The Hindu Business Line : Falling business forces ISPs to dial long distance

Struggling to survive
"Internet Telephony and Virtual Private Network services have been brought under the long distance licence. This has killed the ISP business in India."

New Delhi , July 8

Call it the Darwin's theory of evolution in telecom sector. While the beleaguered paging operators have long migrated to the more lucrative BPO segment, it is now the Internet Service Providers (ISPs) who are being coerced to evolve into the long distance telephony segment.

ISPs account for over 50 per cent of the new applications that the Government has received for a long distance telephony licence ever since the entry fee was brought down to Rs 2.5 crore early this year.

Out of the 17 new applications for national long distance licence, eight belong to Internet companies such as Sify, HCL Infinet, Hughes Network, Apaksh Broadband, Tulip IT, Dishnet Wireless, Aksh Broadband and i2i Enterprises.

And of the seven new applications for international long distance licence, four are from companies, which have ISPs for over a decade.

Dial-up segment

The reason for the shift in status among the ISPs is due to the unsustainable business model of a stand-alone Internet provider. Analysts pointed out that with the Internet dial up usage dipping 41 per cent ISPs can no longer depend on retail users for survival.

Even in the dial-up segment it is the large integrated operators BSNL, VSNL and MTNL who account for more than 70 per cent of the subscriber base. They also pointed out that some of the business segments that have so far been revenue earners for the Internet operators have been removed from the purview of their licence.

"The two most important services being offered by ISPs — Internet Telephony and Virtual Private Network services have been brought under the long distance licence. This has killed the ISP business in India," said a telecom analyst. Virtual Private Network (VPN) services which is used by large corporate and institutions to connect their offices across various locations, accounted for almost 40 per cent of some of the ISPs revenues.

Similarly, Internet telephony market has crossed 1 billion minutes, which has primarily been cornered by ILD operator Videsh Sanchar Nigam Ltd. "ISPs are facing what the paging companies had to when they were forced to quit their business after text messaging became part of the cellular services.

While the larger operators, who can afford to cough up Rs 2.5 crore are migrating to the long distance segment as a survival strategy, the fate of a few hundred other ISP licences hang in balance," said an executive from an ISP.

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