Smart Cafe: Telcos and OTTs battle for the pipes

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Updated: April 17, 2015 1:30:28 AM

As the debate over net neutrality in India gets hotter with the advancing summer...

As the debate over net neutrality in India gets hotter with the advancing summer, the big question is whether telecom service providers could choke connectivity to some websites/apps so as to promote others. While the debate is global, India is still in the early days of high-speed mobile broadband access. The ecosystem in India is still evolving. Although the government has given a push to the Digital India initiative, there is still a lot of static in the air.

The Indian market is quite different from other evolved telecom markets. One, Indian operators have much lesser spectrum than their global counterparts because of the sheer number of operators (8-10) as opposed to a global norm of 3-4. Two, India is split into 22 circles and bandwidth availability for operators is widely different across circles. Most big countries offer spectrum nationwide at one go. Three, even where spectrum is available, a large chunk of it is fragmented and not contiguous, defeating the purpose of faster connectivity. As over-the-top content (OTT) applications proliferate, the issue relates to whether they end up choking a network. So, what can operators do to ensure a balance between their services and what is riding on their network?

How much bandwidth does an OTT voice call consume as opposed to conventional calling?

There are currently two ways that calls travel on a network. The conventional call as we know it operates on the circuit switch network of telecom operators. Then there are calls enabled by applications such as Skype and Viber that carry voice over the internet, aka Voice over Internet Protocol (VoIP). A routine circuit switch call requires a bit rate of 8-14 kbps, while a comparable quality VoIP call requires 30-50 kbps. Skype claims its voice call needs a minimum of 30 kbps with a recommended 100 kbps. While making a call, it ranges from 24-128 kbps. Basically, an OTT uses greater bit rate to provide a similar call experience for the user.

What is the pricing arbitrage between conventional and VoIP calls?

VoIP calls are priced much lower than conventional calls. According to the Trai consultation paper on OTT, telecom service providers earn 50 paise for one minute of conventional voice calling. For VoIP, the data revenue is 4 paise. On average, the revenue earned by operators is 25 paise per MB of data. A one-hour video call on Skype consumes 24 MB, amounting to a bill of R6 to the consumer.

With IP calls being 7 to 10 times cheaper than conventional calling, it offers a huge pricing arbitrage. So, even if the quality of service is highly debatable, it will be difficult to stem the flow of people to IP calling in a price-sensitive market such as India. This is despite the country offering among the lowest calling rates anywhere.

The low rate will attract educated youth and young office goers who have access to technology, while rural India which is still getting connected ends up paying much more for conventional calling. That is simply because they are not aware of the available technologies. The impact of this is that there is a surge in IP calling from the major cities. That ends up choking the networks of telecom service providers who are losing out after paying big time for spectrum and then in terms of capital expenditure to keep the networks running.

Why is this an issue for telcos when they are getting revenues from data?

Agreed, data revenues for telecom operators will increase. But, with spectrum being limited, the surge in IP traffic ends up choking the network. That will affect the quality of calls and accessing the network. That will end up impacting the user experience for anyone accessing any service/application on the internet. So whether you are an OTT or a corporate using video conferencing, there will be a decline in quality. The quality issue is all the more pronounced in India because of the limited spectrum availability, which also happens to be fragmented.

How will this impact telecom operators?

If the pricing arbitrage continues, it will free up or empty GSM networks on which most of the circuit switched calls are now running. Most GSM spectrum is fragmented in small discrete blocks and cannot be used for deploying 3G and 4G networks in order to commensurate for the increase in congestion due to flight of circuit switched traffic into VoIP. So we will end up with a situation where operators have small chunks of GSM spectrum which they cannot use for services.

Could the government have sorted it out?

Much of this problem relates to the way spectrum has been auctioned. By looking at only raising resources in the immediate term, successive governments have had limited spectrum auctions. This year itself, the Department of Telecommunications (DoT) could have auctioned the 15 MHz of the 2100 MHz band spectrum that it got from defence services. That would have tempered pricing and ensured operators have enough contiguous spectrum.

Second, the 2G spectrum that operators have is fragmented. As a result, it cannot be at a later stage be used to provide 3G services. Then, the auction design this time around was faulty. By looking to make the most out of the golden goose, the government has put the industry on a one-way track to trouble.

What is the way out?

Operators would need to charge VoIP calls at the same rate to prevent network congestion to their scarce 3G networks and better usage of their GSM spectrum. That, however, can happen only if the leading operators agree to do it together. But it could lead to under-cutting by smaller operators who are looking to grab more market share.

Anup Jayaram

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