New Delhi: Much hype and six months later, the sector holds promise but will not make money overnight. Yet it is a service which has brought in good yields to ITSPs (Internet Telephony Service Providers) and has the potential to bring in more. While most ITSPs make around 20 percent of their revenue from Internet telephony services, Gujarat-based IceNet makes much more with estimated revenues at 50 percent from this service. Service providers predict that they have to exercise patience and not expect magical returns. Meanwhile, ITSPs have realized the pitfalls in the business, revised their projections and taken corrective measures.

Speaking to a cross section of service providers, several myths about the expected trends in the Internet telephony industry stand shattered. The first relate to the adoption rate amongst corporate, which has not made any significant inroads. When the service was launched service providers expected businesses to adopt to the new technology in a big way. Even Small and Medium Businesses (SMBs) have rejected the services after experiencing the poor voice quality. Said Chirag Mehta, CEO of IceNet, "As it is businessmen have problems understanding the English spoken by foreigners and to top it poor voice quality makes business conversation almost impossible."

Besides, one must also keep in mind the steep downward revision of International Long Distance (ILD) tariffs which still makes PSTN remain attractive for businesses. But ITSPs have launched strategies to woo the business segment by offering the service based on superior technology. For instance, both HCL Infinet and IceNet now offer H.323 voice media gateways which enables near toll-quality voice.

"Although it would entail a little additional investment, we expect corporate to buy this service as it would drastically reduce voice communication costs," said S Murali, CFO, HCL Infinet.

ITSPs have found the home segment form a steady customer base. These are people which Mehta terms as "compulsive users" who have close relatives abroad and have to talk irrespective of the quality of voice at affordable rates everyday.

Although a customer having an ISD connection has no bearing on Internet Telephony usage, yet it is an indication of the need to communicate overseas frequently. Third, the industry had expected the policy guideline restricting calls within the country to PCs only to be major hurdle in the take off of services. But it was the cumbersome end-user terminals like headphones and sound boxes that deterred users. IceNet now vends locally developed headphones, which can be fitted into the telephone to enable users to speak into the existing phones without the extra headgear.

Lack of PC penetration also restricted growth. Said Murali, "The services have not taken off because we have mostly followed a device driven strategy. There is a need felt for alternate devices like the Yap Jack to make the services pervasive. "Yap Jack is a modem-like device fitted to the phone enabling users to make voice calls through the Internet", he said.

Related issues like half-duplex sound cards, which allow only one-sided conversations as against full duplex, sound cards allowing two-way conversation proved to be of further undoing for the sector. "Upgrading existing sound cards would involve extra expenditure of Rs 3,500 which users looking at affordable communication were reluctant to spend," said Mehta.

Fourth, ITSPs thought that cheap net telephony would stem the tide of the grey market. But the grey market grew unabated commanding as much as 70 percent of the Internet Telephony market. Grey cards of US companies like Net2Phone, Dial Pad and Media Ring enables calls to the US for as little as Re 1-Rs 2 per minute as against an average of Rs 6 per minute offered by ITSPs. And the market has lapped up the cheap offerings so much so that revenues from the grey telephony market are expected to reach Rs 200 crore of the total market size of Rs 250 crore. While most of these smuggled grey cards are bought online, some of these operators have also appointed resellers in the country.

ITSPs are up in arms against this menace and have reacted by blocking access to Internet telephony sites other than their own. The move has hurt the business interests of smaller ITSPs like Net4 India and Caltiger who have been aggressively vending their services. The contention of bigger players like Sify, Data Access, HCL Infinet has been that customers utilize the ISPs bandwidth in accessing the Internet and hence should only use their ITSP offering.

In case the ITSP happens to be somebody else, then there should be revenue share between the two service providers as the customer accesses through the ISP's infrastructure. Internet Service Provider Association (ISPAI) has been trying to broker peace between the warring ITSPs who have now agreed to a revenue sharing formula. For this, Call Detail Record is necessary which only an international service provider like Net2 Phone can provide. The Association is currently in talks with Net2 Phone, by far the biggest player, to work out an arrangement on this front.

Said Amitabh Singhal, Secretary ISPAI, "The Association has worked towards the development of the sector by initiating the setting up of a bandwidth exchange and by enabling an environment for sharing revenue."