ISPs may have to pay Rs 30 lakh entry fee for VPNs

The Telecom Regulatory Authority of India (Trai) today recommended an entry fee of Rs 30 lakh and no annual licence fee for Internet Service Providers (ISPs) offering Virtual Private Network (VPN) services.

The licence fee is applicable only to ISPs offering 'Layer-2 VPN service', which does not require access to the Internet.

Trai's recommendations are a complete turnaround from those proposed by the Department of Telecommunications (DoT), which had allowed provision of VPN services by ISPs for an annual licence fee of 8 per cent of the adjusted gross revenue generated under the same, a one-time entry fee of Rs 10 crore, and Rs 1 crore for categories A B and C respectively.

Prior to this, ISPs were permitted to offer all services including VPN for a licence fee of Rs 1. They had challenged DoT's proposal in the Telecom Dispute Settlement Appellate Tribunal (TDSAT), which in turn had directed the regulator to fix the quantum of entry fee and revenue share.

Welcoming the recommendations, Internet Service Providers of India, the association representing all ISPs, said the regulator was 'fair and reasonable' in its approach towards the issue.

Justifying the move to impose only a nominal licence fee, Trai officials said, "only a few big ISPs had opted for the amended licence to provide VPN services resulting in a threat to open competition for the segment".

"This fee should be nominal to keep the entry barrier at its minimum so that technological development is encouraged for the benefit of customers. The issue of level playing field with National Long Distance Operators (NLDOs) is not found to be pertinent as the VPN service provided by ISPs is different in nature and in no way substitutable for the end-to-end guaranteed connectivity provided by leased lines," Trai said.

The regulator also recognised that 'Layer-3 VPN services' were an integral part of internet access and must not have an entry fee "in the interest of encouraging the development of a modern and efficient internet infrastructure in the country".

On revenue share, the regulator shared the view that an annual fee on VPN revenues would result in double taxation, as 60-70 per cent of the costs comprised leased line charges, for which licence fee in the form of revenue share was being paid by the NLDOs. Nil licence fees would also keep the end user tariff to a minimum, the regulator added.