Licence fee for ISPs may be cut

The government may be forced to reduce the licence fee for Internet service providers (ISPs) offering Internet Protocol Virtual Private Network (IP-VPN) services before it can bring in a new regime for national long distance (NLD) operators in the country.

Under the new policy for NLD operators, it is proposed that the revenue share licence fee be slashed to 6 per cent from the present 15 per cent.

This will imply that the revenue share licence fee of 8 per cent, fixed by the Department of Telecommunications (DoT) for IP-VPN services, will also have to be slashed drastically for it to remain viable. ISPs obtain both leased last miles and long distance resources from NLDOs for providing VPN services.

In a note to the Telecom Commission on the new policy for NLDOs, DoT member (Finance) AK Sawhney said the government must address the issue of the ISPs first, and recommended that the licence fee of 8 per cent for IP-VPN services "must be rationalised to avoid administrative complications".

"VPN services directly compete with the leased line services offered by the NLDOs. As this service accounts for 60-70 per cent of the total revenue for ISPs, the revenue share licence fee for the latter must be lower than that for the NLDOs for it to be viable," explained a senior executive from a leading ISP.

"Some NLDOs also provide VPN services. Rather than breaking up the cartel in long-distance operations, the new regime will consolidate their position as all ISPs will be forced out," the executive added. DoT had allowed the provision of VPN services by ISPs with annual licence fee at 8 per cent of the adjusted gross revenue. But, Trai recommended in August 2005 that no annual licence fee be charged for the service.