Ind-Ra: DoT Recommendations Aimed at Protecting Service Providers

The Department of Telecommunications' (DoT) committee's recommendation of regulating only the domestic calls of voice over internet protocol (VoIP) service providers is aimed at protecting voice revenues of telecom service providers (TSPs), says India Ratings and Research (Ind-Ra). The committee has recommended placing the over-the-top (OTT) messaging services as well as the international VoIP calls outside the regulatory purview.

Ind-Ra believes that pricing arbitrage, with charges of 6 paisa per minute against 25 paisa per minute for conventional voice calls, provides VoIP calls an advantage in the domestic calls market. This also explains the potential threat posed by VoIP calls to the TSPs' voice revenue by shifting subscribers away from conventional voice calls.

India has been witnessing a fast expanding broadband market which is still underpenetrated with overall broadband subscribers at 10% of the total telecom subscribers. Ind-Ra expects a higher acceptance of data due to the availability of cheaper smartphones and the roll-out of higher technology such as 4G. This would increase the data volumes consumed by subscribers leading to an increase in data average revenue per user (ARPU) for TSPs. However, Ind-Ra believes that a shift to VoIP in the domestic market will deplete the voice revenue stream of TSPs thus impacting their credit profile till the time data revenues gain threshold.

The technological shift has already eaten into the SMS and the international long distance calls markets. The SMS ARPUs had declined to INR3.7 in December 2014 from INR7.4 in September 2010, while international long distance minutes per user fell to 0.3 minutes in December 2014 from around one minute in September 2009. Therefore, VoIP poses a credible threat to the TSPs' domestic voice market at this juncture.

Ind-Ra believes that OTT communication services players such as Whatsapp, WeChat, and Hike shall have to tweak their business models by differentiating between the messaging and VoIP product offerings. Due to increased regulatory charges for the VoIP services, the OTT players will have to roll out separate plans chargeable to the subscribers for offering such services. As OTT players have already eaten into a substantial share of the messaging business therefore Ind-Ra believes that DoT recommendations can secure call revenues by providing a competitive playing field to the TSPs in the voice market.

Powered by Capital Market - Live News