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Dspite the Ministry of Finance's eservations on the DoT's initiative to relax the licence fees for long distance telephony and its possible implications with regard to revenue loss to the national exchequer, DoT's efforts in this direction are paying off.

Since January 2006, when DoT slashed the entry fees paid by companies to a uniform Rs 25 million from an earlier Rs 1 billion for NLD services and Rs 250 million for ILD services, as many as 18 operators have shown interest in entering this segment.

DoT also simultaneously reduced the revenue share from 15 per cent to 6 per cent, which, according to the finance ministry, was a decision taken without any attempt to estimate the effects of decreased licence fees on tariffs and consequently, on traffic. However, given the response of operators keen to enter the long distance telephony sector, the Ministry of Finance has asked DoT to "proceed with the proposal as the reduction has already been announced". However, for the future it has asked DoT to take a more holistic view on licence fee, entry fee, spectrum charges, etc., and evolve a transparent and stable regime in consultation with the finance ministry, which has the "ultimate responsibility of revenues of the government".

Telecom operators have, of course, welcomed DoT's initiative. Among the interested operators, 13 –­ including Hutchison Essar, HCL Infinet, HECL, Tulip IT, Power Grid, RailTel and MTNL –­ have opted for NLD services. Four companies –­ Sify Communication, Dishnet Wireless, Spice Communication and i2i –­ have opted for ILD services. And companies like Tulip IT Services, which has a wireless data network across 350 cities, have applied for both NLD and ILD permits.

This is a far cry from the present situation in which only four integrated carriers are offering both domestic and international long distance services. They are state-run Bharat Sanchar Nigam Limited (BSNL, which is yet to start ILD services), Reliance Infocomm, Bharti Airtel, and the Tata Group's VSNL and Tata Teleservices Limited (TTSL).

This was precisely DoT's rationale for relaxing the entry barriers. First, it would trigger more competition in the sector and boost growth in the long distance segment, which has lagged behind mobile services. Second, it would lead to better services and lower tariffs. India enjoys one of the lowest local call rates, but tariffs for overseas and domestic long distance calls are too high to offset the lower margins in local calls.

Also, according to research and advisory company Gartner, limited competition in the sector has kept bandwidth tariffs very high, thereby increasing capital costs for operators. In countries like the US, there are more than 20 long distance operators, which has stabilised tariffs at an optimum level. Therefore, industry analysts expect a reduction of at least 30 per cent in NLD tariffs and 25 per cent in ILD rates with the entry of the new companies.

At the moment, DoT has 18 letters of intent. However, given India's rapidly growing telecom market where the share of voice alone is estimated to be 20 billion minutes, the government expects more players to come in.

Surprisingly though, despite the easing of barriers and the opportunities presented by the Indian telecom sector, international interest has been relatively low. Analysts attribute this primarily to the lack of clarity in FDI norms and the centre's policy of restraining remote access of networks for multinational companies.

So far, among the key international companies that have come forward is British Telecom, which is planning a new joint venture for the purpose. One of the largest operators in Europe, the company is planning to invest close to Rs 80 million to launch both NLD and ILD services in the country. Then there is the Indian mobile telephony unit of Hong Kong's Hutchison Whampoa, which has asked for an NLD licence to enable it to broaden its services. However, both these companies are awaiting government approval for their proposal as they have run into political issues relating to FDI and security concerns respectively.

On the domestic front, however, the interest is keen. Several ISPs like i2i and Net4 are looking at this as an opportunity to broaden their area of operation and offset the high fees imposed by DoT on offering virtual private network services. They have also been taking a beating from large integrated players in other internet services such as dial-up access and broadband. In this context, a long distance licence would place them on a level footing.

Says Jasjit Sawhney, CEO of Net4: "We are considering getting into ILD operations as it would mean an additional line of business for the company. We already have the core infrastructure for internet telephony and the access business such as network, billing systems and customer support, and we can leverage on this.

Then there are utility companies like GailTel, Power Grid and RailTel, which are planning to acquire licences as a logical extension of their business, since they already have a huge network of optic fibre cable across the country. As infrastructure provider (IP) licence holders, these companies have been leasing out capacity to the existing NLD players.

For state-run BSNL and Mahanagar Telephone Nigam Limited (MTNL) too, getting into long distance telephony makes business sense as they are integrated telecom players with an extensive network across the country. MTNL, which has a network for providing landline and mobile services in only two cities, Mumbai and Delhi, is keen to stake a claim in the long distance telephony sector.

However, what will really change the face of ILD telephony is the imminent presence of BSNL. The company is targeting to start its own ILD operations by June 2006 and global operations via undersea cable by late 2006. It has decided to partner with eight carriers, including global majors France Telecom, Telekom Italia, SingTel, FLAG Telecom and MCI for carrying its ILD traffic.

BSNL, which has had an ILD licence since 2003, has already started routing calls to Nepal via its network that extends to the Indo-Nepal border. Bangladesh will be added to the list shortly. This will come as a major blow to the Tata-controlled VSNL as at present, almost 30 to 40 per cent of the Rs 42 billion worth of ILD traffic generated by BSNL's 60 million telephone users is routed through VSNL's ILD network. With BSNL starting its own ILD operations it will certainly mean a huge loss of business for VSNL, which has for long been the main ILD telephony provider in the country.

In sum, the beeline to enter the long distance telephony sector is good news for consumers as they can look forward to better quality of service and a substantial drop in tariffs, similar to what is happening in the mobile sector. While STD tariffs are already on their way down following the "One India" tariff plans launched by most operators, ILD tariffs are still on the higher side. That, hopefully, will change soon.

As we go to press, the competition in the long distance sector has warmed up further. In a recent development, MTNL said it was planning to take away its Rs 9 billion NLD business from BSNL. It recently invited bids from other interested players carrying long distance traffic, the tender for which will be floated soon. This is expected to be a major setback for BSNL. However, both BSNL and MTNL are under pressure from the government to resolve the issue, and, according to a senior DoT official, in all probability, BSNL will be in a position to match the long distance carriage rates offered by private operators.