at the customer's premises.

The Internet acts as a "stupid network", just passing information as bits without worrying about whether it is voice, data or video, or if it is secure or not. This property of the Internet provides scalability as new applications evolve.

Apart from Internet telephony, efforts are on in the Internet Engineering Task Force (www.ietf.org) on other applications such as video multicasting, global scheduling and calendaring, and distributed authoring over the Internet. Companies such as Narrowstep.com have started providing Television through the Internet, called IPTV.

Radio stations such as apnaradio.com broadcast their programmes through the Internet.

The moot question is if VPN services are licensed, do we then add a licence for each Internet application being discovered? This is against the egalitarian philosophy of the Net. Any policy should be technology-neutral so that it stands the test of time.

The cost advantage of VPN over private leased line network comes primarily because it offers services over a public network.

A new licence that requires upfront entry fee for provisioning of VPN services will erode the cost advantage being offered by VPN and hamper the deployment of this superior technology.

The pressure for considering licensing of VPN services is due to the fear that it takes away business from other leased line operators such as NLDOs (predominantly the government-owned BSNL). The reality is, however, otherwise.

Most of the ISPs still use the existing leased line infrastructure provided by NLDOs or IPs. Hence, part of revenue earned by the ISPs goes to such operators and, in turn, enhances their revenues. Hence, the government must adhere to TRAI's recommendations so that VPN services can provide a cost-effective telecommunications alternative to user organisations.

However, there are certain lessons to be learnt by ISPs as well. ISPs have found, the hard way, that it is not enough to get a licence by paying Re 1. Though some 437 ISP licences were issued by December 2000, only a handful of ISPs have significant business and presence in the market.

In fact, the low licence fee has also been a curse for ISPs. Most of the basic, unified access, VSAT and Multi Service Operators obtained ISP licences by paying the token fee and are able to bundle Internet service with their other services. Hence, the standalone ISPs face intense competition.

By now, the ISPs have realised that getting a licence alone is not enough. Apart from price, customers expect good service quality. If the ISPs have to build a robust business model around VPNs, they should offer services that meet the requirements of users, especially in terms of response time and security.

ISPs often complain that 60-80 per cent of their VPN/ Internet service revenue goes towards the cost of lines leased from facility-based operators and, hence, cuts into their bottom-line. With competition in the domestic bandwidth from IPs, NLDOs, basic and unified access operators, the leased line prices are expected to drop further.

The existing licence allows ISPs to establish their own transmission links within their service area if such capacity is not available from authorised agency.

In fact most of the ISPs do provide last-mile linkage to their network points of presence with their own transmission facilities. The regulator and the government must modify this interconnect agreement suitably so that the ISPs will also be able to set up their own networks in case they are `bullied' by the incumbent leased line providers.

With no entry barrier and improved quality of service at reasonable cost, Indian VPN services might get a breather and survive.

(The author is Professor, Information Management, at the Management Development Institute, Gurgaon.)

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