Consolidation among ISPs?

The new policy for Internet service providers, put out by the department of telecommunications, is unlikely to make any impact on the poor level of Internet penetration in India when that should be the primary goal of any such policy. ISPs are upset on several grounds, chiefly because the department wants to abolish the third category of licensees who operate at district level. An existing C category operator will be able to graduate to the state (or B) category by paying Rs 10 lakh and executing bank guarantees, which is rather a large outflow for these firms. In a country where cable TV has written a new chapter in local, small-budget service and large players remain uninterested in smaller markets, the district-level ISP had the capability to take the Internet to places where it is still missing. The new policy could have helped them if it allowed them to do improve their cash flow and viability, say by offering the freedom to offer Internet telephony. What the new policy has done, instead, is to put a critical restriction on the ISPs' ability to do this by barring the termination of such calls on ordinary land lines and cellular phones. Telecom service providers themselves are not interested in promoting Internet telephony as that will cannibalise their current revenue. Hence Internet telephony, a proven low-cost technology, remains fatherless. ISPs see the same problem with being allowed to offer IPTV services. They can, but they will need a net worth of Rs 100 crore, when less than a handful of ISPs can show.

For its part, the department has tried to recognise the logic and inevitability of convergence. Hence it has sought to remove the differences in the regulatory regimes for different categories of service providers by, for example, bringing ISPs under the same revenue-sharing arrangement as telecom service providers, without subjecting the core business of ISPs, Internet services, to revenue-sharing. It is also argued that if ISPs had it in them to take the Internet revolution to every corner of India, they would have done so by now. They have not been able to do this because providing an acceptable level of service on a large scale across wide areas (without which the network equipment costs do not come down) is a game for big players. So if the new policy leads to consolidation among ISPs, it is argued that that will be movement in the right direction.

Internet penetration in India remains low because PCs are still too costly for most, last-mile connectivity is a problem and electric power in most parts of the country is non-existent for the better part of the day. ISPs cannot help in any of these areas and so cannot do much to improve internet penetration. That will happen as technology progresses and brings down costs. For example, the $100 personal computer is technologically ready and is awaiting a large public programme to make its roll-out feasible. Again, as hand-sets get more feature-rich and their costs keep coming down, many will be able to access the net to meet their basic data requirements through mobile telephony. The department's one-point programme should be to aid convergence and remove restrictions on who can do what. It would have secured full marks if it had not restricted the ISPs' ability to offer Internet telephony.