NEW DELHI, India -- Until recently, ISPs in India were battling with policy makers for permission to offer Internet telephony. Now voice chatting on instant messenger, a free service, is hitting them where it hurts.
Internet telephony is one of the popular pastimes at Internet cafes despite poorer voice quality compared with regular telephone use. It's all the rage with youngsters, who talk mostly for fun. The service is also popular because it's much less expensive than the telephone.
It costs (U.S.) 10 cents per minute for international calling by telephony, while the comparable service offered by telephone costs 49 cents per minute. ISPs estimate that the industry will have earned $6 million from the service in its first year.
But while Internet telephony has a big advantage over the telephone, instant messaging has an even bigger advantage over Internet telephony because it's free. Yahoo India and MSN India's instant messengers each have voice chatting, and the more popular those applications become, the less revenue the ISPs take in.
When connecting to the Internet, a subscriber pays an ISP between 10 and 30 cents per hour, plus 10 cents per minute for Internet telephony. If the subscriber voice chats on an instant messenger, the ISP loses that revenue.
Faced with these huge losses, ISPs are trying to stifle the competition by making the case that voice chatting on instant messenger isn't legal.
The issue may hinge on whether instant messenging is considered Internet telephony. If so, MSN India and Yahoo India would be forced to cease offering the voice-chat option, to comply with current guidelines.
According to government policy, only ISPs can provide Internet telephony. The law states that Internet telephony is permitted only when it happens from one PC to another PC anywhere in the world, or from one PC to an overseas telephone outside India. (A third type of Internet telephony permitted under the law is a connection between an IP device incorporating SIP or H323 protocol with a similar device anywhere in the world.) PC-to-phone calls within India are not permitted since India recently opened its domestic long-distance telephony market for competition.
A senior government official, who was part of the policy-making team that recommended legalizing Internet telephony, insisted that MSN and Yahoo voice chatting is Internet telephony. However, the government has not yet taken an official position on the issue.
"Voice chatting on the messenger should be included in the definition of Internet telephony. Only licensed service providers can offer the service," said the official, speaking on condition of anonymity.
Part of the ISPs' claim centers on their legal responsibilities and liabilities. The Indian IT Act, framed two years ago, holds ISPs legally responsible for the content that passes through their networks. So, if the government declares that voice chat on the instant messenger is Internet telephony, unless Yahoo and MSN (and others) acquire ISP licenses, ISPs could face legal action for carrying illegal voice traffic.
From the consumer's perspective, there is little difference between voice chat on instant messenger and on Internet telephony.
Using a prepaid calling card for Internet telephony service, a subscriber can make a call anywhere in the world. Instead of a telephone instrument, the speaker and the microphone of the PC are used as communication devices. The caller can make a call either to another PC or to a phone outside India. Voice chatting has its limitation -– it is only a PC-to-PC application, using the microphone and speakers.
As the issue is raised, MSN India and Yahoo India are watching from the sidelines. While Yahoo's Deepak Chandnani would not comment, Shriram Adukoorie of MSN India said in an e-mail reply, "MSN messenger is a software that allows people to communicate through text messages from PC to PC. MSN does not offer Internet telephony services in India." He skirted a comment on the legality of voice chat on instant messenger.
MSN and Yahoo both have a huge presence on Indian computers. Estimates suggest that between 30 and 50 percent of all traffic originates or terminates at the two sites. Therefore, blocking MSN and Yahoo is not a practical solution, as it would hurt the subscriber base and, hence, revenues from Internet connectivity.
ISPs, wanting to cash in on the soaring Internet telephony revenues, are scrambling for bigger market share. Satyam Infoway (SIFY), India's largest ISP with over 650,000 subscribers, started the fight by blocking the Internet telephony services of all competitors. NOW India followed suit. Presently, all ISPs are discussing the possibility of sharing revenue with each other.
ISPs in India have invested over $1.1 billion over the last four years and have accumulated losses of over $400 million. During the second quarter of the current year, the Internet subscriber base fell by over 15 percent, from 3.9 million in March 2002 to 3.3 million in June 2002.
