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Kripa Raman

A call from Chicago appears like it has originated from Muzaffarnagar, India. Intriguing, you think. Downright illegal, feels the telecom service operator. Here's more on the international long distance scene where rules are flouted and the grey market rules.

THE international long distance (ILD) telephony market in India appears to be an increasingly scattered and messy one, one that appears to threaten the health of several or even all the players in the field.

With the introduction of competition two years ago, when the monopoly of the Videsh Sanchar Nigam Ltd(VSNL) was lifted, and with the introduction of Internet telephony in a limited manner, tariffs per minute have crashed to levels cheaper than the cost of a matchbox.

Just how much lower can the market go from Rs 1.60 a minute, asks the chief of a large integrated telephony services company. Just such a tariff was announced by World Phone Internet Services that has introduced VoIP-based telephony services under which international prepaid cards are being offered with outgoing tariff to the US at Rs 1.60 per minute.

Just sometime before this announcement, another Indian VoIP player, the Mumbai-based Anyuser Telecom (India), which is a subsidiary of Korean Internet communications company Anyuser.Net, had announced a US outgoing tariff at Rs 2.35 per minute, calling it the lowest in the market. (The regular (switched telephony call rate) is around Rs 7.20 per minute to the US, and the standard IP telephony rate to the US was Rs 4 per minute before these announcements.)

Anyuser India company also recently made available `Global Roaming' services at `very low costs', pitching itself against roaming services provided by mobile players. Additionally, the prepaid global roaming cards can be paid for in rupees.

It also offers VoIP solutions for corporates and multiple users, offering something called Direct Inward Dialling where an organisation sitting in India can receive unlimited incoming calls from a country such as the UK for just Rs 1,200 per month. The company also offers its own branded IP phones (one can use this to make outgoing VoIP calls) and gateways in India, and is on its way to introducing public phones as well.

The chief of the company, Vinay Kalantri, says the company has 200 enterprise customers and more than 1,000 retail shops already offering its services.

These rock bottom rates have punched a big hole in the market for the regular (switched telephony as opposed to Internet telephony) players. (One must not forget that there are switched telephony players who use IP protocol for transmitting calls). To compound the confusion, there is a huge grey market in regular ILD services and a grey market in Internet telephony as well!

As a result of this, say many analysts, the size of the market cannot be known exactly. But most of them say that competition has not done much for the industry as a whole. Although they variously estimate that minutes of usages have been increasing at between 16 per cent and 20 per cent annually, the total revenues are decreasing by almost that much annually.

Claims of market share are a-plenty. The VoIP market says it has a share of between 10 per cent and 20 per cent of the Internet telephony market. Reliance Infocomm claims a market share of 20 per cent of all incoming calls (the ratio of incoming to outgoing calls in the Indian ILD market is roughly 3.5:1 currently) within a year of its launch. Data Access (India) has claimed a 20 per cent share of the International telephony market. Bharti has a share of between 10 per cent and 20 per cent, according to various estimates.

And no one quite knows how large the grey market is. But the gravity of the situation is underscored by the fact that VSNL, during the announcement of its annual results for 2003-2004, specificially said: "The year witnessed a voluminous growth in the traffic routed into the country through grey market channels."

This factor — apart from the decrease in settlement rates, drop in tariffs and increased competition — was also responsible for VSNL's 34 per cent decline in revenues from international telephony and related services during the year, said the company.

The continuing decline in revenues and profit from its international telephony business has more than halved VSNL's net profit for both the quarter as well as the year ended March 31, 2004. Net profit for the year as a whole declined 51.6 per cent, to Rs 377.7 crore, from Rs 780 crore the previous year. Its total income too decreased 29.9 per cent during the year, to Rs 3,371 crore from Rs 4,812.5 crore.

Grey and flourishing

You do not need rocket science to prove that illegal international long distance telephony (ILD) is happening, says S.K. Gupta, Managing Director, VSNL. One feature in proof of this, he says, is the growing number of international calls received in India, where the originating number shows as an Indian number on mobile handsets or on telephone instruments that have the caller identification facility.

"The calls from abroad are illegally landed in India from where they are routed to their destination within India," he says. Since the originating number shows an Indian number, the BSNL (or other operator's) switches are not able to identify them as an international call and pass them on as a domestic call.

The other indication is the number of Internet sites that offer, for example, sub-10-US-cents-per-minute rates from the US to India. Access Deficit Charges and termination costs in India (the amount paid to, say BSNL, for receiving the call) alone cost almost as much as US 10 cents, point out analysts. "Obviously, these are calls that are bypassing the legal route."

