The dispute between small ISPs and Centre reflects the weakness of the Internet economy
Imagine
a network of private highways that are reserved only for Fords to zip
through, devoid of any other brands. Think of the prices Ford could
charge. Think of what would happen to innovation when building the best
car mattered less than cutting a deal with the highway’s owners.
These
were the words of Tim Wu, a Columbia law school professor, who warned
members of a U.S. House judiciary committee that this could be the fate
of the Internet. That world might not be too far off. Last month, the
government decided to levy on stand-alone Internet service providers
(ISPs) a licence fee of 4 per cent of their adjusted gross revenue
(AGR). This is a huge jump from earlier notional licence fee of Re 1
only.
For
bigger players who provide telecom and Internet-telephony services,
such as Airtel or BSNL, the fee will be 7 per cent - a one percentage
point hike from the earlier 6 per cent.
With
this order, the government has unwittingly become the de-facto
controller of the private highway, allowing big telecom companies to
rule the roost on the roads, pushing smaller and mid-sized ISP’s into
the ground.
Independent
and local ISP’s operate on thin margins, and cannot absorb the cost of
such a levy. The result will be an increase in prices for their small,
lower to middle-class, customer base.
The
emerging dispute between small ISPs and the government underscores the
core weakness of the Internet economy. In order for millions of Indian
citizens to reach the multitude of online services that compete for
their attention, they must first get past the bottleneck that is not
competitive at all: broadband access.
The
decision to levy such a fee is driven by the government’s intent to
address alleged underreporting of revenue by the large companies that
derive most of their revenues from telecom services. Telecom licences
attract larger revenue shares of up to 10 per cent. The government has
found some of these companies reporting their telecom revenues under the
Internet to pay a lower fee.
“Instead
of taking action against the big players for their wrong-doings and
failing to audit them properly, they are penalizing the smaller ISPs.
This is a disaster. An increase of four per cent of the annual licence
fee would cascade and lead to an effective fee of 21-28 per cent as
smaller ISPs would be taxed multiple times, as we purchase bandwidth
from the telcos,” said said Rajesh Charia, president of the Internet
Service Providers Association of India (ISPAI).
THIN MARGINS
For
most independent ISPs, small margins are inevitable in an era of
dropping broadband prices due to competition even as last-mile costs
such as setting up infrastructure have remained more or less unchanged
over the years.
“For
instance, if I wanted to give a 2 mb line to a company which is 10 km
away from my point of presence, ten years ago, we would charge around
Rs. 37 lakhs with the last-mile costs being Rs 1 lakh.
The
same job now, we would only be able to charge Rs 1 lakh for it, with
last-mile costs being Rs 50,000,” said Manoj Aggarwal, CEO, Karuturi
Networks, a Bangalore-based ISP with annual revenue of Rs.7 crore.
“Our
earnings before interest, taxes, depreciation and amortization (EBITDA)
margins, which were once around 33 per cent, have already dropped to
less than 10 per cent. If this fee comes into place, this business
cannot stay viable. We are too small to be able to absorb this, many
small ISPs will have to wind up as customers will choose bigger
companies instead,” said Mr. Aggarwal
Today,
most Indians have a choice of at most three broadband providers – BSNL,
Airtel and MTNL – which control over 80 per cent of the subscriber
base.
For
slightly bigger stand-alone ISPs, such as Tikona or Sify which boast
revenues of over Rs.100 crore, all that remains is a waiting game to
decide whether to pass on the cost to the consumer, or try to absorb
some of it.
“At
a time when this industry requires encouragement, this fee seems rather
puzzling. Either way, once the big players such as BSNL decide on how
much to decide to absorb and how much to increase prices by, we will be
forced to follow suit. As they control the majority of the landscape –
we can only mimic their actions in the coming days,” said Prakash
Bajpai, CEO and Managing Director, Tikona Digital Private Networks Ltd.
While
the ISPAI is intent on approaching the Telecom Disputes Settlement and
Appellate Tribunal (TDSAT) to challenge this new fee, officials at the
Department of Telecommunication (DoT) maintain that the decision was an
inclusive process.
“It
(decision to hike the fee) has been done on the basis of the Minister
and the TRAI which has had a round-table conference with all the
stake-holders concerned,” said Mr. Nitin Jain, Deputy Director General,
Data Service, DoT, while refusing to comment further.
EQUAL OPPORTUNITIES
The
debate, however, has brought into light other policies which are highly
skewed in favour of bigger players. Voice-data services are
out-of-bounds for small to mid-sized ISP’s, as it usually requires a
licence fee, which they cannot afford.
“By
April 13 2013, this fee will be equal for all ISPs – a grand 8 per
cent. If the government wishes to treat all ISPs equally, why aren’t we
allowed to compete and offer Virtual Private Networks or Internet
Protocol-TV?
Currently
I would have to pay a licence fee anywhere between to Rs. 5 crore and
10 crore just to start offering these services,” said EVS Chakravarty,
CEO, YOU broadband Ltd.
Back in the 1960’s in the U.S, Bell Telephones forced users to connect to their networks with only its devices.
When
the courts forced Bell to give up this monopoly, it unleashed a wave of
innovation that brought about the device that allowed most of the world
to explore the Internet: the modem. Such innovations in the Indian
broadband space require an open playing field, something the government
should strive for.
Source : thehindu.com dtd 09/07/2012
