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September 3, 1997


The Web's ringing!

VSNL will lose $54 million to Internet telephony by 2001

A study by a London-based telecom consultancy has projected that the Videsh Sanchar Nigam Limited, India's monopoly international telephony provider, stands to lose $54 million by 2001 as an increasing chunk of voice traffic gets carried on the Internet. Unless, of course, the government legislates against Net telephony.

VSNL, which is also India's only Internet access provider, has until now blocked out sites on the Net which offer voice telephony services.

But with the advent of private Internet service providers in the country and technological advances, voice telephony on the Net promises to chip off VSNL's future earnings. Authored by Jahangir Raina of Phillips Trafica Limited, the study - The Net Effect: The Impact of the Internet on World Telecommunications Markets - is causing ripples in the telecom circles the world over and has opened a debate on the emergence of Net telephony as a rival to traditional modes of international traffic.

International telephone calls on the Net - although the quality of voice is poor - cost between a tenth and a fifth of normal international calls. Aided by sophisticated voice decoders and high-speed modems, the quality of calls on the Net is expected to improve and is predicted to give birth to an entirely new industry.

The impact of growing voice traffic on the Net is likely to be more pronounced on revenues of international carriers AT&T, Deutsche Telecom and British Telecom. The US major will, it is projected lose $350 million. The damage to Deutsche Telecom is put at $173 million and for Telecom Italia it is estimated at $161 million. British Telecom will lose $105 million, the study predicts.

The projections for VSNL were worked out in June, a month after Phillips Trafica released its study on the impact of the Net on international telephony revenues of the US and European operators. Author Raina has said that the "threat is real".

The threat, he explains, lies in the fact that "as long as you are on the Internet, you are charged at the local call rate. But at the same time you have this Internet telephone facility that enables you to place a call anywhere in the world at local call rates". Internet services are mostly charged at local call rates, a practice which is under pressure because the Net traffic is clogging international circuits.

Not surprisingly, countries with state-owned phone economies like Portugal, Hungary and the Czech Republic have already banned Net telephony. Others like Italy and Switzerland may follow soon, according to The Asian Wall Street Journal.

Further, the European Commission has said that it may allow member-countries to block voice over the Net; a major blow to the nascent Net telephony industry, given that two thirds of the world's overseas phone calls are between North America and Europe.

"What bugs the telecom companies in Europe is whether the gains in local calls market (due to increase in Net traffic) can compensate the losses in international calls market. It is strategically important for telephone companies to maintain a presence in the Internet market. Following the release of our study, At&T offered Internet telephony service and Deutsche Telecom also started the same service," says Raina. Similarly, Raina hopes that VSNL will rise to the occasion before it is too late."

In the immediate future, opportunity lies in offering Internet telephony, but in the long run as Internet integrates telephony, broadcasting and information technology, it will substitute the traditional telephone networks.

- Compiled from the Indian media

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