Many other ILD operators agree that the illegal grey market is increasing. The rogue operators take a few connections from MTNL or BSNL and transfer VoiP calls to these numbers that are then transferred to the destination Indian number. "Calls from these numbers can then pass off as domestic calls," says an official from a large Indian telecom conglomerate that also has ILD operations.

In fact, many telecom industry employees themselves admit that they have received international calls from what appear to be Indian national numbers. "I have a friend who calls in regularly from Chicago, but the originating number is always Indian on my mobile. I checked it, and it turned out to have a Muzaffarnagar code," says one of them.

Why it's happening

This rise in the grey market is due to the rise of awareness of technology among small STD or PCO operators even in small towns and villages, say telecom officials. "The problem is very severe," agrees Kalantri, of Anyuser Telecom. It is illegal for VoIP services to be connected to PSTN lines, but VoIP operators have no control over what is done with the minutes they sell. STD booths thus sell minutes at lower-than-official ILD rates but higher than the VoiP rates.

And, the more remote the town from where the broadband or VoIP calls are routed to PSTN lines, the better the chances of the grey operator escaping detection.

VSNL, with the help of BSNL and MTNL, has often sought the help of the Central Bureau of Investigation to bust grey market operations. In fact, very recently, this led to the arrest of a high-profile VoIP telephony entrepreneur who was charged with using leased lines to pass on voice calls. But as quickly as these operations are busted, they crop up somewhere else, says Gupta of VSNL.

Analysts say there is very little that can be done to contain this trend, considering the scattered location of these operations and their mobility. "The regulations have not kept abreast of the technology trends," says one analyst with a prominent brokerage. He says the complaints are also part of the `very-valid pressure tactics' on the part of ILD operators to persuade the Telecom Regulatory Authority of India to reduce termination and Access Deficit Charges so that the grey market's advantage is wiped out.

Hopes that Internet telephony will sweep away the grey market also seem wishful thinking only. ITSPs (Internet telephony service providers) themselves are complaining that there is a grey market in Internet telephony. ITSP marketing agents visiting cybercafes to market their services are in for a surprise when they learn that these cafes are offering Internet telephony at even lower rates — sometimes as low as Re 1 per minute.

The modus operandi is this: persons living abroad, usually Indians themselves buy Internet telephony cards or services from international Internet telephony providers. These are passed on to India either physically or through e-mail (by passing on passwords or ID numbers). All dealings are in cash. This too is most common in the smaller towns and cities.

The one deterrent to an explosion in Internet telephony usage is that bandwidth often lets the users down. The introduction of broadband services that is also on the verge of an explosion in the country (if analysts are to be believed) could take care of that. What will happen thereafter is anybody's guess.

Spreading the opportunity

That is why ILD players are spreading themselves across other services and spreading themselves geographically, across the globe as well. Reliance Infocomm set up points of presence in New York and Los Angeles at the very outset for its ILD services. VSNL is setting up offices in the US, and through that a subsidiary in the UK. A Singapore subsidiary was recently announced, and through it another in Hong Kong.

By owning the other end of the spectrum (collecting calls and sending them to India) these companies can hope to earn larger revenues, say analysts. The other plan on the operators' part is to get into value-added services such as Virtual Private Networking.

VSNL has even set up a special outfit, called `International Business Group' (IBG) which will be headquartered in Singapore. While Singapore will be the operational hub, IBG will address all the major markets through offices in the US, the UK and Hong Kong. The objective of this group will be to expand VSNL's `service capability and customer facing activity' in several strategic markets outside India.

VSNL has already managed to reduce its revenues from ILD and related services to 70 per cent of its total income (from 80 per cent a year ago). Many of the switched ILD players are into broadband as well, and they are hoping this will pay off as even VoiP ultimately has to depend on bandwidth availability.

Indian players have been very active in the international bandwidth space. Both Bharti and VSNL have announced participation in the latest of the SEA-ME-WE cable network. Bharti has its own i2i cable with Singtel, VSNL is putting up another one across the Bay of Bengal (the Tata Indicom submarine cable system) and Reliance, of course, has acquired FLAG Telecom with its international undersea cable network through whom it is putting up another network called Falcon.

Huge bandwidth, at the cost of thousands of crores of rupees, means that these players are getting into the commodity space where margins are low, says a telecom industry analyst. "For, if each of them gets into value-added services as well, then there too the margins will be squeezed on account of competition."

In all this, it is the customer who will get to benefit. "Hopefully increasing outsourcing from India, a large BPO (business process outsourcing) industry and more Indians abroad will mean better use of all these services eventually." When `eventually' means, that is something no one is willing to stick his neck out about.

kripram@thehindu.co.in

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