The Hindu Business Line : Can't beat `em? Join `em!

Public sector telecom companies Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd are both working on offering Internet telephony services to their broadband subscribers.

"If you cannot compete with them, join them," said R.S.P Sinha, Chairman and Managing Director of MTNL, speaking at a conference in Mumbai a few months ago. He was referring to the fact that many entities, both legally and illegally, are offering some form of Internet telephony in the country.

Several MTNL officials already have SIP phones installed on a pilot basis in their homes, say company sources. "Our Expression of Interest would be for a small order, maybe 4 lakh phones," said Sinha, speaking on the sidelines of the conference.

All about SIP

SIP is a popular Voice over IP (VoIP) standard that allows people to make phone calls to each other using the Internet, which carries the call. Generally SIP-to-SIP calls are practically free. (For SIP to SIP calls, both caller and receiver must have a SIP phone adapter/softphone).

And, if a PC-to-PSTN call is to be made, one would require to buy SIP minutes which, internationally, come as cheap as between 1 cents and 3 cents a minute.

Why would broadband customers want a SIP phone when they can do `voice chat' on their computers?

"A SIP hardware device would be much more acceptable and user friendly," says an MTNL official. If you have older people in the home who want to talk to their relatives overseas, sitting at the computer with a microphone and head phones is an uncomfortable activity for them. A SIP device would function, for all practical purposes, like a phone, he says. Calls that cost Rs 7 to Rs 14 a minute to overseas countries can now come as cheap as Rs 2 or Rs 3 a minute, he says. It would also be an added attraction for broadband subscribers.

Options available now

Currently the most commonly known kind of Internet telephony is the PC-to-PC kind using Skype or Yahoo Chat (Yahoo recently got permission from the Department of Telecommunications to offer Internet telephony services in India).

Then there are Internet telephony calling cards (offered by companies such asAnyuser India), which can be used to make calls from the PC to landline and mobile phones outside India. Here the calling card provider would have to pay the termination charge to the operator at the overseas receiving end and gets to pocket the difference himself (minus 6 per cent of revenues, a levy imposed in 2006 on entities providing Internet telephony).

Say on a Rs 2 call per minute, such an operator could end up pocketing Re 1 per minute as his margin from the business, says an analyst.

In fact, there are several `Internet telephony booths' in operation in the country where the operator buys such a card, buys an adaptor for as low a price as Rs 1,000 and, with the help of an Ethernet connection, gets a kind of normal phone output. This he converts into multiple lines and offers the public Internet telephony at very low charges.

`High-calling' entities such as large corporates, multinational outfits and BPOs do quite a lot of Internet telephony, especially for their internal needs, which account for over 70 per cent of their calling anyway. They use voice on their managed networks such as Virtual Private Networks. But for more high-end calling, they still use regular networks, says a senior official with a large international long distance services provider.

Threat of cannibalisation?

From a BSNL/MTNL perspective, analysts wonder whether it makes sense for them to provide Internet telephony.

"In a sense they are cannibalising their own business," says a senior official with a large telecom services provider. Currently, if BSNL or MTNL charges, say, Rs 7 per minute for a long distance call, and pays, say 50 paise per minute for termination (what the company pays the overseas operator for terminating the call) and say Rs 1.5 on other levies, it will get to pocket more than Rs 5 per minute. But, if it offers Internet telephony SIP phone calls at Rs 2 per minute, then, after paying the same termination rate and whatever other levies, its margin will be much less, as little as Re 1 per minute, says a telecom sector analyst. So, in a sense, they would be cannibalising their own margins by entering Internet telephony.

"Typically Internet telephony makes sense for those service providers such as YOU Telecom who are not traditional telecom companies," says an analyst.

`Room for all'

Officials at the PSUs, however, dismiss this. "We do not expect all the existing international long distance callers to move to Internet telephony, we expect a whole new lot of people who will now do more international telephony using broadband," says a senior official with MTNL.

"And the market will expand and give us better business."

As Internet telephony gets deployed for national long distance calling too, and as mobile players too start offering iInternet telephony services (they were recently allowed to, but none of them has started offering the service), what happens to those who are in traditional long distance telephony?

Margins are definitely being squeezed, though volumes are there, says a senior official with a company that has international long distance operations. "And, after all those companies offering Internet telephony will finally have to lease fibre from someone like us. So we do have business going, though it will be wholesale rather than retail, in a sense."

Reliance Communications' Flag telecom, Bharti Tele-ventures and VSNL sell bandwidth to Internet ISPs such as Sify, YouTelecom and Hathway, which provide Internet telephony services.

With the scenario being such, foreign players (such as British Telecom) who have got or are applying for ILDO licences in India will hardly be looking at providing wholesale voice, say analysts.

"They are looking at providing VPN and MPLS services for corporates, especially multinationals who are operating in India and want multi-site global connectivity," one of them says. "Anticipating this perhaps, a domestic company such as Videsh Sanchar Nigam Ltd has also got into this international corporate telecom services activity by expanding globally."

kripram@thehindu.co.in

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