The Hindu Business Line : A lot at stake

Rajesh Charria is a small time entrepreneur running an Internet services company in Ghaziabad, Uttar Pradesh, under the brand name CJ Online. He has been in business for eight years and now has just over 200 dial-up Internet users and 25 leased line subscribers.

Like Charria there are at least 100 small ISPs across the country who have set up shop in small districts and mofussil towns offering Internet connectivity to consumers who have probably never heard of anything beyond BSNL until now. For instance, an ISP by the name Mickey Online offers Internet services to nearly 1,000 users in Moradabad.

Another company, North East Online, only has about 100 odd users in Guwahati.

Though these numbers are insignificant compared to what large players such as Sify and VSNL have, these small district-level ISPs have been operating in some of the class C cities where no other private operators have dared to venture as yet.

However, due to recent recommendations by the Telecom Regulatory Authority of India (TRAI), these ISPs are waging a battle for survival. The recommendations, which form the basis for a policy being considered by the Government, supposedly to improve Internet growth in the country, propose to completely do away with district-level Internet operators (technically known as category C licence). TRAI has suggested that all district-level Internet operators either be asked to migrate to a State-level or a national-level player by paying a fee or be prepared to shut shop at the end of the duration of the existing licence period.

‘death knell’

ISPs say the recommendations sound the death knell for small operators offering services in districts. “The Industry has been disappointed by the recommendations. We feel this will result in possible slowing down of the spread of the Internet, over-regulation of the Industry and consequent higher prices of Internet bandwidth to the end consumer. It will also result in making business unviable for smaller players servicing niche segments, specially in rural areas, forcing them to get out of business,” says an agitated Charria, who is leading the smaller ISPs’ battle against the recommendations as the President of the Internet Service Providers Association of India (ISPAI).

A look at the TRAI proposals indicates that the concerns of smaller ISPs are not entirely misplaced. The recommendations suggest that all existing district-level ISPs will have to migrate to a State- level or national-level operator by coughing up an entry fee between Rs 20 lakh and Rs 10 lakh, an annual licence fee of 6 per cent of their revenues and a financial bank guarantee of between Rs 10 lakh and Rs 25,000. Compared to this, small ISPs at present pay only a token amount of Re 1 to the Government. Most district-level ISPs do not make revenues of more than Rs 1 crore on an average and the additional financial burden would make them financially unviable.

“We feel this is a retrograde step and goes against the stated aim of the Government to provide free or affordable Internet to the public at large. The financial burden will make bandwidth expensive by 10 to 20 per cent. This will be passed on to the consumer as provision of Internet Bandwidth is at very low margins. Making a business case in rural areas by smaller operators will become even more difficult which is so essential for faster spread of the Internet,” says Col R.S. Perhar of Tulip IT Services, which despite being a national-level player and not impacted by the TRAI recommendations, has joined the cause of smaller ISPs.

Agrees Amitabh Singhal, founder member of ISPAI, former CEO of the National Internet Exchange of India and now Director of Telxess Consulting. “These recommendations are anti-national. At a time when the Government has set an objective to reach Internet and broadband services to rural India, the regulator has proposed measures that sound the death knell for small ISPs which are actually the ones reaching out to the unconnected and understand the local needs.”

Regulator’s case

TRAI officials, however, defend the proposals on the ground that it aims at encouraging smaller ISPs to grow bigger and in turn enable them to contribute seriously to the growth of Internet services. “The recommendations have to be seen wholistically instead of picking up one or two proposals. Our objective is to create an environment that will weed out non-serious players and at the same time offer huge opportunities to those ISPs who want to grow,” says a TRAI official. Officials also refute claims of a hike in bandwidth costs, saying that most of the large ISPs, which provide majority of the bandwidth capacity, are already paying a licence fee and other charges and therefore there will not be any impact on such operators.

Depressing scene

To be fair to TRAI, the state of India’s Internet sector is quite depressing. Despite the opening up of the Internet services sector in 1998 with highly liberalised licensing regime, there are only about 8 million subscribers today. While more than 700 companies applied for an ISP licence initially, only 320 odd are left in the fray of which only 140 ISPs are active. More than 98 per cent of the subscribers are owned by the top 20 ISPs, which means that most of the operating Internet operators have less than 500 subscribers on an average. Compared to this, countries such as China and the US have more than 100 million Internet users. The US alone has more than 5,000 active ISPs.

While TRAI claims that the proposed policy recommendations will take the Internet segment to the next level of growth, ISPs feel that the proposals do not address the real issues. “On the one hand, TRAI has imposed additional financial burden on operators but on the other it has not opened up services that could have generated additional revenues for the ISPs. While ISPs in other countries offer a whole host of services, in India ISPs are reduced to providing plain vanilla Internet services,” says Singhal.

ISPs are peeved at the fact that TRAI has kept out services such as Internet Television (IPTV) and Virtual Private Network (VPN) services beyond the purview of their licence. TRAI has also not allowed the ISPs to offer unrestricted Internet Telephony, which could have offset some of the additional financial burden. “If an ISP gets out of business due to market conditions then we can all accept it but what would one do if the regulatory mechanism forces small operators to shut shop,” poses Charria.

‘Misdirected’

Analysts also feel the TRAI recommendations are misdirected.

“I don’t see any perceptible linkage between the various proposals made by TRAI and the growth of Internet services in the country. I think the recommendations are a step backwards. For instance the suggestion to lower the FDI cap to 74 per cent from the existing 100 per cent FDI guidelines sends the wrong signals to investors as a number of companies would have made their plans based on 100 per cent ownerhip,” says Arpita Pal Agrawal, Associate Director, InfoComm Advisory Services, PricewaterhouseCoopers.

TRAI officials, on the other hand, insist that the concerns raised by the ISPs are not justifiable.

“We also had to take into consideration issues relating to level playing field. Operators in other segments, such as mobile, fixed line and long distance, are all paying licence fee, entry fee and other charges and they are contributing to the national objectives by creating infrastructure. Some of them are investing billions of dollars. So how can we allow ISPs who do not pay any fee nor have any significant infrastructure of their own to provide services such as IPTV and Internet telephony with connection to the access network? Wouldn’t that be unfair to the other operators?” say TRAI officials.

Meanwhile, with whatever little resources they have, Charria and his team are pulling out all stops to convince TRAI to review its proposals.

Even as they face a bleak future ahead, the ISPs are also exploring legal recourse in case the Government decides to implement the TRAI recommendations in toto. For Charria and the other small ISP owners, this fight could just be their last.

tkt@thehindu.co.in

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A lot at stake